INDUSTRIAL OVERVIEW: SOFT MARKETS FACE TARIFF DISRUPTIONS
North America’s industrial markets are nearing the end of a wave of record development that – because of several quarters of weakened demand – has resulted in an oversupply of space and the lowest rent growth in years. Moreover, the sagging United States and Canadian markets could suffer disruption as they react to the U.S.’s controversial new trade and tariff regime.
U.S. net absorption in the first quarter totaled 9.5 million SF and only 129.4 million SF of growth in 2024 – the least since the great recession in 2010. Year-over-year rent growth has decelerated significantly over the past 12 months to 2.1%, which is less than half the five-year average before Covid.
Across Canada – after 79 million SF of growth in 2023 and 2024 for the largest ever two-year gain – tenants shed 8.9 million SF of space in the first quarter, the most on record. Nearly 5.5 million SF of the negative net absorption total was logistics space. Construction across North America is slowing. In the U.S., quarterly net supply additions are on pace to fall below the pre-pandemic three-year average by midyear and continue declining through 2026 when supply growth is set to hit an 11-year low. In Canada, new construction starts fell to just 2.6 million SF in Q4, the lowest level on record. READ MORE >
OFFICE OVERVIEW: MARKET RECOVERIES UNEVEN; U.S. POSTS MODEST GAIN
After showing signs of a continuing recovery with bosses backing away from the permissive pandemic workplace policies and remote work, the first quarter of 2025 opened with a sharply divided North American office market.
On the heels of posting 11.2 million SF of net absorption in the last half of 2024, the U.S. office market opened the new year with positive, albeit weak, tenant growth of 482,271 SF. It was a dramatic turnaround from the 26.8 million SF loss of net absorption in Q1 a year ago.
Conversely, Canada, which posted 5.5 million SF of positive absorption in 2024 – its healthiest year since 2018 – opened the year with a massive contraction of 5.2 million SF of negative net absorption. The Q1 reversal is a greater reduction in net absorption than the 5.7 million SF loss for 2021 and follows a gain of nearly 2.3 million SF a year ago.
Much of the recent gain in the U.S. has come in New York City where users are scrambling for space to accommodate an uptick in attendance. Nationally, however, supply additions have kept the vacancy rate near a record high. While here are some signs the recovery could broaden throughout 2025, demand remains anemic in most major markets. Tenant behavior in the post-Covid environment has become nuanced. READ MORE >
RETAIL OVERVIEW: STORE CLOSURES BELIE SHORTAGES OF SPACE
Plans announced by merchants last year to shutter more than 8,700 stores produced the largest tenant contraction across North American retail markets since 2020. Nevertheless, vacancies remain at and near record lows.
United States’ retailers shuttered 7,089,219 SF of space in the first quarter, which follows the net absorption of 23.1 million SF in 2024, of one of the weakest annual totals in a decade. Despite the sharp upturn in retailer bankruptcies and store closures, availability across U.S. retail space markets remains within 10 basis points of the historic low of 4.8% as new development is constrained. Deliveries for the five years prior to Covid was twice the total five years since the lockdown. In total, just 19 million square feet of retail space delivered since 2020 is available for lease across the U.S.
In Canada, negative net absorption totaled 1,767,468 SF in the first quarter, a turnaround from the 1.6 million SF of tenant growth in Q1 last year. Every retail category – malls, power centers, neighborhood centers, strip centers and general retail – was negative in the first quarter. In addition to store closings, retail store efficiency – measured by sales as a percentage of occupied floor space – is no longer outperforming the U.S. Nationwide, the vacancy rate is 1.8%.
It was a confluence of factors driving retail bankruptcies and store closures. After years of below-average closures the combination of rapidly rising costs, a challenging capital markets environment and significant competition from value and e-commerce retail forced certain retailers like Walgreens, Family Dollar and Advance Auto to close underperforming locations. It also pushed other large occupiers like Big Lots, Party City and Conn’s into bankruptcy. READ MORE >
MULTIFAMILY OVERVIEW: STRONG Q1 DEMAND; REBOUND CONTINUES
There was continued strong demand for apartments across North America in the first quarter. Net absorption in the United States in Q1 totaled 49,680 units, the largest quarterly volume since the pandemic gains of early 2021. Overall vacancy declined to 8.1%, snapping a 13-quarter rise. Large markets in the South and Southwest were the growth leaders.
Canada’s national multifamily market continues to be extremely tight. Vacancy is still sitting near multi-year lows with the most unaffordable markets of Vancouver and Toronto continuing to have the tightest conditions in the country. The nationwide vacancy rate is 2.9%.
The strong Q1 performance in the U.S., an increase of 61% over the same period a year ago, is a continuation of a growth rebound that began last year when 556,286 units were absorbed, the most in three years. Absorption was driven by stable economic growth plus a continued slowing of tenants making the jump to home ownership and creating fewer units to backfill.
The surge in U. S. tenant growth follows the biggest construction boom in decades, saturating the market with 1,270,222 new units over the last two years, equal to 6.3% of the total inventory. The 673,7687 units delivered in 2024 were the most in any year on record. While supply has outpaced demand over the past 12 quarters, the gap has closed significantly. This strong demand reflects continued release of pent-up household formations, especially in the mid-priced point properties. READ MORE >
