Industrial space shortages in major Canadian cities are well documented, but the problem isn’t restricted to the biggest centres. Central B.C.’s City of Kelowna is also booming and industrial vacancy has dropped below one per cent.
So, when a seven-acre plot of scarce development land in the West Kelowna business park was put on sale by Vancouver-based Denciti Development, it attracted significant interest.
Denciti had purchased the 10-acre site at 2648 Kyle Rd. about three years ago and built two strata buildings of about 40,000 square feet apiece which quickly sold out. It originally planned a third, larger building at the back of the site, but determined a leased facility would be a better option.
“We were finding there were a lot of tenants coming forward on this,” broker Steve Laursen of Royal LePage Commercial in Kelowna told RENX. “They were looking to occupy distribution space and for Denciti, it is just not within their portfolio to buy and hold. They are merchant developers.”
Kelowna “running out of industrial land”
So, Denciti marketed the remaining seven acres – rather than build, stabilize and sell later. It sold to a Vancouver-based developer which plans a mid-bay type of facility of about 150,000 square feet. Plans and approvals are still being finalized.
The property sold for $1.425 million per acre, Laursen said, reflecting the dramatic ongoing rise in industrial land values.
“Land in West Kelowna, there is nothing left really,” Laursen said. Nor is there much existing space, with just 100,000 square feet-or-so available for lease in the market. “We’re literally running out of industrial land right now.”
He noted a new industrial land listing right across the road from this property, with direct highway access, is asking $2.5 million per acre.
The small amount of available land is filling up quickly. Local firm Callahan Property Group is moving at full speed building its Kelowna North Industrial Park at the city’s northern edge.
“(Its) plan was to build a 60,000-square-foot building each year, phased out over the next five to six years on this 38-acre piece of property,” Laursen said.
“(It) is just completing now on the third building, 180-some-odd thousand square feet, and he has maybe 20,000 or 30,000 square feet of that building available.
“(It) has just started pouring the foundation on building number four, which will be another 60,000 square feet, but he’s going to go to smaller-bay.”
The Okanagan is a hot market
A host of factors are combining to make the Okanagan a hot market, and not just in the industrial sector. Residential sales are also booming as COVID lockdown- weary residents exit major cities and eye the region as an attractive alternative.
Projects like the nearly sold-out luxury One Water Street condo towers and townhouses by Kerkhoff Construction Group and North American Development Group are sprouting up across the city. Laursen said there are 15 residential towers either under development or in planning stages.
“The residential associates throughout my office and every other office in town are all dealing with Toronto, Calgary, Edmonton and Vancouver right now. It’s people that are just getting sick and tired of the city and they are going, ‘You know what? I am moving up to the Okanagan’.”
Laursen said average home prices are in the $850,000 range, noting Kelowna is no longer on the list of affordable cities in which to buy a home.
The same thing is happening with businesses, especially firms which need to distribute in the valley.
As distribution becomes more important due to e-commerce and consumer expectations to receive goods more quickly, firms need last-mile depots closer to customers.
Others are just being pushed out of markets like Vancouver because they can’t find space.
“In B.C., you just can’t get big distribution. It’s like Wayfair looking in the market last year,” he said.
“I think they were looking for 800,000 square feet they were going to split between Calgary and Vancouver.
“In the end, I think they ended up taking whatever they could get, which was about a hundred and some thousand square feet in Van, and the remainder went to Calgary.”
Kelowna between Calgary, Vancouver
Speaking of Vancouver and Calgary . . . Kelowna sits roughly in the middle of the two.
Demand for industrial space in Kelowna runs the gamut from smaller local firms to distributors who need regional space.
“The smaller companies are looking for that 2,500-square-foot spot,” Laursen said. “Then we get a lot of the nationals that are coming in looking for anywhere from that 5,500 to 30,000 square feet. At the national level, I’d say the sweet spot is around 10,000 night now, on the small businesses about 2,500.
“And we are finding a lot more of these groups are looking for dock loading these days.”
The West Kelowna business park development will be a good example, with the company planning to change the orientation of the building to make it easier for 54-foot trailers to manoeuvre in and out.
In addition to driving development land prices up, the trend has pushed asking lease rates as high as $15 for new product in prized areas. For strata industrial properties, the asking price is as high as $300 per square foot.
Laursen doesn’t expect the situation to change any time soon. A big reason the city is so attractive – its mountains, lakes and scenery – is also a major factor limiting its growth.
“The mountains and the lakes are our biggest problems around here,” Laursen noted, with some irony. “They are beautiful problems, but they are problems when it comes to development.”