Available industrial space in the National Capital Region held steady in the first quarter of 2025 despite a brewing trade war with the United States, but industry leaders warn there could be an uptick in vacancies if local manufacturers start to feel the impact of tariffs.
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Available industrial space in the National Capital Region held steady in the first quarter of 2025 despite a brewing trade war with the United States, but industry leaders warn there could be an uptick in vacancies if local manufacturers start to feel the impact of tariffs.
Figures from CBRE and Colliers show the Ottawa industrial market remained among the country’s tightest in the first three months of the year.
CBRE pegged the National Capital Region’s availability rate at three per cent, down from 3.1 per cent in the fourth quarter of 2024, while Colliers – which tracks more inventory – said Ottawa’s availability rate jumped to 3.3 per cent, up from 2.7 per cent in the previous quarter.
Meanwhile, rental rates continued to climb as small-bay industrial pockets in the 5,000- to 10,000-square-foot range remained scarce.
According to Colliers, average asking net rents rose to $16.90 a square foot in the first quarter, a 7.6 per cent increase from a year earlier.
Yet both Colliers and CBRE noted the market is cloaked in uncertainty as tenants in manufacturing, logistics and other sectors grapple with the potential implications of U.S. President Donald Trump’s tariffs.
While CBRE said Ottawa’s industrial availability rate was the lowest of any major Canadian market in the first quarter, one of the firm’s top local executives told OBJ this week landlords and tenants are keeping a wary eye on news out of the White House.
“I think a lot of industrial users in Ottawa and markets that we track like Cornwall have close relations with the U.S.,” Maxime Foucaud, the managing director of CBRE’s Ottawa office, said in an interview on Monday, two days before Trump announced his latest round of tariffs.
“Depending on what the tariffs are, when the tariffs are and how long the tariffs will be, that will have a larger impact on the industrial sector. The positive note is that it has been resilient, and just given our supply constraints here in Ottawa, we’re starting from a very good foundation. But there will undoubtedly be an impact here, which will have to be navigated.”
On Wednesday, Trump announced a 10 per cent baseline tariff on imports from most countries and higher duties on dozens of nations he said run trade surpluses with the U.S. Those higher tariffs include a 20 per cent levy on imports from the European Union, a 25 per cent tariff on South Korea and a 32 per cent levy on Taiwan.
The White House said Canada and Mexico remain under previous economywide duties the president has linked to the flow of fentanyl across the borders and are not subject to Trump's latest tariffs.
In early March, Trump imposed – and then partially paused – 25 per cent across-the-board tariffs on Canada and Mexico, with a lower 10 per cent levy on energy and potash.
A White House fact sheet issued Wednesday said goods imported under the Canada-U.S.-Mexico Agreement on trade, known as CUSMA, will still not face tariffs. Imports that fall outside the continental trade pact are hit with the 25 per cent tariff.
Nick Hannah, a broker with Ottawa-based Lennard Commercial Realty who represents tenants in industrial lease negotiations, agreed there is “a whole lot of uncertainty” among his clients as the trade war enters a new phase.
Matt Shackell, a fellow broker at Lennard, noted many tenants in the logistics sector are rethinking their space requirements and looking to cut costs as escalating tariffs threaten to stymie economic growth.
He pointed to a user who leased 74,000 square feet of warehouse space in Cornwall a year ago and recently put it up for sublease.
“The guy is already saying he doesn’t need that space,” Shackell said. “It’s challenging. You’ve got to find the right tenants that need that space and have demand. It’s hard for growth to happen when the overall economy is slowing down.”
Hannah said the tariff tiff could be a double-edged sword. If some smaller users are forced to give up space, it could provide much-needed relief for other tenants who’ve been struggling to find enough inventory to meet their needs, he explained.
“There’s no more (small-bay space) coming, so a slight correction in the industrial market actually would make our lives a little bit easier, if I’m being honest,” he said.
“Tenants who’ve been stuck in 5,000 square feet and want to go to eight or 10 (thousand square feet) and haven’t been able to … may discover some opportunities. At the same time, those tenants and buyers are more exposed to U.S. tariffs and any sort of downtick in the economy. They simply don't have the safety net that these larger groups do.”
Warren Wilkinson, senior managing director of Colliers’ Ottawa office, told a real estate gathering last month the local industrial market “could start seeing a slowdown or even a reduction in overall absorption” if tariffs persist.
On Tuesday, he told OBJ the first-quarter figures suggest there hasn’t been a “massive slowdown in activity” since the trade war began, adding there is still plenty of competition for good-quality real estate in well-located areas.
“I think the biggest thing for the industrial market continues to be the lack of supply,” Wilkinson said. “If we don’t start seeing new supply continue at the rate that we’ve seen it, I believe we’ll start seeing larger and more pronounced upward swings in rental rates.”
Less than half a million square feet of industrial space is currently under construction in Ottawa, and almost all of it consists of large-bay projects such as Avenue 31’s new building at its National Capital Business Park that is expected to be completed later this year near the corner of Highway 417 and Hunt Club Road.
Mounting construction costs and other expenses such as rising development charges mean building new small-bay properties simply doesn’t make economic sense for developers right now, Shackell explained, noting a few smaller projects had been shelved even before the trade war began.
As a result, he added, more and more local users such as HVAC firms, construction companies and other businesses are looking to buy industrial space rather than pay rent to someone else.
In Ottawa’s biggest industrial transaction of the first quarter, for example, water and sewer services provider Laurent Leblanc purchased a 10,750-square-foot industrial building in the city’s east end for $8.9 million.
“I’m finding now more than ever that groups that have been leasing here in Ottawa … they’re now wanting to buy assets,” Shackell said. “Net rents are so high that it makes a whole lot more sense for them to own. That’s never been a topic of discussion in my 10 years of being in this industry, but I think we’re going to start hearing a little bit more of it.”
Hannah said a growing number of business owners who can’t rely on pension plans to support them when they retire want to acquire real estate to build up equity.
“If I could have a 10,000-square-foot building and just photocopy it six times, I’d sell it six times out of six,” he said, adding that banks are “still very bullish on the industrial market. They might have a few extra steps of due diligence or it might take a little bit longer or a quarter-point cap rate adjustment, but there’s still no hesitation to lend on good-quality industrial assets.”
– With files from The Canadian Press
