The past year saw a welcome round of interest rate cuts, the first since 2020, with the Bank of Canada\u2019s policy rate falling five times since April to end the year at 3.25%, 175 basis points below where it stood a year ago. A corner had been turned, setting the stage for a return of investor confidence.<\/p>\n
And the resurgence could have industrial strength, says Cory Wright, managing director, BC, with William Wright Commercial in Vancouver.<\/p>\n
\u201cWhen the economy shifts in our direction with regards to interest rates and such, that\u2019s when buyers will come back to the table,\u201d he said. \u201cThe mom-and-pop owners can\u2019t afford to buy it at seven per cent interest rates at $700 a square foot.\u201d<\/p>\n
And without buyers, developers weren\u2019t building \u2013 not just industrial, but residential and other investor-oriented product. That kept supplies in check, which is set to fuel a run-up in prices as interest rates fall.<\/p>\n
\u201cThe existing inventory will get absorbed at a faster pace than we\u2019ve seen over the past two years,\u201d Wright said. \u201cWhen the existing inventory gets absorbed, we won\u2019t have enough inventory coming in to fill the ongoing demand we anticipate will happen. It\u2019s going to apply to industrial more than anything.\u201d<\/p>\n
Small-bay units with loading at grade, such as those at 5108 North Fraser Way, Burnaby, will be absorbed first as the mom-and-pop owner-occupiers return to the market after three years. The development is across the street from Amazon\u2019s logistics facility in the Big Bend area, the kind of development that has carried industrial through the past two years.<\/p>\n
\u201cSome of the biggest warehouse deals done in the past couple of years have been done by companies like Amazon, which is backfilling so much of the larger-scale stuff,\u201d Wright said.<\/p>\n
But as the economy improves, the breadth of activity is increasing.<\/p>\n
\u201cThere\u2019s so many industries that can feed that industrial market right now heading into 2025,\u201d he said.<\/p>\n
Susan Thompson, associate director, research, with Colliers, is equally bullish on industrial, not just in Vancouver but across the West.<\/p>\n
\u201cIt won\u2019t take much for demand to trigger new construction,\u201d she said.<\/p>\n
Demand in Vancouver is driven by the port and a growing population, while Calgary is a distribution hub for Western Canada with a growing population and evolving energy sector supporting demand for industrial space.<\/p>\n
It\u2019s a similar story in markets farther east. High construction costs have kept the supply of space lagging demand in Regina while Winnipeg is capitalizing on its location at the middle of the continent to be a crossroads for goods from the four corners of North America.<\/p>\n
Conditions are such that Thompson considers industrial the sole category able to attract the level of pre-leasing banks require for project financing.<\/p>\n
This isn\u2019t the case for office, though the growing number of companies once again requiring workers to be in the office for a set number of hours per week could turn the tide in 2025.<\/p>\n
\u201cThey may actually have to start leasing space again,\u201d she says of tenants. \u201cThe ingredients are definitely lining up to indicate vacancy should come down, but any kind of market shock \u2013 and we\u2019re obviously facing conditions where there could be \u2013 could delay that recovery.\u201d<\/p>\n
The biggest risk facing markets right now is Donald Trump, whose tariff-rattling policies loom large over the outlook for the coming year. While the fundamentals of the real estate market have stabilized, Trump could trigger a shakeup.<\/p>\n
\u201cWe\u2019re in a very difficult environment to predict,\u201d she said. \u201cThere\u2019s this giant orange question mark hanging over everything right now.\u201d<\/p>\n
Trump\u2019s threat of a flat 25% tariff on imports from Canada, Mexico and China, announced Nov. 25, is undermining the gathering optimism in the market.<\/p>\n
\u201cWe\u2019ve already seen little bits of it \u2013 the day after Donald Trump was elected, TikTok was told it could no longer operate in Canada,\u201d she says.<\/p>\n
This led to the closing of offices in Toronto and Vancouver, returning space to the market. Now the industrial market is under pressure, as 75 of Canada\u2019s exports head to the US.<\/p>\n
\u201cThat in turn is going to put pressure on the Bank of Canada to maybe back off another rate cut,\u201d Thompson said, potentially limiting new investment and hiring. \u201cWe\u2019re worried about inflation, we\u2019re worried about the cost of borrowing, we\u2019re worrying about all the jobs and economy attached to this import-export market.\u201d<\/p>\n
Altus Group vice-president of data operations Raymond Wong isn\u2019t jumping to conclusions, taking a wait-and-see approach. He\u2019s pinned his hopes for the year ahead on lower interest rates.<\/p>\n
\u201cWe\u2019re betting on next year definitely better than this year based on interest rates alone,\u201d he said in the firm\u2019s outlook webinar in mid-November. \u201cActivities are going to pick up based on interest rates and other sort of factors in the marketplace and as well as a need to deploy capital into assets which have been sort of sidelined for the last 18 to 24 months.\u201d<\/p>\n
Yet if investor interest hinges on lower interest rates, some are holding off until further interest rate cuts.<\/p>\n
\u201cThe relative noise in the marketplace [is] causing some delay and some pause, and waiting for a little bit more stability hit into the market.\u201d<\/p>\n
Wong said 2024 has seen investment volumes trending higher than in 2023 through the third quarter, and not just because the change in the capital gains tax regime last June pulled some deals forward.<\/p>\n
While investors remain active, product remains scarce.<\/p>\n
\u201cThe challenge is actually finding the actual product,\u201d he said, noting that industrial, multi-family and food-anchored retail with value-add potential are favoured. \u201cTo find food-anchored retail strips is a bit of a challenge, as well as industrial and multi-rise.\u201d<\/p>\n
Altus Group\u2019s findings are paralleled by Deloitte\u2019s review of global real estate markets in 2025, which pegs industrial and manufacturing as the top asset category for 2025, followed by data centres and multi-family. Logistics and warehousing ranks fourth, followed by hotels.<\/p>\n
Yields are a key driver of investor interest. High interest rates pushed investors to secondary markets last year where high cap rates could compensate, but it has also put a focus on alternative investment types and value-add opportunities as existing assets can be had for less than replacement cost.<\/p>\n
\u201cReplacement costs are making it much more popular to invest in alternatives,\u201d Wong said. \u201cData centres, self-storage, student housing, senior housing and to a lesser [degree] the life sciences \u2026.. it\u2019s a chase for yields and further growth in the [returns].\u201d<\/p>\n
This should help draw in a lot of the dry powder currently on the sidelines, estimated at $500 billion in institutional money and $370 billion in private funds in North America.<\/p>\n
The normalization of office markets and stabilization in supply chains are combining to set the stage for renewed demand as tenants optimize their requirements, improving cash flows and making assets more appealing to investors.<\/p>\n
The office market is a case in point, where top-tier space is in demand and renewals are driving rents higher.<\/p>\n
\u201cDemand is at least close to the activity compared to a year ago,\u201d Wong said. \u201cThe focus is very little on way of expansions as well as renewals, and the numbers are starting to move up a little bit.\u201d<\/p>\n