Bullboard - Stock Discussion Forum Granite Real Estate Investment Trust T.GRT.UN

Alternate Symbol(s): GRP.U

Granite Real Estate Investment Trust (the Trust) is a Canada-based real estate investment trust. The Trust is engaged in the acquisition, development, ownership and management of logistics, warehouse and industrial properties in North America and Europe. The Trust owns 143 investment properties representing approximately 63.3 million square feet of leasable area. The Trust’s investment... see more

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Granite Real Estate Investment Trust > TD Notes 2

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Post by retiredcf on Oct 04, 2023 9:00am

TD Notes 2

Q3/23 Industrial Vacancy Rises, but Fundamentals Remain Strong

Event

CBRE's Q3/23 industrial market statistics (exhibit).

Impact: NEUTRAL

Canadian industrial property market fundamentals moderated slightly in Q3/23, as a combination of record new supply and slower absorption contributed to a +40bps q/q increase in the national availability rate to 2.5% (+100bps from recent lows). That said, Canada's vacancy still remains well below its 4.7% 15-year historical average and among the lowest globally.

Market rent growth was flat q/q and represented the fifth consecutive quarter of deceleration (peak pace was ~10% q/q in Q2/22 and ~37% y/y in Q3/22). On a y/y basis, rent growth remained positive at +11.8%, nearing a return to pre- pandemic levels (~9% average from 2017-2019). Given the strong and arguably unsustainable pace of growth in 2022, we are not surprised by this moderating rent growth. Industrial properties in most Canadian markets continue to boast very large mark-to-market rental upside (including particular strong rent growth over the past five years in Toronto/Montreal).

Looking at q/q vacancy regionally, the largest increases occurred in Waterloo (+80bps to 2.0%), Vancouver (+60bps to 3.0%), and Toronto/Montreal (+50bps to 1.9% and 2.3%, respectively). Availability remains at or below 2.0% in Toronto, Waterloo Region, and London.
Every market in Canada (except Edmonton) posted y/y rent increases in Q3/23. Particularly strong growth occurred in London (+17% vs. +19% last quarter), Waterloo (+16% vs. +28%), and Ottawa (+15% vs. +17%)
Q3/23 net absorption of 3.1mm compared with 11.0mmsf of new supply. That said, the pace of new supply appears to be peaking, as construction activity continues to moderate from record levels.
The pipeline of new supply under construction (currently 43.6mmsf, representing 2.2% of existing inventory) decreased slightly and has been range-bound since Q1/22. This dynamic leads us to believe that rent growth could re-accelerate at the same time as the pace of space absorption.

With a +3% weighted-average YTD price return for GRT.un, DIR.un, and PRV.un, we see today's valuations for Industrial-focused REITs (weighted average 75% P/NAV and 14.2x FTM P/AFFO) as very attractive. Market statistics and REIT operating results continue to demonstrate strong pricing power, low capex, and higher operating margins.