An expansion of the Delta Link Business Park will add 365,000 square feet of industrial inventory to the Vancouver market in 2019.

Steady demand and a continuing lack of available space pushed Metro Vancouver industrial leasing rates up 16 per cent during 2018, according to CBRE‘s latest market report being released today. In the tight and very popular Burnaby sub-market, CBRE says, rates for new leases were 35 per cent higher than a year ago.

The good news, at least for the short term, is CBRE predicts a somewhat smaller increase for 2019 in the five to eight per cent range. CBRE also predicts slightly lower demand for a variety of reasons, as well as five million square feet of new product coming onto the market.

“The rise (in leasing rates) has been unprecedented but they can be absorbed by multi-national tenants. The big concern is for the regional and  local occupiers,” said Chris MacCauley, CBRE’s senior vice-president in Vancouver, in a release accompanying the report. “We predict a slight increase this year, with a continued upward projection into 2020.

“When we compare Metro Vancouver to other industrial markets on the West Coast like Portland, Seattle and Oakland, there is significantly more potential for industrial lease rates to grow.”

Vancouver’s increase beat Toronto’s 15 per cent

Interestingly, Vancouver’s increase came in a percentage point higher than in Toronto, which experienced a 15 per cent increase in average rental rates last year. The difference is that, unlike Vancouver, Toronto is forecast for another double-digit increase in 2019.

In Vancouver, the average leasing rate at the end of 2018 was $11.86 per square foot.

As predicted by CBRE and other data firms, the city’s overall industrial vacancy rate dipped from 1.7 per cent one year ago to 1.4 per cent as 2019 dawned. Again, however, CBRE expects the vacancy rate to stabilize in the short term due to the new supply.

Of the 5.9 million square feet currently under construction — the highest total for the city in a decade — about 40 per cent is pre-leased. Just over five million square feet of that total is expected to be delivered in 2019.

CBRE forecasts about four to 4.5 million square feet of absorption during the next 12 months.

Economic impact of space crunch

“This is the first time we’ve been this close to residential vacancy rates which are now at one per cent, and while we need to house people, we also need to provide people with jobs,” MacCauley said in the release. “The economic impact of this drop is that businesses looking for industrial space will have nowhere to go and nowhere to expand, and as a result, the city could see more businesses leaving.”

Heading into 2019, leasing availabilities for space over 100,000 square feet were few, with only four existing options on the market. Of these, three were tailored to distribution uses.

An additional four large-scale spaces are under construction.

“We need to continue to try to meet the supply demands to strengthen our local economy,” MacCauley said in the release, “but we need a multi-pronged approach to solutions including intensifying industrial lands as well as looking at land-use policies and the ability to expand existing industrial parks.

“Local government and policy makers should be motivated by the latest statistics.”

Additional Vancouver industrial stats

Some additional statistics and observations from the report:

* After Burnaby (35 per cent), the highest increases were in the Maple Ridge/Pitt Meadows (20 per cent) and Tri-Cities/New Westminster (16 per cent) submarkets;

* Every submarket in Metro Vancouver experienced a year-over-year decline in vacancy, with Burnaby and Surrey both dipping to 0.6 per cent, and Delta dropping 70 basis points to 1.7 per cent;

* There are 14 significant industrial developments under construction, ranging from 136,000 square feet (Campbell Heights North Business Park Phase I), to the 484,920-square-foot Delta iPort Building 2;

* CBRE predicts a slight rise in the overall industrial vacancy rate to 1.6 per cent during 2019.