Canada’s industrial real estate market is looking more like itself again according to the chairman of CBRE.

“The industrial sector clearly has been normalized over the past year,” Paul Morassutti said Wednesday while presenting his company’s outlook on the Canadian commercial market at the Vancouver Real Estate Forum.

“A wave of new supply coupled with a water economic slowdown suggests that we will continue to trend toward equilibrium.”

Industrial property prices soared and development activity set a frenetic pace in 2021 and 2022, particularly in Vancouver and Toronto, amid high demand, extremely low vacancy, scarce availability of new product and extremely tight existing supply. The industrial sector showed signs of easing in the second half of 2023.

Construction starts have tapered off and demand has softened, said Morassutti. He noted that the national industrial preleasing rate has dropped to 89% from the plus-90% range witnessed in 2021 and 2022.

“We expect the national vacancy rate to increase by approximately 100 basis points to 4.2% in 2024, still lower than the historical average of 5.2%,” said Mossutti. “In general, rents are plateauing. And, in some cases, in mid-or-fall 2024, we’ll see relatively flat rental growth.”

Bifurcation will occur as the formerly red-hot market, which was to be expected in a market where availability was near zero, cools further.

“And that [bifurcation] is the rental [rate] difference between a brand new product and a second-generation product,” said Morassutti. “That is changing and we are seeing a wider delta between [costs of] newer buildings and older buildings on both the leasing and sales side.”

The deceleration was expected and it’s healthy, he added.

Supply-chain issues that arose in 2023 are lingering, and serving as a reminder that reshoring and derisking the supply chain generally leads to increased demand for industrial real estate.

“By any historical basis, industrial fundamentals remain quite sound,” Morassutti concluded.