Scotiabank Analyst Reveals Top Industrial REITs Amid Turnaround

Scotiabank analyst Himanshu Gupta has provided insights into the industrial real estate investment trust (REIT) sector, suggesting a possible turnaround following several challenging quarters. According to the latest CBRE Q1 2026 statistics, the national industrial availability rate remained steady at 5.5%, compared to 5.6% in the previous quarter, marking a significant shift as vacancy rates have stabilized for the first time since Q3 2022.

Current Trends in Industrial REITs

Gupta indicates that the industrial REIT sector is entering a crucial third phase in its economic cycle. This progression follows the initial surge during COVID-19, which spanned from Q3 2020 to Q3 2022, and the subsequent ‘Right-Sizing’ phase from Q4 2022 to Q1 2026. The upcoming phase, termed ‘Normalization,’ is expected to begin mid-2026, maintaining vacancy levels for the next two to four quarters before a decline is anticipated.

Market Performance and Projections

Despite a turbulent environment, industrial REITs have shown resilience. From the onset of the Iran war, these trusts have seen a 300 basis points underperformance relative to the broader REIT market. Nonetheless, the fundamentals reveal promising growth potential. Gupta’s top pick, Granite REIT (GRT), is noteworthy for its expected high-single-digit funds from operations (FFO) growth and favorable price-earnings to growth (PEG) ratio.

Rents and Their Variability

Research from RBC Capital Markets highlights the ongoing challenges within the rental market. The average listed monthly rent from Canadian-focused apartment REITs showed a decline of 2.3% year-over-year on a same asset basis. This marks a slight improvement from previous quarters, where declines ranged between 2.2% and 3.4%.

Listed Rent Growth Analysis

• Boardwalk: -1.8% year-over-year (0.3% quarter-over-quarter increase)
• Minto: -2.6% year-over-year (-0.3% quarter-over-quarter)
• Canadian Apartment Properties REIT (CAP): -5.1% year-over-year (-0.3% quarter-over-quarter)
• Killam: -5.2% year-over-year (-0.3% quarter-over-quarter)
• InterRent: -5.2% year-over-year (-0.3% quarter-over-quarter)

The Canadian rental landscape is undergoing fluctuations, with Vancouver seeing the most noticeable recovery among the hardest-hit markets. Despite the overall challenges, RBC has given “outperform” ratings to both Canadian Apartment Properties REIT and Killam Apartment REIT.

Economic Context and Future Outlook

As Canada reflects on one year post-Liberation Day, BMO’s chief economist Doug Porter notes the economic impacts stemming from the trade war. Job growth has been stagnant while manufacturing output has dropped by 4% year-over-year. The trade deficit has significantly widened, and the country’s reliance on U.S. exports has decreased to 66.4%.

Despite these setbacks, the Canadian economy has shown some resilience, with projected modest growth of around 1% for the year. Notably, Canada stands as a net exporter of key commodities, which may shield it from the adverse effects linked to global conflicts, including the current tensions related to Iran. This dynamic may explain the TSX’s impressive rise of 30% since Liberation Day.