Metro Vancouver remains the tightest industrial real estate market in North America with just a 0.9 per cent vacancy rate in early 2021. Experts say while developers and government are doing what they can to advance creative projects and preserve existing industrial stock, it’s only a matter of time before it runs out.
The industrial land crunch
Avison Young, a commercial real estate company, recently released its annual industrial overview on the Metro Vancouver industrial market. The report noted this spring was the first time the vacancy rate slipped below one per cent and the cost per square foot reached a record high of $13.87.
“The days of tenants moving further out from the core in search of lower industrial rental rates have largely ended due to the fact that much of the new development is located in the suburbs, which are frequently the only areas with land left to be developed,” stated the report.
Despite this, new industrial space being developed has averaged more than 3.75 million square feet (msf) annually since 2016 and at a rate of nearly 4.4 msf each year since 2019, which Avison Young experts noted shows the region’s developers have become highly skilled at finding creative ways around the land crunch, municipal red tape, rising construction material costs and other challenges.
Rising to the challenge
The report highlighted three projects using various methods to get shovels in the ground, including working on non-traditional sites and agreeing to help with significant community improvements.
The developers of Xchange Business Park, QuadReal Property Group and Hungerford Properties, have agreed to make large contributions to local transportation infrastructure, parkland and riparian areas in Abbotsford.
Beedie Development is currently in the early stages of transforming a 163-acre farm property near Burns Bog in Delta into an industrial park. The complex project remains in the approval process and would require redeveloping a highway interchange and funding other transportation infrastructure improvements.
Montrose Property Holdings’ Richmond Industrial Centre is being constructed on a 170-acre land parcel that was home to a former construction waste landfill, which has been remediated and converted to an industrial park and will include 12 to 14 industrial buildings (ranging from 100,000 square feet to 500,000 square feet) when completed. The first building opened in September 2020.
Fighting a losing battle
“The land issue since 2010 has been a prevalent problem, but now it is getting to a more critical point,” said Ryan Kerr, a principal with Avison Young. “We are definitely losing new businesses or existing businesses that want to expand in B.C.”
He noted that Avison Young, which tracks new or existing businesses looking for industrial sites to lease or buy, has seen companies that service Metro Vancouver set up their industrial spaces in Alberta because costs are too high.
“The amount of space desired in Vancouver significantly outweighs the options being delivered,” said Kerr.
While Kerr noted that Metro Vancouver does have a detailed plan to get the most of existing industrial land, eventually it will run out.
“The reality is that Metro Vancouver is growing and we are going to run out of industrial land eventually,” said Kerr. “The land supply is what it is. We are confined by the mountains, the ocean and the border.”
He said this could limit some companies to smaller spaces in Metro Vancouver while keeping larger industrial facilities elsewhere or not have an industrial site in the region at all – a trend that he already sees happening.
“There are lots of businesses who would happily take space if the right facility existed, but the demand can’t be met,” he said.
Follow the author on Twitter @RussellReports.