There was a sharp first-quarter decline in U.S. tenant demand for industrial space as wholesalers and retailers reconsider their inventory levels out of caution over the economic outlook.  Net absorption in the first quarter totaled 39.4 million SF, a 57% drop from the record set a year ago. Demand for Canadian industrial space in Q1, however, gained nearly 21% year over year. The overall U.S. vacancy rate settled at 4.4%, an increase of 40 basis points from the close of 2022, comfortably below the 7.3% market average over the last two decades. Vacant space at the end of March totaled 805.6 million SF, up 81.4 million SF from the previous quarter.

While a potential pullback in consumer spending poses downside risks for 2023, onshoring of high-tech manufacturing will likely be a key driver of U.S. absorption from 2024-26. The federal government’s 2022 passage of the CHIPS and Science Act, and the Inflation Reduction Act provided more than $400 billion worth of incentives for growth in U.S.-based high-tech manufacturing.  Newly completed space in the first quarter totaled 120.3 million SF compared to 74 million SF delivered in the same period last year. The stock of U.S. industrial property is set to grow nearly 4% in 2023 for the fastest pace of supply growth in more than 30 years.  Barring a severe shock to the U.S. economy and industrial leasing, the volume of space set for delivery likely will produce only a moderate increase in vacancy without tipping the market in the tenants’ favor.  Influencing long-term prospects, increased interest rates of the past two quarters and concern that the increased cost of new construction may exceed replacement cost have caused developers to pull back by up to 40% starting late last year.  The recent slowing in net absorption is broad-based across most major markets. Los Angeles and Southern California’s Inland Empire – with respective vacancy rates of 3.4% and 3.1%, similar to other coastal markets – notably have posted outsized increases in space availability in recent months. Otherwise, the construction pipeline of projects is barely enough to meaningfully ease the space shortages in majority of coastal markets since the lockdown. READ MORE >


Tenant demand for North American office space over the last two quarters has gone from bad to worse for landlords, affirming that the lingering and painful impact of post-pandemic workplace arrangements has yet to play out.

Net absorption for U.S. office space in Q1 was negative 28,749,399 SF.  It was the third largest quarterly contraction since the Covid lockdown three years ago. It also comes on the heels of 16.6 million SF of negative absorption in the last quarter of 2022. The combined 35.3 million SF of negative absorption of the last six months represents 27% of the 131 million SF that have been put back on the market since Covid.  Canadian markets reported negative 1.7 million SF of net absorption in the first quarter.  Mobility data shows activity in workplaces in downtown Toronto and Vancouver remains down as much as half since the pandemic hit in 2020.

The U.S. vacancy rate increased to 13% from 12.5% at the end of 2022.  In Canada, the vacancy rate was up 40 basis points from the close of last year.  Comparisons with the effects of the so-called Great Recession are useful in calculating the character and magnitude of the current office downturn. In both cases there were declines of about 2.5 million office-using workers, but the office recoveries were significantly different.  It took nearly six years to recover the jobs lost in the 2008-09 recession.

Despite the shock of the pandemic, all the positions lost were recovered in less than 20 months. Through January of 2023, office employment was nearly 6% more than in January 2020, when the Covid threat was first reported.  In view of the strong job growth, historical patterns dictate that office demand would have rebounded by now. But demand for increased space has decoupled from employment gains. READ MORE >


Despite healthy consumer spending and strong successive quarterly merchant demand, overall net absorption for North American retail space eased in the first quarter.  Net growth in the United States totaled 7.7 million SF in Q1. That was down from 22.4 million SF for the same period a year ago and off from 20.7 million in Q4 2022.  The 74.8 million SF absorbed last year was the most since 2017.  There have been eight straight quarters of net growth across the U.S.

Demand for Canadian retail space totaled 669,455 SF in net absorption in the first quarter, down from 1.3 million SF a year ago.  Overall Q1 vacancy rates were unchanged in Canada at 2% and 4.2% in the United States.

Otherwise, supply-demand fundamentals continue to improve as new retail development activity remains minimal. Slightly more than 48 million SF of space was completed in 2022 and 66.8 million SF are underway.  With about 80% of new development pre-leased, the U.S. retail market faces virtually no threat from new supply as developers and lenders continue to shy away from large spec projects. The vast majority of new construction consists of single-tenant build-to-suits or smaller ground-floor spaces in mixed-use projects. READ MORE >


moderate as new apartment deliveries far outpaced absorption. First-quarter net absorption totaled 44,796 apartments, which was off 17% from the same period last year. The addition of nearly 100,000 deliveries in Q1 helped push the national vacancy rate up 170 basis points to 6.6%. Meanwhile, overall year-over-year rents increased 3.9%.  Rent for an average apartment totaled $1,633 per unit or $1.84 per SF.  Also influencing apartment demand is reduced fear of covid infection in crowded living arrangements. Additionally, workers returning to offices and children to classrooms have reduced the need for work and study space. 

The story is different in Canada, where renters should be accustomed to tight markets. Since 2015, the overall vacancy rate has averaged 1.5% and in Q1 settled at 1.2%.  Major demand for units is fueled by Canada’s generous immigration policies, which will welcome an average of 476,000 new permanent residents per year through 2025. The policy’s goal is to attract young, bilingual, high-skilled migrants in order to build human capital within Canada’s aging workforce.

A vast majority of the newcomers live in cities. But tough rent control policies have developers shifting from building apartments to producing for-sale condominiums. Toronto and Vancouver have posted some of the highest per-capita rates of high-rise condo development in North America. After delivery of 9,929 apartments in the last year, completions this year across Canada will total more 11,800. READ MORE >