Montreal Industrial Market Report

Surging supply puts upward pressure on vacancy. Impacted by rapidly rising interest rates, Montreal’s industrial market showed signs of cooling in the second half of 2022. Both net absorption and completions decelerated, as tightening financing conditions caused broad caution among potential tenants and developers. During the final months, demand slowed at a faster pace, which led to a 40-basis-point rise in vacancy. As interest rates began to stabilize in early 2023, however, absorption and completions regained strength. Construction activity recovered to 2021 levels, and tenants re-entered the market with greater confidence in the local economy. Looking forward, with an increasing likelihood of a soft landing for the national economy, demand for industrial space should remain healthy. As a result, speculative development may translate into a surge in completions. This will temporarily exert some upward pressure on vacancy, sending it back above the 2 per cent mark. Nonetheless, with the under construction pipeline only accounting for 1.0 per cent of existing inventory, upward pressure on vacancy will be limited over the long-term.