Metro Vancouver’s shortage of industrial land and the region’s insatiable demand for warehouse and logistics space means developers are now getting serious about building stacked industrial projects.
The Vancouver regional market is facing a vacancy rate of just 1.9 per cent, said Bart Vanstaalduinen, executive director, industrial practice lead, Newmark Knight Frank. He was moderating a panel on the region’s industrial market on Oct. 29 at the Vancouver Real Estate Strategy and Leasing Conference.
There is nearly four million square feet of new industrial product being built across 39 projects in the region, he said. Another 42 projects are in the development pipeline.
“Vacancy has dropped . . . from four per cent to 1.9 per cent, (and) average rents have increased from $9 to almost $13 a square foot in only four years,” he said.
Annual rent growth has averaged about nine per cent per year since 2015. Average land prices have jumped from just over $1 million per acre to over $2.2 million per acre since 2017.
Net completions have shot up from just under one million square feet to an average of four million square feet per year, but the overall development pipeline will likely do little to ease the leasing crunch.
Vancouver developers get creative
Vancouver-based developer Wesgroup Properties is planning a two-level industrial building on 6.2 acres at 11 King Edward St. in the City of Coquitlam. The developer purchased the land in the early 1990s.
The for-lease building will include 121,000 square feet at ground level and an additional 80,000 square feet on a second level that is accessible to small transport vehicles by a ramp on the south side of the building, said panelist Rob Eyers, Wesgroup’s director of leasing.
Products could also be moved up and down by a freight elevator in the building.
The ramp would accommodate five-tonne cube vans, but not full trailers, Eyers said.
“It’s going to be 32-foot clear on the ground floor, and 24 (-foot clear) upstairs,” he said, adding the upper section will be parsed into 3,000-square-foot units.
The market lacks large-format warehouse space of 100,000 square feet or larger, but Wesgroup’s small-bay units are the strongest in their portfolio. So, they opted for both.
“We sat in a meeting one day and said, ‘Can we put (the smaller units) on the roof?’ It was that simple,” Eyers said.
The project, situated near Beedie‘s Fraser Mills master-planned community, still awaits permitting from Coquitlam.
Eyers noted the city has been “very, very supportive” of the concept. “Realistically, (we’re) a year away from starting construction.”
Oxford teases South Burnaby stacked building
Oxford Properties Group also teased a stacked industrial building at the conference. The project will include second-level trailer delivery ability at the Riverbend Business Park in South Burnaby near the Fraser River.
“We’re preparing for a formal announcement in the future,” said panelist Drew Gilbertson, director of Vancouver industrial for Oxford.
He said the South Burnaby location is ideal for logistics tenants to push products into Vancouver’s core areas.
“These sites, they don’t come easily and we need to look at this more creatively so we can extract what we perceive core value out of it,” he said. “It’s been a long time, a lot of planning, a lot of work.
“We’re shifting towards that and we feel like we’ve got a winner here.”
Developers relying on land banks
Eyers said the only way companies can develop buildings for lease now is to start using up their land banks, accumulated when prices were much lower.
“We’ve seen land at $3 million, $4 million (per acre) and the lease rates at $12 (per square foot),” he said. “That just doesn’t work.”
Rising construction costs are also posing a major challenge.
“Construction costs are 30 per cent up over the last two, three years,” he said. “For us to make anything work, we purely rely on our historical land bank.
“We bought well years ago and now we’re in a time of trying to churn (properties) into income-producing buildings.”