Montreal industrial market report
Vacancy rates have stayed below 2% this quarter, moving slightly up since last year, as development levels have been steadily increasing throughout 2022. However, new supply is still not satisfying the strong demand for large and modern distribution facilities. Persistent scarcity of land available for development, rising acquisition prices and record high rental rates prevailing in centrally located industrial areas continue to drive industrial space users further from the island, in secondary and even tertiary markets.
The 300-bps hike in policy interest rate in Q2 and Q3 has put an end to five successive years of cap rate compressions for industrial assets. Investors proceed with added layers of caution in this rapidly evolving environment and sale activity has markedly slowed down.
While recession headwinds could slowdown manufacturing activity and online sales, resulting in reduced demand for space, the aftershock of hectic and persistent supply chain disruptions has forced logistics and transportation models to shift away from just-in-time. Warehouses filled-to-capacity will be the new normal for years to come.
Though demand for new age industrial inventory remains high, new risk factors have swayed investors and developers to be more diligent with regards to their expected yields and commencement of future projects. Industrial assets are nevertheless performing well, considering the income generated by record-high rental rates in a context of tight vacancy and limited new supply.
Average gross asking rent
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