Amazon will occupy this 450,000-square-foot Delta iPort distribution centre in Metro Vancouver. (Image courtesy GWL Realty Advisors)

When local developer PC Urban bought a 4.5-acre site in 2015 in South Vancouver on which it built IntraUrban Business Park, the company paid about $2.3 million per acre — and some market watchers thought that was expensive.

“I think if that site came on the market today, there would be people who would try to pitch it at $8 million an acre,” said Brent Sawchyn, PC Urban’s CEO. “The reality is I don’t see how it could work at that possible number.”

Land price escalation has been a major theme of the Metro Vancouver property market during the past three years. Developers of rental apartments and industrial space are in the toughest positions to expand inventory amid the region’s incredibly tight commercial property market, leading industry insiders said in year-end interviews with RENX.

Over the last 24 to 30 months, there has been plenty of inflationary pressure on industrial land prices, Sawchyn said.

Global uncertainty softens Vancouver prices

“We are seeing a little bit of softening in (land prices),” Sawchyn said. “There’s lots of uncertainty playing out on a global geopolitical perspective.”

It’s unclear where the North American economy is headed, and that “unsettling background noise” is causing the industry to pause, he said.

Sawchyn said many developers and investors might be sitting on the sidelines waiting for prices to moderate somewhat, which might finally be happening.

In the third quarter of this year, there were 199 commercial land sales in the region — a 35 per cent decrease from the 305 land sales in Q3 2017, according to the Real Estate Board of Greater Vancouver (REBGV). The sales were worth $2 billion in Q3 2018, a 15 per cent decrease from $2.4 billion in Q3 2017, the REBGV said.

Tough to expand stock of industrial, apartments

All asset classes are struggling to grow amid the land shortage and high prices, but builders of industrial and apartments face the biggest challenges, agreed Jon Stovell, the president of Reliance Properties.

“Geometrically, there is enough land. There is more than enough land,” he said, but “standing between the land and the marketplace (will) always be barriers of zoning and regulations, which fetter the efficient delivery of real estate into our market.”

He said that means every asset price is inflated due to the lack of supply.

Rental residential is a “disaster,” Stovell said.

“We have about 100,000 units in the Lower Mainland and last year we only built 773 new ones in the whole area,” Stovell said. “All that existing rental stock represents a dilemma of meeting the needs of the existing tenants, but also in many cases being radically underbuilt.

“We need a much better way of intensifying our existing stock of residential.”

He said municipalities should be dramatically upzoning more purpose-built rental developments or redevelopments.

A shortage of greenfield sites means most new rental housing inventory must come from the aging, existing stock — an issue which has become a major flashpoint in Vancouver as tenants increasingly fight back against losing their homes to renovictions.

“Amazon effect” fuels local demand

A general lack of new supply across all sectors is a theme from 2018 that will seep into 2019, said Norm Taylor, executive vice-president and managing director with the CBRE brokerage house in Vancouver.

“I don’t think we expected the amount of demand that we saw (this year),” he said. Taylor underscored what he called the “Amazon effect,” noting the tech giant has taken a huge amount of industrial space and office space in the region.

“Amazon, by our math, is going to total 2.1 million square feet of office and industrial for what they already either have, or are committed to and is being developed for them,” he said.

GWL Realty Advisors, together with the Healthcare of Ontario Pension Plan (HOOPP), recently completed 450,000 square feet for Amazon at the new Delta iPort industrial complex on Tsawwassen First Nation lands, Taylor said.

“That is great for the marketplace, and great for Amazon, and great for GWL and the owners,” he said.

“(Amazon) also committed to another 400,000 square feet plus at The Post, which was supposed to go residential and commercial and now is going pure commercial,” he said, referring to QuadReal Property Group’s 1.1 million-square-foot office redevelopment of the former downtown Canada Post building.

The regional industrial vacancy rate is now at 1.4 per cent, Taylor said.

“All the fundamentals are (here) for growth,” he said. “But for now and into 2019, industrial is going to be very tough for users to expand and grow.”

“Density is the only answer”

Taylor said more aggressive upzoning and densification is the only answer to the land shortage.

“We live under a magnifying class when it comes to land, but we’ve got to be creative with it,” he said.

“There aren’t really any opportunities unless we get really creative and start putting industrial space on top of industrial space,” said PC Urban’s Sawchyn.

PC Urban, for instance, is considering building a high-density industrial project on a site south of the Fraser River.

“We are looking at a situation where we would have traditional high-bay industrial space at grade, but then on top of it we would have — in effect — a second industrial building,” he said.

“Those are the types of things we need to see going forward,” he said, adding distribution buildings could now have 36-foot ceiling heights. “There is technology to be able to use that space.”

We will see more of that kind of industrial product moving forward, he said.

As for housing, there are still redevelopment options in the urban core, Sawchyn said. “Old, tired, dilapidated apartments or housing on transit corridors — I think they’re still screaming for redevelopment.”

He said there are still 30,000 to 40,000 people moving to the Lower Mainland each year.

“We’re seeing lots of potential residential assemblies and residential sites come forward that probably fit within the context of the zoning . . . but many municipalities want to go slow on that,” he said.

“If we have a crisis of affordability now, I think it’s only going to get much worse in 12 to 18 months.”