The North American industrial sector can be characterized as showing steady growth. In the U.S., many markets reported historic performance in market fundamentals such as vacancy rates, new construction and pricing. Meanwhile, Canada’s manufacturing sector is off to a good start in 2014 with Canadian manufacturing sales increasing 0.4% in March to $50.9 billion, the sixth increase in seven months. In Mexico, macro-economic stability is reflected in a stable exchange rate and growing international investments. Mexican exports reached over US$400 billion in 2013, and most of them are manufactured products. Mexican exports were driven mainly by shipments to the U.S., which increased 4% from 2012.
Even with the addition of 9.2 msf of speculative new construction, the U.S. overall industrial vacancy rate continued to trend down, ending the first quarter at 7.7%, 90 bps lower than one year ago. Major markets with the lowest vacancy in the U.S. included Greater Los Angeles, Orange County, Philadelphia, Houston and the Inland Empire. A shortage of top-tier industrial space has placed upward pressure on rents and first quarter provided clear evidence that industrial rents are starting to trend up Fifteen markets posted double-digit annual rent growth.
Expansionary growth in Toronto was driven by the continued rise of e-commerce, which saw Amazon lease 521,000 sf in the GTA West in the fourth quarter of 2013, a commitment that will mushroom to about 730,000 sf during 2014. The development market in Toronto remains active with strong demand for newer product and a total of 2.1 msf of spec space currently under construction. Asking rents remain stable with Toronto ($5.27) and Montreal ($5.00) remaining competitive for industrial space. Major markets with the lowest vacancy in Canada included Vancouver (4.0%), Toronto (5.7%) and Calgary (7.4%).
Mexico has substantial long-run potential and is on track to become one of the ten largest economies in the world by 2030. Mexico City is growing more sophisticated and as intermodal logistics platforms become more common, demand grows. For Monterrey’s industrial real estate market, the development of new buildings reflects the continued confidence of investors and the current trends of a market that is sustaining growing activity. One of the most significant developments is Interpuerto Monterrey, located in Salinas Victoria, covering 3,200 acres in a strategic location right at the interconnection of Kansas City Southern Mexico and Ferromex rail lines.
Sources: Cushman & Wakefield Research. Note: Montreal is as of 4Q2013. Mexico City and Tijuana direct rental rates are for Class A. Los Angeles includes Greater LA, Orange County & Inland Empire; Philadelphia includes Philadelphia and the PA I-81/I-78 Corridor.