Understanding the current state of the industrial construction market

The events from the last couple of years have changed and shaped trends. In order to better understand the current state of the industrial construction market, we spoke with Etienne Marcoux, Associate Vice President and Commercial Real Estate Broker at Colliers. 

Market Overview 

How would you describe the industrial market today ? 

“Today’s industrial market is booming ! The Greater Montreal real estate community has never seen a market with so little offerings for the amount of demand received. In addition, the price spike is significant and unpredictable, leading to new record sales and leasing transactions every quarter.”

How have the last few years affected it ? 

“The pandemic created significant acceleration in the industrial market. With stores having to close and online business became mandatory or nearly so, the huge demand for large industrial spaces, from users like Amazon, meant that most of the large spaces were filled before construction was even completed. 

The scale that e-commerce took forced many companies to store large amounts of inventory and therefore rent, purchase, build large spaces to accommodate the growing demand as their customers’ needs.”

What are your predictions for the next quarter ? 

“It’s hard to predict with certainty what’s going to happen, but for now with such scarcity of available space, we’re going to continue being in a hot market with the current market conditions. 

Also, with construction delays getting longer and longer, immediate user demand is difficult to be met as buildings can take 6-9 months or more to complete.”

Rent prices and fluctuation

How do you explain the increase in rental prices ?

“Rising construction costs have a big impact on net rents as investors and developers who build want a certain return on their investment, obviously ! The scarcity of space is another big factor in the increase in net rent prices that has led to the new industrial net rent standard of $11/sq. ft. up to even $13 or $14 for the current quarter, according to our predictions.”

How is this increase affecting the market in general ?

“Many tenants receiving large rent increases are questioning whether they will be able to pass the difference in their fixed costs to their customers, while other older tenants are considering selling their businesses and buildings to take advantage of the increase and quit sooner rather than later during this challenging period.”

What are your predictions for how rental prices will fluctuate in the coming years ? 

“Net rents will certainly continue to rise until the end of the year and then stabilize when we get closer to the net rents of the Vancouver and Toronto industrial markets. At this point, it is very difficult to predict as some landlords’ net asking rents are increasing each month. Also, a tenant’s ability to pay will play a big role in curbing the increases in the market.”

New construction 

Which areas show a dire need for new construction ?  

“On the North Shore, the South Shore, in Montreal and Laval. In short, just about every area has strong growth and demand right now. We are under the 0.6% mark for the vacancy rate in Greater Montreal.”

Do you believe that new construction will be sufficient to alleviate the availability problem ?

“No. With construction delays becoming substantially longer, short-term user demand is difficult to be met since buildings take 6 to 9 months or even longer to complete.”

What type of building is most in demand ?

“Buildings between 10,000 and 30,000 square feet and those 100,000 square feet and larger.”

Availability rates

Which areas are most affected by the unavailability of space ?

“Laval, the North and South Shores of Montreal, as well as the West Island of Montreal.”

In your opinion, what are some solutions to increaseleasing availabilities ? 

“Increase the pace of building construction and reduce delays in the delivery of construction materials. This way, the availability of space would certainly be improved.”

We hope this interview with Mr. Marcoux has enlightened you on the current state of the industrial construction market. 

Do you have a project in mind? Whether it’s a new construction, a refurbishment, an expansion or a renovation, choosing industrial construction is an important decision for companies. SPACIA is the right company for you! Contact us today !