Improving Fundamentals Support the Industrial Market
Overall industrial vacancy remained stable in Q2 2026, continuing the trend of minimal quarter-over-quarter (QOQ) movement that began a year ago. The national vacancy rate edged to 5.4% and has fluctuated by no more than 10 bps over the past 12 months. Most major markets reflected similar stability this quarter, though Calgary saw a more meaningful improvement, with vacancy declining 50 bps QOQ to 4.7%. Montreal continues to post the highest vacancy rate among the major markets at 7.7%.
Industrial demand strengthened in Q2 2026, with absorption accelerating to 3.7 million square feet (msf) and pushing the H1 2026 total to approximately 4.9 msf. The result marks a substantial recovery from H1 2025, when net absorption was slightly above negative 1.0 msf. Although absorption in Montreal remained in negative territory this quarter, broad-based gains across several major markets supported the improvement, with Toronto accounting for nearly 2.4 msf of absorption in Q2 2026. Leasing activity remained robust at 16.0 msf during the quarter, bringing first-half 2026 volume to 32.0 msf—up 29.1% from the same time period last year and signaling renewed occupier demand across the industrial sector.
The national average net asking rent finished Q2 2026 at $14.82 per square foot (psf), a minimal decline of 1.1% from last month. While markets with persistent higher vacancy are witnessing a decline in asking rents in attempts to remain competitive, other markets have had higher priced space removed from the market which has also contributed to a lower average asking rent.
Direct vacancy continued to improve in Q2 2026, declining for the second straight quarter after peaking at the end of 2025. While sublet vacancy increased modestly from Q1 2026, total sublet availability has decreased by 12.8% below its year-ago high. The composition of sublet space has remained largely unchanged in recent quarters, with 77.0% of listings exceeding 10,000 square feet (sf)and nearly one-fifth larger than 50,000 sf. Although sublet space is evenly distributed by square footage across building vintages, the greatest concentration of individual sublet listings is found in industrial properties built more than 25 years ago.
Alongside a rebound in net absorption this quarter, leasing momentum continued to build. While demand remained concentrated in smaller footprints—with transactions under 25,000 sf accounting for the vast majority ofnew deals this quarter—activity in larger space segments accelerated. Through the first half of 2026, transactions exceeding 25,000 sf increased 16.8% year-over-year (YOY), with leasing activity for spaces over 125,000 sf surging 45.2% compared with H1 2025. By leased square footage, demand remained anchored by manufacturing and transportation/warehousing occupiers. While manufacturing leasing volume held steady relative to the first six months of 2025, transportation and warehousing users expanded significantly, with leased square footage rising 49.2% YOY.
New supply totaled nearly 3.6 msf this quarter, bringing year-to-date deliveries to 5.6 msf—well below the 10.5 msf completed over the same period last year. Speculative developments continue to dominate new supply, representing approximately 86.0% of all deliveries to date in 2026. While speculative projects completed this quarter were only 29.4% preleased at delivery, healthy demand for existing inventory absorbed the incoming vacancy, preventing any meaningful upward pressure on the overall vacancy rate, consistent with trends observed last quarter.
Despite significant deliveries this quarter, construction activity remained largely unchanged QOQ at 24.6 msf. Speculative projects continue to account for a higher percentage of space under construction, though the gap between speculative and build-to-suit development has narrowed considerably compared with a year ago. While projects under 300,000 sf still dominate the pipeline, activity among larger developments is gaining momentum, with six projects exceeding that threshold breaking ground so far in 2026—split evenly between speculative and build-to-suit construction.
