Industrial real estate has been the star performer of Canadian commercial property over the past five years. And in 2026, it’s still going strong.
Let’s look at what’s driving industrial demand, where the opportunities are, and how financing works in this sector.
The E-Commerce Effect
Start with the big story: how we buy stuff has changed permanently.
E-commerce represented maybe 5% to 8% of retail sales in Canada before the pandemic. It jumped to 12% to 15% during pandemic lockdowns. And it’s stayed elevated, currently running around 11% to 13% of retail sales.
That shift requires physical infrastructure. Products sold online need to be stored somewhere, picked, packed, and shipped. Every percentage point of retail that moves online requires warehouses, distribution centers, and logistics facilities.
Canada was underbuilt on industrial capacity going into this shift. We didn’t have enough modern warehouse space to handle e-commerce growth. That created a supply shortage that still exists today.
The result is extremely tight industrial markets. Vacancy rates for modern industrial space in Greater Toronto, Greater Vancouver, and other major markets are running 2% to 4%. That’s about as tight as real estate markets get.
What Tenants Want
Not all industrial space is created equal. Tenants are specific about what they need.
Modern distribution facilities want high ceilings, ideally 30+ feet clear height. That allows efficient racking and maximizes cubic space utilization.
Good truck access matters. Multiple loading docks, large truck courts, easy highway access. Time is money in logistics, and efficient loading and unloading matters.
Location near population centers is critical for last-mile delivery. Amazon, Purolator, Canada Post, they all need facilities within 20 to 30 minutes of where customers live.
Adequate power supply is increasingly important. Some tenants, particularly those with automation or cold storage needs, require significant electrical capacity.
Large floor plates with minimal columns allow for flexible warehouse layout. Tenants don’t want to work around lots of structural columns.
Older industrial buildings with low ceilings, limited loading, and outdated layouts are functionally obsolete for many modern uses. They’re getting repurposed or redeveloped.
Geographic Concentrations
Industrial demand is strongest in markets with large populations and active economies.
Greater Toronto Area is Canada’s largest industrial market. The 905 region around Toronto (Mississauga, Brampton, Vaughan, Markham) has the highest concentration of modern warehouse space. Vacancy is under 2% in many submarkets. Rents have been climbing steadily.
Greater Vancouver has extremely tight industrial markets but limited land for expansion. Mountains, ocean, and agricultural land reserve constrain new development. That’s pushing industrial tenants to locate further east in the Fraser Valley, and even into the Interior.
Montreal area has strong industrial demand and more available land for development than Toronto or Vancouver. It’s becoming a distribution hub serving Quebec and Atlantic Canada. Rents are lower than Toronto or Vancouver but growing.
Calgary and Edmonton have significant industrial presence tied to energy, agriculture, and distribution. More land availability keeps rents more moderate, but demand is solid.
Winnipeg functions as a distribution hub for the Prairies. Central location and good transportation infrastructure support industrial activity.
Hamilton and Kitchener-Waterloo have benefited from GTA industrial space shortage. Tenants priced out of Toronto are looking at nearby markets with better availability and lower rents.
Rent and Value Trajectory
Industrial rents have increased significantly over the past five years.
Modern warehouse space in the GTA that rented for $8 to $10 per square foot in 2019 is now $14 to $18 per square foot in many locations. That’s 60% to 80% rent growth.
Vancouver industrial rents have seen similar increases, from $10 to $12 per square foot to $16 to $20 per square foot in prime locations.
Other markets have seen strong but less extreme rent growth. Montreal went from $7 to $9 per square foot to $10 to $14 per square foot. Calgary from $8 to $10 per square foot to $11 to $14 per square foot.
Property values have appreciated accordingly. Industrial cap rates have stayed relatively stable, around 4.5% to 6.0% depending on market and asset quality, so rising rents have translated fairly directly into higher values.
That’s made industrial real estate very attractive to investors. Good returns, strong fundamentals, and appreciation potential.
Tenant Quality and Lease Terms
Industrial properties are attractive to lenders because of tenant quality.
Many industrial tenants are large, creditworthy companies. National or multinational logistics companies, major retailers, manufacturers. These are businesses with balance sheets that lenders understand and trust.
Lease terms are typically longer than retail or office. Five to ten-year leases are common, sometimes with renewal options. That provides income stability.
Triple net lease structures are standard in industrial. Tenants pay their pro-rata share of property taxes, insurance, and maintenance costs. Landlords have predictable income with minimal expense volatility.
This combination of strong tenants, long leases, and triple net structures makes industrial properties easy to finance.
Development Economics
New industrial development makes sense in many markets right now, which is unusual for commercial real estate.
Construction costs for industrial are lower per square foot than office or multi-family. You’re building boxes with loading docks, not high-rise buildings with elevators and extensive finishes.
Rents have risen to levels that support development in most major markets. When you can pre-lease space at $15 per square foot, you can justify construction costs and land prices that would have been prohibitive a few years ago.
Land that’s appropriately zoned and serviced for industrial use is in high demand. Industrial land values have increased significantly in markets where supply is limited.
Development timelines are reasonable compared to other property types. An industrial building can go from site acquisition to completion in 18 to 24 months if approvals go smoothly.
Lenders are financing industrial development, though they typically want pre-leasing commitments or very strong developer track records before advancing construction loans.
Specialized Industrial Segments
Within industrial real estate, certain segments are particularly strong.
Cold storage facilities for food distribution are in high demand. Online grocery and food delivery require temperature-controlled warehousing. These are specialized buildings with higher construction costs but command rent premiums.
Last-mile delivery facilities near urban centers are extremely tight. Small to mid-size buildings (20,000 to 150,000 square feet) located close to population centers are valuable for final delivery operations.
Cross-dock facilities that allow product to come in one side and go out the other without long-term storage are important in modern logistics. These require specific design features.
Fulfillment centers for e-commerce with picking and packing operations are distinct from traditional warehousing. They need certain layouts and operational characteristics.
Manufacturing is less hot than distribution/warehousing but still solid in markets with manufacturing presence. Southern Ontario retains significant manufacturing despite long-term sector challenges.
Financing Terms
Industrial properties get some of the best commercial real estate financing terms available.
Strong properties in good locations with quality tenants can access 70% to 75% LTV financing from conventional lenders. Rates are in the 5.0% to 6.0% range for five-year fixed terms, which is competitive.
Loan amortizations of 25 years are standard. Some lenders will go to 30 years for exceptional properties.
Debt service coverage requirements are typical commercial standards, around 1.20 to 1.25 times. The strong cash flows from industrial properties usually meet these easily.
Development financing is available for experienced developers with pre-leasing or very strong projects. Lenders typically advance 60% to 70% of cost on a progressive draw basis as construction proceeds.
The Build-to-Suit Model
One interesting approach in industrial is build-to-suit development.
A tenant with specific space requirements signs a long-term lease agreement. A developer then purchases land, designs the building to the tenant’s specifications, constructs it, and leases it to the tenant.
This model works because tenants get exactly what they need without tying up capital in real estate, and developers get pre-leased buildings that are highly financeable and saleable.
Lenders love build-to-suit projects with creditworthy tenants on long-term leases. These can access favorable financing terms.
Some companies like Amazon have driven significant build-to-suit development across Canada over the past five years.
Environmental and Sustainability Considerations
Industrial real estate is increasingly focused on environmental performance.
Modern buildings incorporate energy efficiency features like LED lighting, high-efficiency HVAC, and building envelope improvements. These reduce operating costs and appeal to environmentally conscious tenants.
Solar panel installations on large industrial roofs are becoming common. The economics work because industrial buildings have large roof areas and significant electrical use.
LEED and other green building certifications are valued by some tenants and can support rent premiums.
Lenders are increasingly asking about environmental performance and may offer better terms for high-efficiency buildings.
Risks and Challenges
Despite strong fundamentals, industrial real estate isn’t risk-free.
E-commerce growth could plateau. If online shopping stops growing or reverses, warehouse demand would soften. Most analysts think this is unlikely, but it’s a risk.
Automation might reduce space needs. More efficient warehouse operations with robotics and AI could mean less square footage required per dollar of sales. This is a longer-term concern.
Supply response could overshoot. If too much industrial space gets built, vacancy will rise and rents will soften. Some markets are seeing significant new supply coming.
Recession risk exists. Industrial demand is tied to economic activity and consumer spending. A significant recession would reduce demand for warehouse space.
Tenant defaults matter. Even strong companies can fail. Long leases provide stability but also create long-term credit exposure.
These risks are manageable with good property selection, tenant diversity, and conservative leverage, but they’re real.
Investment Opportunities
For investors looking at industrial real estate, here’s where opportunities exist.
Secondary markets where supply is limited but demand is growing can offer better cap rates than Toronto or Vancouver while still having solid fundamentals.
Value-add properties where older buildings can be improved for re-tenanting at higher rents can generate strong returns, though this requires capital and capability.
Development in markets where land is still available and zoning is feasible can create value, but requires expertise and risk tolerance.
Smaller facilities serving local markets don’t get as much investor attention as large distribution centers but can offer good risk-adjusted returns.
The Financing Advantage
One underappreciated aspect of industrial real estate is how easy it is to finance relative to other property types.
When lenders compare industrial properties to office buildings with vacancy concerns, retail properties with tenant challenges, or even multi-family with valuation volatility, industrial looks attractive.
That means industrial property owners can often access capital more easily, refinance on better terms, and leverage their properties more aggressively than owners of other property types.
This financing advantage adds to the investment appeal of the sector.
Looking Forward
The outlook for industrial real estate over the next few years remains positive.
E-commerce isn’t going away. Logistics needs aren’t declining. Canada’s population is growing, which drives consumer goods demand and warehouse requirements.
New supply will moderate rent growth in some markets, but underlying demand should prevent serious oversupply in most locations.
Property values should be supported by income growth and eventually some cap rate compression if interest rates decline.
For lenders, industrial will likely remain a preferred commercial property type, which means continued good financing availability.
Partner With Industrial Property Specialists
Industrial real estate financing requires understanding both the property fundamentals and lender requirements.
At Creek Road Financial Inc., we work with industrial property owners, investors, and developers across Canada. We have relationships with lenders who specialize in industrial financing and understand how to structure deals for optimal terms.
Whether you’re acquiring warehouse space, developing an industrial building, or refinancing an existing property, we can help you secure competitive financing.
Let’s discuss your industrial property financing needs and explore how to position your project for success.