Supply Chain Scanner - Week of February 24, 2025
Weekly blog by Emily Atkins
Carbon targets among factors shaping the industrial real estate market
While vacancy rates in Canada’s industrial real estate sector are climbing, a focus on energy and carbon emissions is shaping the future of the market for warehousing space.
According to real estate firm JLL, the industrial vacancy rate across Canada rose to 4.5 percent in the fourth quarter of 2024, up 30 points over the previous quarter. Vacancy was up in the biggest Canadian markets, including Montreal, Toronto and Vancouver.
In the epicentre of Canadian warehousing, it is still a renters’ market in the Toronto area, JLL reports in its quarterly update. However, the post-pandemic construction boom in the region has mostly wound up, suggesting that with considerable new uptake, the market will tighten in 2026. Until then, however, net asking rents are still on the decline.
Markets in Montreal, Vancouver and Calgary are seeing similar trends, with stable or declining rents and similar vacancy rates. In Vancouver, the expectation is the rate of vacancy and availability will increase more slowly throughout 2025. In Montreal, the drop in asking rents has slowed down with tightening availability, and new spaces are being built at a moderate speed. Calgary alone is expected to see rents climb somewhat as there is a shortage of available space to lease, JLL said.
Among the broader factors affecting the industrial real estate space, JLL found that a focus on using real estate to meet corporate carbon reduction goals is becoming increasingly important. That objective comes hand in hand with a growing requirement for buildings with more electrical power supply. This is needed to meet increasing use of robotics and powered automation, along with electric vehicles, both within the DC and as delivery trucks. It is estimated that EV fleets will increase six-fold by 2030, to 16.6 million vehicles. JLL published research based on a late 2024 survey of over 900 industrial warehouse space renters. Their topline conclusion: “Occupiers have typically focused on technical requirements (e.g., ceiling height, loading docks, etc.), but as they prioritize operational excellence, requirements are becoming increasingly specific and standard warehouses are no longer fit-for-purpose. Spaces that deliver broader solutions, especially around energy management, resilience and broader sustainability, will gain competitive advantage in the coming years.”
In practical terms, this means that warehouse owners, or builders, have an opportunity in the next few years to construct new industrial spaces with these requirements in mind. According to JLL’s research, 65 percent of pending demand from the industrial occupiers they polled is tied to carbon targets. In the US alone, that amounts to 553 million square feet. (For reference, the 900 companies JLL polled currently occupy 850 million square feet.)
Much of this demand for new space will materialize by 2030, coinciding with many organizations’ interim carbon reduction goals. But there’s a hitch, JLL found. Across 18 industrial hubs covered by the study, 41 percent of projected demand will go unmet in that timeframe. And that estimate only covers the largest companies. When smaller enterprises are added to the mix, unmet demand will be much higher.
This means that buildings will be undesirable, resulting in a “brown discount” on rents unless landlords act quickly to reduce the energy intensity of their existing buildings. Tenants’ activities are typically responsible for 90 to 100 percent of operational carbon emissions in industrial buildings. JLL reports that as a result, in some markets, this is spurring landlords and tenants to work together to improve the carbon footprint of operations and facilities.
“In Australia, many landlords are already considering tenant screening processes and favoring tenants with lower operational carbon intensities as well as those willing to share data and collaborate on building performance improvements,” the report notes.
Whether your business has sustainability targets or not, incorporating energy-smart technology and design into your warehouse or DC space will reap benefits. Energy-efficient design can net significant operational cost savings. Planning for increased electricity needs – for EVs or automation – will mean less disruption from potentially having to move to a new space or upgrade the old one.
“With advances in new technologies, increased automation and the electrification of transport, industrial properties are becoming active agents in daily operations,” JLL said in the report. “They can facilitate cost savings, offer secure energy, shield users from volatile energy markets, ensure compliance with evolving regulations and propel progress on sustainability commitments.” For details on the tips JLL offered, read the report here.
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Emily Atkins
President
Emily Atkins Group
Emily Atkins is president of Emily Atkins Group and was editor of Inside Logistics from 2002 to 2024. She has lived and worked around the world as a journalist and writer for hire, with experience in several sectors besides supply chain, including automotive, insurance and waste management. Based in Southern Ontario, when she’s not researching or writing a story she can be found on her bike, in a kayak, singing in the band or at the wheel of her race car. LinkedIn: https://www.linkedin.com/in/emilyatkinsgroup/