Hot market heralds tough times for Metro industrial tenants

BIV files

Volumes and values

Real Estate Board of Greater Vancouver figures indicate that Lower Mainland industrial sales held steady between the final quarter of 2015 and the first quarter of 2016, with 151 properties trading for $228.8 million.

This compares with 130 transactions in 2015’s first quarter worth a total of $250 million.

Transaction volumes increased most notably in Langley, leaping to 14 from five transactions year over year, with lesser gains logged in Port Moody and Coquitlam.

Many municipalities saw a decline in volumes, consistent with ongoing reports of the region’s straitened supply of industrial land.

Ed Ferreira of CBRE Ltd. said properties are in demand, but there’s not enough supply to feed interest, whether from landlords or tenants.

Regional vacancies have dropped to 4.1% from 7% over the past year, reaching a five-year low, with absorption of space outstripping completions.

Demand is such that a property owner who passed over an unsolicited offer of $5.5 million on a Clark Drive property in December garnered $7.35 million when it sold this spring – without conditions.

“In the 30 years that I’ve been in this business, the supply is the lowest I’ve ever seen,” Ferreira said. “Almost every property that goes on the market has competing offers.”

While that’s good for owners, it heralds tough times for the overall market. Values in many cases – such as the Clark Drive property – have risen 20% to 30% in recent months. Higher sale prices mean higher valuations when next year’s assessment notices arrive, and higher property tax bills – boosting tenant expenses.

“There is going to be a significant increase in rental rates, depending on the building,” Ferreira said. “Some tenants are going to question, ‘Can I be in this location? Can I afford this anymore?’”

Okanagan deal

The Regional District of Okanagan-Similkameen (RDOS) is set to buy a portion of Okanagan Tree Fruit Co-operative’s former packing-house property in Naramata for $1.15 million.

RDOS board members were set to vote on a long-term loan for the purchase June 16, with the aim of acquiring the waterfront property for park use (an official plan for the property hasn’t been drafted, however).

RDOS staff said negotiations for the acquisition began last November and a deal was struck in March. The province approved the district’s bid to finance the purchase, and all but two voters endorsed the acquisition.The co-op has sought buyers for the industrial property since consolidation of the region’s four grower-owned packing houses in 2008. The financial crisis threw a wrench into the plans, and dreams of achieving the values seen prior to the recession were tough to let go. Colliers International, which had the mandate to sell the property, continued to list the Naramata property for $10 million as late as 2012.

However, in 2014 the offering was rejigged, with two portions of the site listed for $4.9 million. The waterfront parcel RDOS is acquiring was the smaller of the two, at just 0.18 acres.

It sits adjacent to a pump station RDOS acquired from the co-op for $250,000 in 2013.

The larger portion of the site, home to most of the packing-house operations, totals 4.43 acres and remains available.