Lethbridge industrial market report

Lethbridge industrial tenants should anticipate a shift to a landlords’ market by the end of 2024. The Lethbridge industrial market has since seen the vacancy rate increase by less than 1% from Q1 2023. At 4.08%, Lethbridge inventory is still extremely tight, especially considering that the majority of that space is either obsolete or large-format. Tenants in those large-format spaces who previously had the lowest lease rates in the local market can expect rates of more than $9.50 per-square-foot (psf) in 2024. With tight inventory and increased construction costs due to inflation, lease rates in new space will see the highest rate increases.

Although the inflation of construction materials will likely trend down in line with overall CPI, the higher costs of construction will continue to inform industrial rents in 2024. However, pent-up demand and the likelihood of a Bank of Canada interest rate drop may stimulate a sudden increase in new development. Investment transactions slowed significantly in 2023, but as market sentiment shifts, we may see
investment sales regain momentum as well. With land acquisition costs predicted to rise in the next phase of industrial land development, now is an ideal time for both investors and users to pursue new industrial projects.

 

Three key trends:

01 – Industrial base rent rates

Industrial base rent rates in Lethbridge will see continued growth, particularly in new builds and class A space. The average effective rent rate of deals signed in 2023-24 is significantly higher than historical lease rates and will likely continue to grow at a rate of 5% per year, outpacing inflation. Tenants looking to renew in 2024 should expect escalating rates starting at $9.50 psf.
 

02 – Industrial vacancy rate

The industrial vacancy rate in Lethbridge has only moderately increased since 2022, after that year saw its lowest historical vacancy in the Lethbridge market. While this uptick aligns with national trends, Lethbridge vacancy rates will likely tighten again in 2024 as continued demand catches up with the slowdown of new development in 2023.
 

03 – Absorption

In smaller markets such as Lethbridge, looking at the overall absorption provides insight into industrial building completions and notable leases in the market. Although sale and lease transactions have declined nationally, transactions in Lethbridge have only moderately slowed with the most notable downtrend being in investment sales. Owner-users have been leading industrial sales in our market and
will continue to do so in 2024. Industrial tenants looking to move into new or built-to-suit spaces need to act proactively as a large proportion of new developments in Lethbridge are pre-leased.