Large-format tenants are driving Metro Vancouver’s industrial market, says Newmark’s head of Canadian research.

Andrew Petrozzi told Connect that large-space users helped revive leasing activity in Metro Vancouver’s industrial market in the third quarter of 2025.

Newmark’s latest Greater Vancouver quarterly industrial report shows that large users offset earlier earlier weakness and signalled that demand from logistics and distribution users remains a key market driver. As large users drive activity, small and mid-sized tenants face economic uncertainties.

Industrial vacancy in the Greater Vancouver Area held steady at 3% in the third quarter, the highest level recorded since 2015, after rising steadily since 2021.

“Although that is high historically for Vancouver, in terms of other markets it’s not that high,” said Petrozzi, who authored the report.

(Prior to 2021, the region often had 1% vacancy or less.)

Tenant activity improved during the third quarter, bringing the market out of “a temporary case of market paralysis” in the second quarter caused by U.S. tariff threats, said Petrozzi.

Favoured submarkets include the Fraser Valley, Tri-Cities, Port Coquitlam, Port Moody, and Surrey, which had strong third-quarter absorption. Richmond’s market was affected by large distribution-centre vacancies.

Despite elevated vacancy, the market posted positive absorption of about 343,000 square feet in the quarter, reversing much of the sharp negative absorption seen in the second quarter. Overall absorption for the first nine months of 2025 remained slightly negative at roughly 69,000 square feet, but represented an improvement as leasing activity regained momentum.

Sublease availability remained elevated at about 2.1 million square feet, the second-highest level recorded since tracking began in 2008, reflecting space shed by tenants in older and less efficient buildings.

“So, we are continuing to see a fair bit of sublease space availability, but vacancy has stabilized and while we have seen rents softening, the rate of decline has slowed,” said Petrozzi. “While rates are continuing to soften, they’re dropping much more slowly as they start to plateau.”

At the same time, the market has continued to show a flight to quality, with demand concentrated among larger users seeking modern, efficient facilities, a trend expected to support new industrial development once conditions stabilize and new supply begins breaking ground again in 2026.

This year, new supply will be limited due to construction pauses, says Newmark report.

“And, obviously that will have a number of different impacts to 2026,” said Petrozzi. “Obviously, if the demand continues to grow as we have seen in Q3, or at least remain at levels that we saw in Q3, that will result in that vacancy coming down fairly quickly with no new supply.”

If the absence of new supply persists, users may seek to lease class B and C spaces, he added.

Small- and mid-bay leasing tended to be slower in 2025 due to “more muted” activity.

“There does continue to be some smaller-build construction, but that is not leasing up as fast as, say, large-floorplate, large-bay places would be,” he said. “We are still seeing a bit of softness in that small- and mid-size segment.”

While U.S. tariff threats impacted small- and mid-bay users’ decision-making, the sector is typically more susceptible, and much more sensitive to, economic factors. So, the “holding pattern” can not necessarily be attributed to one issue.

Although large users’ confidence could increase in 2026, there will not be enough time to deliver new significant new supply this year given given that bigger projects take longer to develop and build.

Strata-industrial sales, which usually involve smaller spaces, also took a hit in the third quarter of 2025, with proceeds reaching their lowest point since 2020. As a result, fewer strata projects started.

Photo: Courtesy of Newmark