Canadian Industrial Market Shows Resilience Amid Trade Pressures
Despite the challenges posed by rising tariffs and ongoing trade tensions, Canada’s industrial real estate market continues to demonstrate strong fundamentals. While broader economic growth slowed in Q2 and job losses mounted across the country, the industrial sector has so far absorbed these pressures with limited impact.
Leasing Activity Remains Stable
According to CoStar data, industrial leasing in Canada totaled just over 10 million square feet in Q2 2025, consistent with historical averages. Early indicators suggest that Q3 activity may come in even stronger—clear evidence of the sector’s resilience. Renewals and new leases remain healthy across core markets, sustaining investor and occupier confidence.
Source: CoStar, September 2025
Distribution Outpaces Manufacturing
The Canadian industrial landscape is split between logistics/distribution (≈60%) and manufacturing (≈30%). These segments are experiencing very different realities:
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Manufacturing Weakness:
With heavy reliance on exports, particularly steel and aluminum, Ontario’s manufacturing base has been hit hard by U.S. tariffs. Output has declined sharply, and Q2 saw a net giveback of more than 1 million square feet of leased manufacturing space. Fortunately, the impact was softened as much of this inventory remains owner-occupied. -
Distribution Strength:
Logistics continues to drive demand. Because Canada has avoided widespread retaliatory tariffs on U.S. imports, consumer goods flowing into the country have remained strong. This has supported ongoing absorption in distribution facilities, though at a slower pace than the post-pandemic rebound of 2021–2023.
What is Net Absorption?
In commercial real estate (CRE), net absorption is a key metric used to measure the net change in occupied space within a market over a specific period.
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Formula:
Net Absorption = Space Newly Occupied – Space Vacated -
Why It Matters:
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A positive net absorption rate means more space is being leased than vacated, indicating strong tenant demand.
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A negative net absorption rate means more space is being vacated than leased, signaling a weakening market.
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In this case, Canada’s logistics sector continues to post positive net absorption, reflecting steady demand for distribution space. By contrast, the manufacturing sector is showing negative net absorption, underscoring the contraction caused by tariffs and declining export activity.
Consumer Demand Drives Stability
Resilient Canadian consumer spending has kept import activity steady, sustaining the need for distribution space across the country. As long as household demand remains solid, supply chains will continue to rely on well-located logistics facilities to move goods efficiently.
Risks Ahead
Looking forward, the greatest risk lies in consumer fatigue—if households reduce spending, demand for distribution space could ease more noticeably. The other key risk would be an escalation of the trade dispute that disrupts existing import channels. However, absent those developments, the Canadian industrial sector is expected to remain a relative safe haven for both occupiers and investors.
At Freeway Real Estates Inc., we continue to monitor these trends closely. With distribution demand offsetting manufacturing weakness, opportunities remain for owner-occupiers, investors, and logistics users alike. Our team is here to help you identify and secure the right space in a shifting market.
