Calgary industrial vacancy rates ticked up slightly in the first quarter (Q1) of 2023, to a still-tight 1.7 per cent, but lease rates are rising “significantly” according to a new report from commercial real estate agency JLL, as the city heads into what could be the second record year in a row.
The rate increase was linked to about 350,000 square feet of new industrial vacancy as just over 900,000 square feet of new inventory was added.
According to JLL, 77 per cent of the new space was leased on completion.
“The balance of the new vacancy comes from 10 pockets of space being freed up around the city. First-quarter absorption was just over 500,000 square feet to start the year,” the report noted.
This is a slowdown from recent quarters but does not account for the 1.1 million square feet of pre-leasing activity in future buildings.
As of the first quarter, there were 4.5 million square feet of new industrial under construction in Calgary, according to a Q1 snapshot report from Colliers, much of it being claimed by owner-occupiers.
One of the tightest sectors in Calgary is owner-user space, with potential buyers facing limited existing options, inflated construction costs, elevated interest rates, and extended timelines.
“Despite these factors, we are seeing occupiers pursuing that route,” Colliers noted.
“Overall tenant and purchaser demand has not shown signs of weakening. Activity in the marketplace remains high on almost all fronts, with multiple offers now common,” according to JLL.
Industrial lease rates in Calgary now average $11.92, Colliers reported, adding that “it is still comparatively much cheaper to occupy space in Calgary than in other major industrial markets across Canada.”
JLL noted that lease rates and sale prices have continued an upward trend. The exception to that might be for occupants in the 8,000- to 20,000-square-foot range, as there is not enough product being built for these tenants. Net lease rates in this size range have increased significantly in the past six months and are now consistently in the $13 to $14 per square foot range for new product.
As is being seen in Vancouver and Toronto, annual escalation in lease rates is now being backed into industrial lease agreements, JLL noted.
The outlook for this year is bullish, JLL added since both CN and CP railways are expanding intermodal capacity, which will boost demand for industrial warehouses.
A recent CN Rail statement described Calgary as “the primary centre for distribution in Western Canada.”
The under-construction pipeline is not expected to fully meet occupier demand for the next 12 months, with 22 per cent of that product already pre-leased and multiple additional deals underway on a pre-lease basis, Colliers and JLL analysts agree.
