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Rental rates in the Greater Toronto Area industrial market continue to rise despite growing availability, according to Avison Young.

On a quarterly basis, the region’s average industrial rental rates ticked up by 1% quarterly during Q2 2023 to reach $18.12 psf.

“Rates have risen by an average of 30% per year from 2018 to 2023, compared to a total of 4% between 2012 and 2017,” Avison Young said in its market report. “When leases are up for renewal, tenants are facing sticker shock, with rents in some cases doubling or tripling.”

The report added that the most attractive spaces in the region remain scarce as availability has hovered below 2% over the past five years.

“This has continued to place upward pressure on rents,” Avison Young said. “However, the pace of rental rate growth is expected to moderate further over the next several quarters.”

Investment in the Greater Toronto Area’s commercial real estate market amounted to $22.3 billion for the whole of 2022, down just 5% from 2021’s record-breaking volume, according to Avison Young’s latest analysis.

The GTA’s industrial availability rate was up to 1.9% during the second quarter, representing 17.1 million square feet.

“This is the highest rate since Q2 2020, when 1.9% was last recorded,” Avison Young said. “With tenants actively looking for space in advance of lease expiry due to tight market conditions, many landlords have responded by advertising large-block spaces well in advance of vacancy. This trend has influenced much of the rise in availability.”

While the entry of new supply into the market continues at a healthy clip, Avison Young is not expecting this to dramatically shift availability.

“Only 3.2 million sf of the 13 million sf of new supply delivered over the past year was available at the time of completion,” the report said. “With absorption averaging 2.6 million sf per quarter during the same period, the surplus space was quickly absorbed.”

Source: Canadian Mortgage Professional