Recent sales of brownfield industrial sites for more than $15 million an acre is further evidence of a “deepening crisis” that is driving investors and owner-occupiers out of the tightest and most expensive industrial real estate market in Canada, analysts contend.
Metro Vancouver’s industrial vacancy rate has plunge to 0.5 per cent, the second-lowest level in North America as high demand and vanishing land pushes prices into the stratosphere.
“The good news is that COVID has created all kinds of demand for logistics and industrial space, and many companies have benefited from that growth,” said Doug Pulver, executive managing director at Colliers Vancouver. “The bad news is that it’s driven up prices, pushing many businesses out of the market. Some are moving to smaller, more affordable cities in the Interior and Alberta. And some Ontario companies looking to expand their footprint in B.C. are now having second thoughts. Increasingly, companies just can’t find the space they need in [Metro] Vancouver as lease rates and strata prices are going up dramatically.”
Land prices could also spook would-be industrial investors and owner-occupiers.
In September, two adjacent industrial sites assembled into a 1.64-acre property on Powell Street in Vancouver East sold for $24.3 million. A month earlier, less than half-an-acre of potential industrial land in North Vancouver sold for $7 million; and 0.8-acres of industrial land in Surrey sold for $3.6 million.
A report, to be released the week of October 27, notes that the $1.1 billion in industrial property sales through the first half of 2021 had already surpassed the annual sales volume in each of the past four years.
Colliers Canada's Q3 National Snapshot, released September 23, showed that industrial lease rates are accelerating. The weighted average asking net rent hit an all-time high of $15.50 per square foot in the third quarter, up from $14.88 per square foot from the second quarter of 2021.
This compares with an average industrial lease rate of less than $9.90 per square foot in Edmonton and Calgary, and an average of $10.66 per square foot in Toronto, which has the lowest industrial vacancy rate among major North American cities, at 0.2 per cent.
Prices for Vancouver-area industrial strata offer little relief. The first half of 2021 saw a record high average price for strata in Metro Vancouver at $429 per square foot, an increase of 117 per cent from five years earlier. In the City of Vancouver, the average industrial strata space demands $626 per square foot, nearly double the price compared with 2016.
“These numbers are unbelievable and a serious call to action,” Pulver said. “Industrial rental rates are now so high they are competing with office rents in suburban markets. We are facing a real crisis and losing new and existing businesses that deserve to expand in B.C.”
Pulver called on governments to designate more land for industrial use in Metro Vancouver to protect it from other uses, such as residential.
Despite the price challenges, the strong demand has spurred industrial construction across Metro Vancouver, with 1.8 million square feet delivered so far this year and 5.6 million square feet still under construction, according to Colliers Canada.