Space-starved industrial tenants won't see much relief until 2023, brokerage firms say

Ford Canada building
Ford Canada will be the anchor tenant at a new 1.1-million-square-foot industrial hub that's now under construction in Casselman. File photo

Ottawa’s pipeline of new industrial real estate construction is growing as demand for space surges, but most of those projects won’t be completed soon enough to start easing the supply crunch until at least next year, according to a pair of new reports.

Several new industrial developments are under way in the National Capital Region to address a crippling shortage of available space, real estate firms CBRE and Colliers note in their latest market reports. 

CBRE says three new projects are on the go in Kanata at 1500 Upper Canada St., 1300 Upper Canada St. and 103 Schneider Road. Colliers, meanwhile, says there are currently six industrial buildings under construction across the region, covering a total of nearly 370,000 square feet. 

They include three projects expected to be completed in the first half of this year – Avenue 31’s 146,000-square-foot facility that’s part of its one-million-square-foot National Capital Business Park near the corner of Hunt Club Road and Hwy. 417; a 61,000-square-foot facility being developed by American Iron and Metal Co. on Sheffield Road; and the Muzzo Group’s 50,500-square-foot building at 1300 Upper Canada St. in Kanata.

That still leaves more than 100,000 square feet of space to be completed – but even the new buildings coming on line this year won’t help most tenants who are frantically seeking to expand or move into more modern facilities, Colliers adds.

Record-high rents

More than two-thirds of the space now under development has already been snapped up, the brokerage says, meaning “tenants’ current supply constraints when looking to relocate or expand their presence in Ottawa will not ease anytime soon.”

CBRE said tenants should start to reap the benefits of the mini-construction boom within the next 12 months.

“While the current development pipeline will provide limited relief in 2022, significant new completions are expected in 2023," the brokerage noted.

Colliers added that more long-term relief is on the way for Ottawa’s beleaguered tenants, with an additional 3.8 million square feet of industrial space in the development pipeline.

The spate of new industrial construction comes as Ottawa’s availability rates hover near all-time lows and rents have soared to record highs. 

Colliers says the region’s availability rate has plummeted by more than a full percentage point since last spring to just 1.2 per cent. Over the same period, asking net rents have soared 10.4 per cent to $12.48 per square foot.

Demand for industrial space has skyrocketed in the National Capital Region in recent years amid an online shopping boom that’s turned Ottawa into a thriving e-commerce distribution hub due to the city’s proximity to both Toronto and Montreal and easy access to major highways.

Louis Karam, the managing director of CBRE’s Ottawa office, said recently supply-chain bottlenecks caused by the pandemic are prompting businesses to shift from storing only as much merchandise in warehouses as necessary to meet immediate demand – the so-called “just-in-time” approach – to a strategy of carrying more inventory in case the flow of goods is interrupted.

CBRE forecasts that a five per cent increase in inventory levels could boost occupier demand for warehouse space in Canada by an additional 90 to 120 million square feet over the next few years – more than has been built in the entire country in the last five years combined.

"We’re seeing a lot of supply-chain disruptions, which we believe are going to lead to more demand on warehousing and storage spaces."

“We’re seeing a lot of supply-chain disruptions, which we believe are going to lead to more demand on warehousing and storage spaces,” Karam said.

Karam told OBJ on Thursday a lack of serviced land in Ottawa has prompted builders to look farther afield to places like Vars, Russell and Casselman to launch new industrial developments.

For example, Quebec-based firms Rosefellow and Bertone Development announced last summer they are teaming up to build a 1.1-million-square-foot industrial hub for Ford Canada in Casselman, about 55 kilometres southeast of Ottawa.

“These areas are quickly becoming crucial for new industrial supply, as readily zoned land within the region continues to be scarce,” Karam said in an email. 

Colliers noted that many tenants who previously negotiated long-term deals with rents in the $7-$8-per-square-foot range are now being asked to renew at rates of more than $12 per square foot “with minimal to no incentives” as the market continues to tighten up.

“Due to the limited availability in the market and the cost of relocation, many tenants opt to renew their existing space at the new higher rents,” the brokerage said.