Industrial space at all-time low in Waterloo Region

‘Unprecedented situation’ means several Canadian markets have effectively run out of available room

WATERLOO REGION — Commercial real estate firm CBRE says Waterloo Region continues to have the lowest industrial availability rate on the continent.

Its latest quarterly statistics report puts the region’s rate at 0.7 per cent, a record low and the lowest in North America, CBRE says. That’s down from 0.9 per cent in the second quarter, and 1.8 per cent in the first quarter.

High demand from logistics and e-commerce clients paired with low availability is driving average net rental rates to new records, with a 19.5 per cent year-over-year increase to $7.29 per square foot.

But that’s still a bargain compared to the Greater Toronto Area, where average rents stand at $11.63 per square foot — one of the reasons demand in Waterloo Region is so high.

Nationally, industrial availability stood at two per cent, a record low, down from the previous record of 2.3 per cent set in the second quarter.

Markets including Waterloo Region, Toronto, London and Vancouver have effectively run out of available industrial space.

“Development remains the only real solution to increasing rents and a lack of industrial space, but longer construction timelines, rising costs and a lack of developable land make the situation extremely challenging for those looking to locate near our largest cities,” CBRE Canada vice-chair Paul Morassutti said in a release.

Morassutti said most of the space under construction in Canada is already pre-leased and will only increase existing inventory by 1.8 per cent.

“It’s an unprecedented situation,” he said. “We’re running out of ways to describe just how tight Canada’s industrial markets are.”

In Waterloo Region, the report says there are 689,000 square feet of industrial space under construction and expected to be completed by the end of the year. But 64 per cent of it is already pre-leased, setting the stage for bidding wars and higher rates for the remaining third.

A further 1.7 million square feet is forecast to be built next year.

On the office front, the overall vacancy rate in the region ticked higher to 13.5 per cent, up from 11.2 per cent in the second quarter.

The downtown vacancy rate rose to 22.2 per cent, with the Kitchener core rate climbing to 32 per cent; CBRE says that’s largely due to new office space that has been completed over the past year.

Sublet space represents 15.3 per cent of total vacant office space, down 2.5 per cent from the previous quarter. Most of that vacant sublet space is in the region’s suburban areas.

“Despite the uncertainties, office tenants have largely stopped returning space to the market and we anticipate positive growth to resume as early as next quarter,” Morassutti said.