The Canadian industrial real estate market is transitioning into a more balanced phase after several years of accelerated growth. Trends in Q1 2025 point to slower development, more selective land strategies, steady investment interest, particularly from private buyers, and signs of moderation in leasing fundamentals and rental rates. While regional disparities persist, overall activity suggests a market adjusting to new economic realities with a more cautious but still active outlook, according to an Avison Young report.<\/p>\n
Development Activity Slows, Reducing Oversupply Concerns<\/p>\n
Construction activity slowed significantly in Q1 2025, with 16.5 million square feet (msf) underway, down sharply from the peak of 44 msf in Q1 2023. The ratio of space under construction to total inventory has now returned to pre-2020 levels. This cooling pace is helping to prevent oversupply, giving the market time to absorb record completions from 2023. Developers are pulling back, focusing on projects with stronger pre-leasing or end-user commitments rather than speculative builds.<\/p>\n
Strategic Land Dispositions Reflect Market Reassessment<\/p>\n
The slower development pipeline and cooling demand have led many owners to reassess their land holdings. In particular, sites acquired speculatively in peripheral areas of major markets are being listed for sale, sometimes at values below those seen in 2022 and 2023.<\/p>\n
Investment Market Remains Resilient<\/p>\n
Industrial real estate continues to attract strong investment interest. In Q1 2025, the sector accounted for nearly 30% of total commercial real estate sales in Canada. Total sales volume across seven major markets reached $2.5 billion, a modest 6% decline from the $2.7 billion recorded in Q1 2024. Notably, two large portfolio transactions contributed $240 million, or 9.6%, to the quarter\u2019s total volume. While leasing fundamentals have softened, the sector remains one of the top three investment categories nationwide.<\/p>\n
Private Investors Lead as Financing Conditions Improve<\/p>\n
Private investors were the dominant buyers in Q1 2025, responsible for 75% of transaction volume, above the seven-year average of 53%. This surge reflects more favourable borrowing conditions following several Bank of Canada rate cuts since mid-2024. As of April 16, 2025, the policy rate stands at 2.75%. Lower rates have supported sales activity from both investors and end-users, including corporations, government agencies, and non-profits.<\/p>\n
The improvement in financing terms has helped offset some of the broader economic uncertainty, sustaining momentum in transactions even as leasing markets adjust.<\/p>\n
Cap Rates Slightly Compress, Unit Values Hold<\/p>\n
Capitalization rates showed slight movement in Q1 2025. New single-tenant assets had a cap rate of 5.88%, down from 5.95% in Q4 2024. New multi-tenant assets saw cap rates fall from 6.05% to 5.93%. Mature single-tenant assets rose slightly to 6.40%, while mature multi-tenant assets compressed from 6.45% to 6.32%.<\/p>\n
Average unit values remained relatively steady. Across six major markets, the average was $294 per square foot, indicating continued investor confidence in industrial fundamentals, even as rent growth slows and vacancies edge higher.<\/p>\n
Leasing Activity Eases and Vacancy Rates Rise<\/p>\n
Leasing momentum cooled in Q1 2025. Net absorption across the seven major markets was negative at -2.6 msf, a reversal from prior years. Approximately 5 msf of new space was completed in the quarter, with just 25% pre-leased. As a result, the national vacancy rate rose to 3.7%, up from 2.6% in Q1 2024. Pre-leased space under construction has also declined from 32% a year ago to 25%.<\/p>\n
Asking Rents Stabilize After Years of Growth<\/p>\n
After several years of steep increases, asking rents have levelled off. The national average asking net rent across the major markets was $16.33 per square foot at the end of Q1 2025. This represents a 2.5% decline from Q1 2024 but still reflects a 21% gain over the past three years and a 166% increase over the past five years. Asking rents have now remained flat for six consecutive quarters since peaking at $17.00 per square foot in Q3 2023.The improvement in financing terms has helped offset some of the broader economic uncertainty, sustaining momentum in transactions even as leasing markets adjust.<\/p>\n
Cap Rates Slightly Compress, Unit Values Hold<\/p>\n
Capitalization rates showed slight movement in Q1 2025. New single-tenant assets had a cap rate of 5.88%, down from 5.95% in Q4 2024. New multi-tenant assets saw cap rates fall from 6.05% to 5.93%. Mature single-tenant assets rose slightly to 6.40%, while mature multi-tenant assets compressed from 6.45% to 6.32%.<\/p>\n
Average unit values remained relatively steady. Across six major markets, the average was $294 per square foot, indicating continued investor confidence in industrial fundamentals, even as rent growth slows and vacancies edge higher.<\/p>\n
Leasing Activity Eases and Vacancy Rates Rise<\/p>\n
Leasing momentum cooled in Q1 2025. Net absorption across the seven major markets was negative at -2.6 msf, a reversal from prior years. Approximately 5 msf of new space was completed in the quarter, with just 25% pre-leased. As a result, the national vacancy rate rose to 3.7%, up from 2.6% in Q1 2024. Pre-leased space under construction has also declined from 32% a year ago to 25%.<\/p>\n
Asking Rents Stabilize After Years of Growth<\/p>\n
After several years of steep increases, asking rents have levelled off. The national average asking net rent across the major markets was $16.33 per square foot at the end of Q1 2025. This represents a 2.5% decline from Q1 2024 but still reflects a 21% gain over the past three years and a 166% increase over the past five years. Asking rents have now remained flat for six consecutive quarters since peaking at $17.00 per square foot in Q3 2023.<\/p>\n
Rental rates vary widely by region. Vancouver remains the most expensive market at $20.63 per square foot, while Edmonton sits at the lower end at $12.50. With rising vacancies and more normalized leasing conditions, average rents could dip slightly into the low $16 range in the coming quarters.<\/p>\n
Diverging Regional Trends<\/p>\n
Market performance continues to vary across Canada. Toronto, Vancouver, and Ottawa recorded positive net absorption in Q1 2025, while Montreal, Calgary, Edmonton, and Southwestern Ontario saw negative absorption. Vacancy rates increased in nearly all markets, although amounts varied.<\/p>\n
Rental trends also diverged. Calgary saw the highest year-over-year rent growth at 12.7%, followed by Ottawa at 7.2% and Southwestern Ontario at 6.3%. In contrast, rents declined in Montreal (-6.4%), Vancouver (-5.3%), and Toronto (-4.4%).<\/p>\n