Lethbridge, Alberta – Avison Young’s latest Lethbridge industrial market report anticipates a landlords’ market by the end of 2024, with strong continuing growth in lease rates. After last year saw a lag in new developments due to conservative market sentiment, the global commercial real estate advisor predicts low vacancy and continued demand will create a competitive local market for class A and class B+ industrial space.

Tenants should start planning for renewals early and anticipating higher rates. Lease rates for new builds are driven by inflated construction prices, and the cost for tenants to build-out their space is more than double pre-pandemic levels. Similarly, landlords will need to adjust their expectations and may need to offer leasing incentives when asking for higher lease rates in existing spaces.

“2024 is already looking very different from previous years,” said Josh Marti, Principal and Senior Associate in Avison Young’s Lethbridge office. “For example, we used to see large-format users at significantly lower rates; now we are not seeing any industrial leases at rates less than $9.50 per-square-foot.”

2022 was an unprecedented year for industrial real estate transactions, whereas 2023 found investors acting conservatively due to market uncertainty. Investment transactions in Lethbridge decreased in 2023 - however, the pent-up demand and likelihood of a Bank of Canada interest rate drop mid-2024 will likely prompt investors to re-enter the market.

“While investors have started to adjust their cap rate expectations in light of current market conditions, there is a bit of a disconnect from buyers who are still expecting the kind of cap rates we saw in 2022, -” said Doug Mereska, Managing Director in Avison Young’s Lethbridge office.

New industrial developments in Lethbridge in 2023 were most frequently driven by users looking to take advantage of favourable lending terms and purchase their own space. With land acquisition costs anticipated to rise in line with higher servicing costs, now is an ideal time to acquire land for new development. Avison Young anticipates increased interest in industrial land parcels in 2024 by both industrial owner-users and investors.

“For a smaller community of over 106,000 residents, Lethbridge supports some major industrial development,” said Vinko Smiljanec, Associate in Avison Young’s Lethbridge office. “Lethbridge is an attractive place for industrial businesses and national tenants.”

Despite the challenges of a changing economy, Lethbridge industrial real estate remains a strong asset class with continued demand and room for growth in 2024.

“There is a lot to be excited about in Lethbridge industrial real estate - There have been some long-anticipated projects in the community that will likely be ready to break ground before the end of 2024,” added Mereska.