Bullboard - Stock Discussion Forum Dream Industrial Real Estate Investment Trust T.DIR.UN

Alternate Symbol(s): DREUF

Dream Industrial Real Estate Investment Trust is a Canada-based open-ended real estate investment trust. The Company owns, manages and operates a portfolio of 322 assets totaling approximately 70.6 million square feet of gross leasable area in key markets across Canada, Europe and the United States. The Company owns and operates a diversified portfolio of distribution, urban logistics and light... see more

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Dream Industrial Real Estate Investment Trust > More TD Notes

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Post by retiredcf on Jul 05, 2023 9:37am

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Q2/23 Industrial Rent Growth Moderates, but is Poised to Rebound

Event

CBRE's Q2/23 industrial market statistics (exhibit).

Impact: NEUTRAL

Canadian industrial property market fundamentals remained strong in Q2/23, while exhibiting continued deceleration of growth. With LTM new supply growth reaching ~2%, combined with slower absorption, the national availability rate ticked +20bps q/q to 2.1% (+60bps from recent lows). Canada's vacancy still remains well below its 4.8% 15-year historical average and among the lowest globally.

Market rent growth remained positive at +2% q/q or +8% annualized (+19% y/y), but represented the fourth consecutive quarter of deceleration (peak pace was ~10% q/q in Q2/22 and ~37% y/y in Q3/22). Slowing rent growth is no surprise to us, given last year's arguably unsustainable pace and today's macro uncertainty/ headwinds. Industrial properties in most Canadian markets continue to boast very large mark-to-market rental upside.

Looking at q/q vacancy regionally, the largest increases occurred in Halifax (+130bps to 2.6%), Vancouver (+50bps to 2.4%), and Calgary (+50bps to 3.8%). Availability remains below 2.0% in each of Toronto, Montreal, Waterloo Region, and London.
Every market in Canada (except Edmonton) posted y/y rent increases in Q2/23. Particularly strong growth occurred in Montreal (+28% vs. +44% last quarter), Waterloo (+28% vs. +30%), and Toronto (+21% vs. 31%).
Q2/23 net absorption of 3.4mm compared with 8.8mmsf of new supply. That said, the pace of new supply appears to be peaking, and we are hearing of construction delays and postponements that indicate a likely slowing of new supply heading into 2024. Rising construction costs should help drive continued rent growth, in our view.
The pipeline of new supply under construction (currently 44.4mmsf, representing 2.6% of existing inventory) has been range-bound since Q1/22 and appears to have peaked. This dynamic leads us to believe that rent growth could re- accelerate at the same time as the pace of space absorption.

Despite the +17% weighted-average YTD price return for GRT.un, DIR.un, and PRV.un, we see today's valuations for Industrial-focused REITs (weighted average 85% P/NAV and 16.2x FTM P/AFFO) as very attractive. Market statistics and REIT operating results continue to demonstrate strong pricing power, low capex, and higher operating margins.