Demand for industrial space remained positive in the United States and Canada in the third quarter, but growth this year has lost steam compared to strong net absorption totals of the last two years.

U.S. net growth in the third quarter totaled 29.9 million SF compared to 94 million SF for the same period last year.  Year-to-date net absorption is 110.2 million SF, down 62% from the same period last year. There was 411.7 million SF of growth in 2022. The 524.7 million SF of net absorption in 2021 stands as the record, but the current pace of tenant expansion is the slowest since 2012 and comes as a quarterly record of new inventory is set for delivery.

Net absorption in Canada fell from 41.5 million SF in 2021 to 29.1 million in 2022 and totals 16.4 million through Q3.  A quarterly record 12.5 million SF are set for delivery in Q4, and 32 million SF to be added next year should ease tight availability somewhat. Overall strong market fundamentals continue to attract investors who have shown an appetite for industrial properties despite higher interest rates and a deteriorating economic outlook. READ MORE >

The general fear of Covid has long subsided and hospitalizations are 92% down from the peak. But remote work and hybrid schedules seem entrenched despite companies get-tough return-to-office measures. North American office occupancy remains stuck at roughly half the levels prior to Covid. Other downturns have shaken demand for office space but never so fundamentally as the fallout from the coronavirus lockdown.

In the United States, tenants shed 15.4 million SF of space in the third quarter bringing the year’s negative net absorption total to 55 million SF. That is equal to record losses through September of the first year of the pandemic and was unexpected as this year’s contraction follows two years of improved demand.

Canadian markets are mixed and less stressed. Vancouver posted more than 2 million SF of net absorption in the last 12 months, but Toronto office demand is in the red by one million SF.  Vacancy rates are 5.5% in Vancouver and 9.2% in Toronto, the nation’s largest office market.

Total occupancy in the United States is at its lowest level since 2017, despite a 12% increase in office-using workers. Leasing activity this year is 15% below pre-pandemic levels. New leases average 20% less space.  Additionally, the quantity of occupied but available space is more than 50 million SF above its historical norm, having risen steadily since mid-2020. Calculated in the aggregate, today’s users require about 440 million square feet less than current employment levels suggest.  This has sent the ratio of needed space per worker plummeting to 8% below what it was entering 2020, accelerating a decade-long trend of shrinking space-per-worker requirements. Stagnant demand is likely to linger and space-per-worker requirements may shrink further, recent market dynamics suggest.  This is consistent with two trends: Large tenants are reducing their footprints when existing leases fall in, and the flight to quality by many users skews the composition of the prospective tenant toward those with smaller requirements. READ MORE >

Demand for retail space across North America has remained resilient through the first three quarters of 2023 with healthy economic growth in the United States and Canada confounding expectations of a recession.

Net absorption in the United States through Q3 is positive, albeit about 25% behind average growth of the last two years. Tenant demand in Canada through the third quarter nearly equals the healthy tenant growth that occurred in 2020-21.  Overall vacancy rates fell to all-time lows across the United States and Canada in the third quarter, but some merchants looking to expand may receive relief soon. In the U.S., about 30 million SF are scheduled for completion by April. In Canada, a record volume of space is slated for delivery in the fourth quarter.

While moderating from the multi-decade high pace seen near the end of 2022, asking rents in the U.S. continue to rise at a healthy clip due to minimal availability and the significant boost in retail sales coming out of the pandemic. Asking rents for retail spaces in the U.S. are up an average of 3.5% over the past year to a record $24 per SF. Rents average $22 per SF in Canada, up 5.8% from a year ago. READ MORE >