Industrial outlook: Victoria leads capital cities into 2021

B.C. capital has the lowest industrial vacancy rate in North America and the highest lease rates in Canada

Omicron and partner building a $100m industrial park in Greater Victoria | Omicron

With a 0.7% vacancy rate – the lowest in North America – and average lease rates the highest in Canada, Victoria has the strongest industrial market among capital cities in Western Canada.

Local agents say the small industrial market of 9.3 million square feet remains driven by owner-occupiers. At least for now.

“We are seeing a lot of developers coming out of Vancouver who will plan and build industrial for lease and for sale,” said Ty Whittaker, vice-president with Colliers International, Victoria. “But Victoria is really an owner-occupier market.”

What the Victoria area is not seeing is individual investors buying new strata space with the prospect of leasing the units out, Whittaker said.

This could change due to Victoria’s spiralling land and lease costs, combined with low vacancies for lease space, Avison Young noted in a recent report.

Average industrial lease rates in Victoria are up 15% this year to $15 per square foot, according to Colliers a rate that is higher than in Metro Vancouver ($13.12 per square foot) or even Greater Toronto, at $12 per square foot.

“Strata industrial is the next big move in Greater Victoria,” said Cory Wright, president of Vancouver-based William Wright Commercial, which recently expanded into Victoria.

A prime example is a 13-unit small-bay strata industrial project in Langford, by a local developer, that sold out in 2020 at $315-$350 per square foot, prices similar to that being seen in Metro Vancouver suburban markets.

“About 30% of the buyers were investors,” said Devencore Realty Corp. sales agent David Bornhold.

The 2021 industrial development in the Greater Victoria area is a mix of strata and lease.

Omicron Development Inc. and Lotus Capital Corp. of Vancouver, for example, have launched a 20-acre, 358,000-square-foot, $100 million industrial project in Colwood, which is primarily a lease opportunity.

Bornhold expects strata to become a trend in Victoria’s industrial sector, due to higher land costs and a lack of lease opportunities for smaller tenants.

“You’re not touching serviced industrial land anywhere in Greater Victoria for less than $2.5 million per acre,” he said.

How does Victoria compare with other Western Canadian capital cities?

Edmonton: The industrial vacancy rate has risen to 7.8% in Alberta’s capital, and Colliers International reports that inventory is rising as more companies close down or downsize. The exception is distribution space, which has seen Amazon completing a 1 million-square-foot e-commerce distribution space in the Leduc/Nisku area. However, small warehouse and bays and local manufacturing demand is softening due to continued low oil prices. Industrial absorption went negative by 580,000 square feet in the third quarter of 2020 and average industrial lease rates have flatlined at around $9.67 per square foot, but spike to over $14 per square foot for new builds in the Acheson submarket.

With 1.6 million square feet of new industrial supply added in 2020 into lower demand, Edmonton is a market buffeted by low energy prices and the pandemic.

Regina: Industrial has been the strongest real estate sector in Saskatchewan's capital for the past year and 2021 should see the same performance. The industrial vacancy is now 5.24%, down from near 8% in mid-2020, and the city posted positive absorption of 104,250 square feet in the third quarter of 2020, according to ICR Commercial.

Average industrial lease rates are in the $10 per square foot range.

“The pandemic has had a relatively minor impact on the Regina industrial market,” ICR concluded.

Winnipeg: Manitoba’s capital has a relatively strong industrial sector, with a vacancy rate of 4.2% and a total of 373,000 square feet of positive lease-up in 2020, Colliers International reports.

There is growing demand for new industrial product, as much of the existing inventory is now considered obsolete. QuadReal’s new 175,000-square-foot NorthWest Business Park was fully leased prior to completion last year, as one example.

Winnipeg developer MMI Asset Management Ltd. broke ground October 15, 2020, on a new $46 million, 17-acre industrial park at CentrePort Canada in suburban Rosser. The Steele Business Park will see the first of three 80,000-square-foot buildings completed and ready for occupancy by the end of summer 2021.

With 528,000 square feet of new industrial underway, “supply will begin to meet demand as we head into 2021,” according to Colliers’ most recent Winnipeg industrial report.