Canadian industrial market update – Q1 2025

National industrial availability rate fell to 5.9% in the first quarter of 2025

The Canadian industrial sector navigated a period of adjustment in 2024, mainly stemming from the significant influx of new supply delivered in the second half of 2023. This surge in inventory created a temporary oversupply that continued to influence conditions into early 2025, contributing to a moderation in overall market conditions.

Adding to this shift was the prevailing economic uncertainty, particularly the impact of rising trade tensions with the United States, which dampened investor confidence and potentially delayed some capital deployment. Despite these challenges, Canada’s national industrial availability rate decreased by 30 basis points from the previous quarter to 5.9%. This improvement was supported by a return to positive national absorption starting in the fourth quarter of 2024 and into the first quarter of 2025, indicating a gradual rebalancing of supply and demand as the pace of new construction adjusted to a new demand outlook.

Reinforcing this trend, the amount of sublet space available has also been steadily declining, now representing 13.6% of the total available space, as limited new deliveries prompted tenants to reassess and often retain their existing footprints. This suggests a nuanced market where the impact of the oversupply is not uniform, with a clear bifurcation emerging based on the maturity and location of industrial assets.

Adding to the cautious economic outlook, Statistics Canada reported in January 2025 that retail sales experienced a decrease of 0.6% to $69.4 billion. This decline, affecting three of the nine subsectors, was primarily driven by significant drops in motor vehicles and parts dealers (-2.6%), followed by food and beverage retailers (-2.5%) and sporting goods and miscellaneous retailers (-2.2%). This contraction in retail activity could further influence demand within the industrial sector, particularly for warehousing and distribution spaces catering to consumer goods.

Canada industrial property availability

Across the major Canadian industrial markets, Ottawa demonstrated the tightest conditions, recording the lowest availability rate at a low of 4.3%. This figure underscores ongoing demand and the limited supply of industrial supply within the nation’s capital. Hot on its heels were the consistently competitive markets of Toronto and Vancouver, registering availability rates of 4.6% and 6.0%, respectively (Figure 1). These figures highlighted the enduring demand pressures within Canada’s two largest metropolitan areas. In contrast, Halifax experienced the most significant shift in market dynamics year-over-year. The Atlantic port city saw its availability rate climb by a substantial 560 basis points year-over-year. This notable increase can be attributed to a combination of factors, including softened demand for industrial space and the introduction of a considerable amount of industrial space becoming available in the market, thereby easing previous supply constraints.

Figure 1: Industrial availability (Q1 2024 vs. Q4 2024 vs. Q1 2025)

Canada industrial property completion and availability

The first quarter of 2025 saw the completion of 17 new industrial buildings across Canada, adding a near total of 3.8 million square feet to the national inventory. Of this newly constructed space, 45.5% remains available for lease as pre-leasing activity has pulled back. Toronto emerged as the most significant contributor to this new supply, adding five industrial buildings totalling nearly 1.5 million square feet, with 34.1% of the space available for lease. Vancouver and Edmonton followed closely behind, welcoming five and two industrial buildings, totalling roughly 508,000 and 396,000 square feet, respectively.

Figure 2: Industrial completions and availability

Canada industrial property under construction and availability

As of the first quarter of 2025, 110 projects were under construction nationwide, totalling 17.2 million square feet. A significant 73% of this upcoming space remains available for lease as demand has continued to wane. Toronto remained the most active market for ongoing development, accounting for the majority of construction activity.

Figure 3: Industrial under construction and availability

Conclusion

Looking back at the close of 2024, the Altus Group’s Q4 2024 Canadian CRE Industry Conditions and Sentiment Survey painted a picture of cautious optimism amongst investors. Growth prospects for the coming year were anticipated, buoyed by stabilizing interest rates and robust long-term fundamentals. However, this positive sentiment was abruptly challenged in early 2025. On February 1st, 2025, U.S. President Donald Trump signed an executive order imposing a significant 25% tariff on all imports from Canada, with the exception of oil and energy. This action injected a considerable degree of uncertainty into the Canadian commercial real estate market. Investors, now facing the prospect of significant disruptions to the deeply intertwined Canada-U.S. trade network, may adopt a temporary “pens-down” approach as they strategically assess the potential ramifications of committing to new investments during this volatile period. The long-term effects of this policy shift remain to be seen, but the immediate consequence is a palpable hesitation within the investment community.

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