A new report anticipates average lease rates for industrial and commercial real estate in Lethbridge will increase to drive new development.
The Avison Young Industrial Market Report shows an imbalance in the Lethbridge market, where tenants are facing limited options for space. It attributes this to inflation and supply chain issues causing slowdowns in new development.
The report says lease rates will need to increase to ease tight market conditions and promote a stronger local market.
“Rent increases may challenge tenants initially, but overall, a rental correction will both contribute to the health and increase investment capital to rebalance the local market,” said Josh Marti, principal in the Avison Young Lethbridge office.
Over the last year in the city, the average industrial rental rate increased four per cent and sits at $9.03 per square foot. The Avison Young report predicts new spaces coming on the market will be priced higher to accommodate the cost of construction, it predicts they will be $12.50-$13.50 per square foot.
“With interest rates up, and construction costs also up significantly, the per square foot rental rate doesn’t make sense like it has in the past,” said Doug Mereska, managing director in the Avison Young Lethbridge office. “While there is an abundance of inventory with other asset types, with industrial there is not. New builds will be at higher rates and trickle down to the tenants.”
Lease rates in Lethbridge are low compared to similar markets and the report says the city is well-positioned to fix the low supply, with a positive outlook on 2023. Large projects, such as the Agi-Food Hub and trade Centre and the expansion of the McCain plant, are bringing in production, jobs and capital.
“Lethbridge has the fundamentals in place to offer the supply needed to meet the pent-up demand,” said Marti. “This could potentially pave the way for a surge of growth for our region if the local market is willing to keep pace with our neighboring markets.”
The current Lethbridge industrial vacancy rate sits at 3.9 per cent and the reports point out much of it is aged or obsolete. There is an estimated 126,000 sf of industrial property currently under construction.
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