Q4 2024

Canadian industrial market report

Avison Young’s quarterly industrial report. We pledge to deliver comprehensive market insights to navigate in this period of limited transaction activity and uncertain market conditions.

National industrial market trends

01

Bank of Canada rate cuts fuelled year-end activity

The two, 50-basis-point (bps) cuts in the key interest rate in Q4 2024 stimulated year-end investment activity, which had slowed in the first half of the year. Cap rates stabilized in Q4 2024, and were expected to continue this trend as the Bank of Canada (BoC) announced another rate cut on January 29th. Favorable financing conditions stimulated  transactions for investors and owner-occupiers alike. Cumulative rent increases of 81% since 2018 have encouraged many Canadian occupiers to own their premises. The flexibility of renting is counterbalanced by the owner-occupier's ability to better control long-term occupancy costs. However,  the new U.S. administration’s first days in office have created a great deal of uncertainty, and investment could pause even if the BoC cuts rates further, which is expected to be announced on March 12

02

New developments cooling off across the country

2024 recorded a positive industrial absorption of 2.6 million square feet (msf), which remains a far cry from the record levels seen in 2021 (46 msf) and 2022 (32 msf). Projects completed over the last two years added 78 msf of inventory, raising the vacancy rate from 2.4% in 2023 to 3.6% in 2024. Consequently, developers have slowed the pace of construction by 40% in 2024. There are currently 20 msf under construction across Canada, 38% of which are pre-leased, leaving 12.5 msf available. These new spaces add to the 76 msf already vacant. Current slowdown in new construction will help rebalance the market, and in the meantime, landlords are offering more concessions to seal deals. Rent reductions are more common, particularly in older buildings, but owners of newly-delivered projects cannot afford to let lease rates fall below economic rent levels. Regardless of product type or concessions, uncertainty over the impact of tariffs on the industrial market is already affecting demand.

03

U.S. / Canada trade tensions clouding positive outlook

After two years of elevated demand, resulting in strong construction activity, the Canadian industrial real estate market went through a period of correction in 2024, resulting in an increase in vacancy and a downward adjustment in rents and unit values. As the policy rate dropped by a total of 175-bps throughout the year and industrial demand remained positive, there was every reason to believe that market conditions would further stabilize in 2025, giving momentum to the leasing and investment markets. The threat of tariffs between Canada and the U.S., has since clouded this outlook. In the short term, many companies are waiting to see whether the crisis resolves before moving ahead with their projects and revise their business plans accordingly. If the tariff war drags on, the repercussions will impact the industrial market first, before spilling over into other property categories.

  • Principal, Director Market Intelligence, Canada
  • Research, Market Intelligence

  • Research Manager, Toronto Suburban Markets
  • Research, Market Intelligence