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Deliveries up, but Vancouver industrial space still critical: JLL

While industrial building deliveries have surpassed three million square feet in Metro Vancouver...

IMAGE: Beedie construction is building this 530,000-square-foot distribution and cold-storage facility for Sobeys in South Surrey. (Rendering courtesy JLL)

Beedie construction is building this 530,000-square-foot distribution and cold-storage facility for Sobeys in South Surrey. (Rendering courtesy JLL)

While industrial building deliveries have surpassed three million square feet in Metro Vancouver this year, its vacancy rate remains critically low at 1.9 per cent, according to JLL’s Q3 2019 Industrial Insight report.

Population growth combined with demand from e-commerce, food production and distribution, and film companies are making available industrial space scarce, JLL industrial team research analyst Zachary Redekop told RENX.

“The story is the lack of land availability. There’s not much land to build on, so when land values go up, rents go up.”

Lease rates grew by 12 per cent year-over-year during the quarter. While the rate of growth has slowed somewhat, rents are expected to continue to creep upward.

Leasing rates highest in North Vancouver

The average net asking rent in Metro Vancouver has risen to $12.38 per square foot. It ranges from a low of $9.46 in Delta to a high of $18.46 in North Vancouver, where no projects have been completed this year and nothing is under construction.

“Burnaby’s a more interesting area because it still has about 33 million square feet (of inventory) and their average asking rents are $13.42,” said Redekop.

Redekop expects the Metro Vancouver industrial vacancy rate to remain below two per cent because most new product coming to the market is already leased.

While Delta was the busiest sub-market, with 913,907 square feet of space delivered during the third quarter, its 0.5 per cent vacant rate was also the lowest of the nine included in the report.

Three of the four completed Delta projects, accounting for 854,000 square feet, were built to suit and will be occupied by Euro Asia Transload, BMW and Swiss Water. Goodfood Market Corp. leased the remaining 82,740 square feet in Beedie’s build-to-suit building for BMW at 7560 Beedie Way before completion, bringing no relief to the vacancy rate.

Metro Vancouver industrial construction

There’s 4.89 million square feet of industrial space under construction in Metro Vancouver, led by Surrey which has 1.94 million.

Redekop said the Campbell Heights area in South Surrey has six industrial facilities totaling more than a million square feet under construction, with up to 15 more of various types and sizes planned.

Beedie is building a 530,000-square-foot distribution and cold-storage facility for Sobeys. A 295,000-square-foot Walmart cold-storage distribution facility announced this summer for the Campbell Heights Business Park, is not yet under construction.

A 162,000-square-foot building was recently completed at Oxford Properties Group’s Riverbend Business Park in Burnaby, and another one of 62,000 square feet is expected to be delivered in early 2020.

Oxford is also planning to build a two-storey, 707,056-square-foot facility at the park that will be much larger than the multi-level strata developments with small units and bays that have started to be built in Metro Vancouver.

“It remains to be seen how well it will do,” said Redekop. “It could open the door to more.”

Redekop said Alliance on Vanguard in Richmond will be a 200,000-square-foot, multi-level building with 60 industrial, retail and office units that doesn’t cater to traditional industrial uses. It’s scheduled to be completed in 2021.

Slower Vancouver industrial leasing activity

Large block leasing was slower than in the previous quarter, with just two deals signed above 100,000 square feet. General Motors renewed its lease at 2745 58th Cr. in Langley and a confidential tenant took 234,629 square feet at 4300 80th St. in Delta.

Redekop attributed the lack of activity more to a tight market with a lack of vacancies than a slowdown in deal velocity. Positive net absorption was only 15,806 square feet, due mainly to more than 450,000 square feet of negative absorption in Vancouver — primarily from two properties.

BC Liquor Stores’ former cold storage facility at 3200 East Broadway came back on the market, making 292,000 square feet of industrial space available. The old 166,000-square-foot Molson brewery building at 1550 Burrard also became available.

While both buildings are empty and on the rental market, Redekop expects them both to be redeveloped into mixed-use office and residential properties as part of a move to densification.

“It’s hard for them to remain industrial, because you can’t really justify an industrial facility on land that’s valued so highly.”

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