Industrial space shortage pushes Lower Mainland tenants east

Landlord’s market

B.C.’s major cities are seeing strong demand for industrial space, a fact underscored by the recent CBRE Ltd. market survey that claims “Vancouver’s industrial hub is leading the world in rental rate growth.”

Strong demand for logistics and distribution space has pushed overall availability in the region to 2.3% and in turn driven lease rates to an average of $11.86 per square foot. This, says CBRE, is the highest on record, a new benchmark that’s nearly 16% above last year’s average. Needless to say, it’s also the priciest industrial space in Canada.

“Tenants are now more likely to consider longer-term occupier strategies, including significant investments in supply chain automation and robotics to improve operations, while landlords can obtain lengthy commitments and an opportunity to future-proof their assets,” CBRE remarks.

It notes that this year could also see the first two-storey distribution facility in Canada. Such a structure would be a natural follow-on to innovations such as the 14-storey cold storage facility Terra Beata Farms Ltd. and Burnbrae Farms Ltd. are developing for berries and other produce in Sackville, New Brunswick, as well as the six-storey facility Port Capital Group is developing for light industrial users at 3333 Bridgeway Street in Vancouver near the more traditional industrial of Viterra Inc.’s Cascadia grain terminal.

However, the key example CBRE gives to illustrate demand for industrial space is the proposed Xchange project on Mount Lehman Road in Abbotsford, from QuadReal Property Group and Hungerford Properties.

The project has yet to receive permits but could deliver between 1.1 million and 1.5 million square feet to a market that’s short of space and the next stop for users with few options in Metro Vancouver.

Options for occupiers

“Pent-up demand in the market” has left just a third of new industrial space available to tenants, reports CBRE Ltd.

Lee & Associates sounds a similar note, observing that sale prices for industrial real estate increased to more than $370 per square foot in 2018’s final quarter, an increase of $80 versus a year earlier. This has “forced many tenants to renew at a much higher cost, or face relocation, as landlords feel confident they will be able to procure tenants at prevailing market rates.”

The beneficiaries of the shift are landlords in markets that were formerly less favoured.

The experience of Phil Cooper, developer of North Kanaka Work Spaces in Maple Ridge, is a case in point. Cooper’s project consists of 70,000 square feet of strata industrial space on a five-acre site east of Golden Ears Provincial Park.

“My buyers and tenants are from Tri-City to Mission and everything in between,” he said, noting that the development includes five live-work units.

Local impact

A study by the Conference Board of Canada and published by the NAIOP Research Foundation underscores the importance of commercial real estate to cities, and the impacts when cities lose employment lands.

B.C. accounted for $4.5 billion or 11.8% of commercial real estate investment in Canada in 2017, the report said. Of this, $2.9 billion – or 7.5% of the national total – occurred in Vancouver. While this lagged behind other cities, more than 68% of the economic benefits of that investment accrued locally.

Moreover, 66.5% of jobs associated with commercial real estate investment in Vancouver were held by locals. When that investment happens elsewhere, it makes sense that jobs as well as taxes and other economic impacts will follow.

The report is a timely reminder of the consequences associated with neglecting employment lands and creating a climate where commercial real estate investment doesn’t keep pace with population growth. •