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"CRE Matters" Columnists

Synthia Kloot Senior Vice President, Operations, Colliers International
Oliver Tighe Executive Managing Director, Commercial Appraisal Group, Colliers
Tanya Nicholson Director, Marketing, Landlord and Investment Sales, Colliers International
Madeleine Nicholls Managing Director, GTA, Colliers
David Bowden Vice Chairman, Head of Strategy and Consulting, Colliers Canada
Scott Bowden Head of Valuation & Advisory Services, Colliers Canada
Sarah Bramley and Amy Vuong Colliers International
Brendan Neeson Executive Director of Property Tax Services, Alberta, Colliers International
Lex Perry Vice President, Marketing, Communications and Research, Colliers Canada
Colliers National Multifamily Team, East, Colliers Colliers National Multifamily Team, East
Karl Innannen Managing Director, Broker, Colliers, Kitchener
Shiri Rosenberg Director of Asset Strategy, Innovation and Community Spaces, Colliers
Colin Alves & Jean-Marc Dube Colliers Toronto & Montreal
Janina Franceschutti Executive V-P, National Investment Services, Colliers Canada
Eric Horvath, CCIM Senior Vice President & Partner, Colliers
Adam Grisack Director, Valuation & Advisory Services, Colliers Canada
Eliezer Timolien Senior Research Analyst, Colliers
Robyn Baxter Senior Vice President & Co-Managing Director, Workplace Advisory, Colliers Canada
Arnold Fox Senior Vice President, Real Estate Broker, Montreal, Colliers
Alam Pirani Executive Managing Director, Colliers Hotels
Sarah Bramley Associate Vice President, Workplace Strategy & Innovation, Colliers
Bill Hennessey Managing Director, Moncton Brokerage, Colliers
Greg Taylor Managing Director, Halifax Brokerage, Colliers
Dayma Itamunoala Associate Vice President, Sales Representative, Toronto Brokerage, Colliers
Grant Evans Senior Vice President, Victoria Brokerage, Colliers
Lilian Kan Director, Development Management, Colliers Strategy & Consulting, Vancouver
Bonita Craig & Robyn Baxter Colliers Canada
Daniel Holmes President, Brokerage Services | Canada, Colliers
Sehaj Gill Associate Director, Property Tax Services, Colliers
Jane Domenico Senior Vice-President & National Lead, Retail Services
Robin McLuskie Managing Director, Canadian Hotel Brokerage, Colliers
Douglas Pulver Executive Managing Director, Colliers Vancouver
Pat Phillips Senior Vice President, Colliers Vancouver Brokerage
Rob Newman Senior Director of Property Tax Services, Colliers
Adam Jacobs Senior National Director, Research, Colliers Canada
Darrell Hurst Darrell Hurst, Senior Managing Director, Brokerage, Colliers
Jean-Marc Dubé and Arnold Fox Colliers Montreal
Robert Brazzell Managing Director, Ontario Property Tax Services, Colliers Canada
Damian Bernacik Director, Legal Services, Property Tax Services
Susan Thompson Associate Director of Research, Colliers Vancouver
Peter Garrigan, SIOR Executive Managing Director, Greater Toronto Area | Colliers Brokerage
Rob Purdy Executive Director, Colliers Canada’s Valuation and Advisory Services
Ryan McIver Senior Vice-President and Broker, Colliers Toronto
Tonya Lagrasta Head of ESG, Colliers Real Estate Management Services Canada
Rick Charlton Senior Vice President, Colliers REMS
James Glen Senior Vice-President, Colliers Valuation and Advisory Services
Roxanne Gora Director, Valuations and Advisory Services, Colliers Montreal

Recent

White-hot Metro Vancouver industrial market starts to cool, but new space still needed

Industrial asking rates in the Greater Vancouver Area stabilize for the first time since Q3 2019

Metro Vancouver’s white-hot industrial property market is showing signs of cooling off, but strong demand and a shortage of space means the market still needs plenty of new workspace.

Industrial asking rates in the Greater Vancouver Area (GVA) have stabilized for the first time since Q3 2019, according to Colliers’ Vancouver Industrial Market Report for Q2 2023.

As one of the most competitive markets in Canada, the region had been setting record-high asking rates every quarter over the past four years, increasing at a compound annual growth rate of 15.7 per cent.

But now, the sustained series of rental increases has come to an end, with the average asking net rate holding steady at $22.05 per square foot in Q2 2023.

Vacancy in the quarter climbed by 50 basis points to 0.6 per cent. Meanwhile availability, a more true indicator of overall free space, climbed 20 basis points to 1.7 per cent.

About one million square feet of new industrial space was added to the market in Q2, but only five per cent of that space entered as vacant at completion.

More help is on the way as about 4.9 million square feet of space is expected to be added this year.

With the market still deprived of vacancy, there are no signs of sustained downward pressure on rates in the near future.

It all points to a modest flattening in the market.

We need, however, a more pronounced softening. The best way to achieve that is by adding more space to the market and generating other solutions, including easing the permitting process, diving deeper into innovative industrial design and by freeing up more land to build port-related distribution space.

Modest easing brings benefits for tenants 

A balanced market would tend to have vacancy in the three to five per cent range.

In order for that kind of vacancy to emerge in the market, we would require seven to nine million square feet of new industrial space to become available. The regional and national economies are relying on this.

We're seeing some of the supply and demand pressure ease, but we still can't build quickly enough to increase our vacancy rate into balanced territory.

That said, there are more options on the market for tenants. For an occupier seeking a 100,000-square-foot space, there used to be one choice on the market, or none.

What’s more the prospective users would often have to wait two to three years for the building to be constructed.

Now, we might be able to present them with two or three options, including a space that’s available much sooner.

Meanwhile, elevated interest rates and global economic headwinds have some of the larger transnational companies putting a pause on expanding their footprints.

This pause from major corporate users based on economic uncertainty is taking some of the heat off the market and creating a bit more room for local users to establish a regional presence or expand their operations to keep pace with economic needs. This is especially true in port-related distribution and e-commerce logistics.

Availability is inching up, so that naturally takes pressure off asking rental rates.

The challenges that remain 

Vancouver is home to Canada's busiest port, making the Lower Mainland a key part of the national economic engine. But because of our constricted industrial market, the logistics process for Western Canada sometimes doesn't make much sense.

Here's an example:

Some of the largest international retailers have millions of square feet of distribution space in Calgary.

Much of that product arrives in containers in the Port of Vancouver and is then trucked or railed to Calgary to be stored, picked and processed before it's shipped back over the Rocky Mountains to retailers and companies in B.C.

That's a process made necessary due to a lack of suitable distribution space in and around the Lower Mainland.

We need solutions. There are a few worth discussing and driving forward.

Ease permissions process, keep pushing innovation and free up land 

The municipal and government approval process needs to continuously improve.

It's difficult to get projects of any scale approved through the various development and construction stages quickly and efficiently enough to help ease the space burden.

That has been the case for far too long in our region and it’s essential to update the process.

Developers would benefit from municipalities creating a standardized set of guidelines and specific timeline requirements to provide permits.

In reality, some municipalities are quick to provide feedback; others take months. Every delay adds to the overall cost of a development and hinders the creation of new, essential job space.

Meanwhile, because of the region's shortage of industrial space, Vancouver has become a test market for innovation in industrial space design.

It's important for building designers and developers to lean deeper into that creativity.

Some creative industrial projects

There are examples of creative industrial projects, including Oxford Properties’ Riverbend Business Park in Burnaby, Canada’s first large-scale, multilevel industrial building and Wesbild’s Marine Landing — a two-building, four-level, mixed-use industrial project near Marine Drive.

Marine Landing, a partnership with KingSett Capital, is a mixed-use industrial project with 236 light industrial and office strata units.

The current industrial situation also demands that we zone, design, permit and build more mixed-use projects that fold together light industry, retail and residential uses.

These structures are not noise- and pollution-spewing burdens, but rather high-tech, digital and logistics-oriented spaces that can co-exist functionally with other types of users and residents.

We have test cases like Strathcona Village on Hastings Street in Vancouver that can and should be replicated.

Meeting a need for micro-fulfillment

Such mixed-use industrial projects would present the ideal venues for micro-fulfillment. This is a strategy that places small-scale warehouse facilities in densely populated urban locations closer to the consumer, typically in under-utilized spaces within mixed-use buildings, to improve delivery times.

It's an extension of last-mile delivery, but using a smaller format distributed over a larger area.

These highly integrated mixed-use projects allow for the development of more complete communities that incorporate all the different elements of a vibrant neighbourhood.

It's also essential to find ways to make more land available for industrial development.

This has long been a political hot potato, but it’s time for all stakeholders to discuss B.C.’s Agricultural Land Reserve as part of an overall land-use review for the region.

Nobody is saying that agricultural land isn't essential, because it certainly is, but industrial land is equally important and needs to be safeguarded and managed with similar enthusiasm and guardrails.



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