Record Number of Industrial Leases Set To Expire in Canada in 2024

Nearly 33 Million Square Feet of Leased Industrial Space Expiring This Year

A record number of industrial leases totaling nearly 33 million square feet are set to expire in Canada this year. While most of the leases will likely be renewed, the wall of lease maturities could result in tenants seeking lower rates or renewing for a reduced amount of space in the short term, especially given the context of lacklustre economic growth coupled with a recent record amount of new space that delivered in 2022 and 2023.

This year’s tally of nearly 33 million square feet of expiring industrial leases is well above the annual average of 26.2 million square feet that expired – or is set to expire – between 2020 and 2025. This means that roughly 25% more space is set to expire than average.

A lower number of lease expirations in 2025 and a much-smaller supply pipeline should support higher industrial leasing rates next year.

In most cases, the market would be able to digest this amount given strong structural demand drivers, such as e-commerce-related demand. However, while CoStar expects most of this space to be renewed, current conditions may create a challenging lease environment for landlords and tenants alike.

Canadian markets are still recovering from the record amount of new industrial space added in 2022 and 2023. Most of this new supply consisted of speculatively developed, large-bay facilities designed to support distribution and logistics-related needs for very large occupiers. Demand, while strong, has not been able to keep up with the pace of new supply in recent quarters, and the national availability rate for industrial space has increased across the board, most notably for logistics space, which has a national availability rate of 6.7%.

Demand for industrial space peaked in late 2021 and early 2022, right before the recent interest rate hike cycle got underway. Since then, trailing 12-month net absorption for industrial space has been falling, in line with the country’s decelerating economy, with demand for industrial space at 2021 levels.

For these reasons, the record amount of industrial leases expiring this year suggests that industrial market conditions are likely to tilt somewhat more favourably for tenants – a first in recent years.

As more leases expire, some are likely not to be renewed – or to be renewed for a smaller footprint as companies seek to reduce overhead costs in a slow economy. This, in turn, is likely to lead to a continued uptick in vacancy and availability rates, trends already underway since net absorption started to slow in mid-2022.

However, conditions next year should offer some respite. The supply pipeline is set to add less new industrial space than in the recent past. At the same time, fewer leases are set to expire. These factors should support industrial space markets in 2025, even if the economy were to continue to grow at its current anemic clip.

Source: Costar 2024. Click here for the full story.