TSX:DIR.UN - Post by User
Post by
retiredcfon Jul 07, 2022 8:40am
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Post# 34807778
TD Notes
TD Notes Industrial Rent Growth Accelerates to Record Pace in Q2/22
Event
CBRE's Q2/22 industrial statistics (see the exhibit on page 2).
Impact: SLIGHTLY POSITIVE
Canadian industrial property market fundamentals remain exceptionally strong, with national vacancy remaining at a record low of 1.6% in Q2/22. Average market rents continued to climb higher, with y/y growth accelerating to +24% to $12.25/sf (+9% q/q) from +17% a quarter ago .
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Q2/22 market rent growth was particularly notable in Montreal (63% y/y and 18% q/q), Toronto (36% y/y, 11% q/q), and Vancouver (26% y/y, 9% q/q). Montreal's rent growth for the past four years now exceeds that of Toronto. With sub-1% vacancy rates, all these markets are past their inflection points, causing rents to spike. Assuming demand holds steady, we see no relief on the horizon.
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We also continue to see strengthening fundamentals in Calgary and Edmonton, which saw y/y rent increases of 15% and 5%, respectively.
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Demand continues to meaningfully exceed supply. The pipeline of new supply under construction increased 7% q/q to 43.9mmsf (of which 64.4% is pre-leased). We note that this represents just 2.3% of nationwide inventory. CBRE expects 60% of the pipeline to be delivered in H2/22, but having a limited impact on vacancy, given that 75% is pre-leased.
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Vacancy nationwide remains very tight at just 1.6%, with further tightening in Calgary, Edmonton, Winnipeg, Ottawa, and Halifax offset by marginal increases in Vancouver, London, and Montreal. Toronto was flat q/q at 0.8%. All markets other than Calgary and Edmonton now have vacancy rates of 2.0% or lower and rank among the tightest in all of North America.
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The third-party logistics sector remains active, while ecommerce-related distribution and warehousing/storage industries have slowed in H1/22.
Industrial property remains a preferred asset class of ours, especially in light of today's inflationary environment. Market statistics and REIT operating results continue to demonstrate that industrial properties have strong pricing power, low capex, and higher operating margins.
We believe the ~26% average YTD unit price decline of industrial REITs reflects concerns around rising interest rates and the potential impact of a recession. With P/ NAVs currently averaging 84%, we believe the downside risk has been priced- in.