Metro Vancouver Industrial Overview - Avison Young

Metro Vancouver

Industrial Overview Spring 2014

INSIDE: Q&A with Rich Coleman, Marcus Ewert-Johns and Kim McCaig on the impact of the proposed development of a provincial LNG industry on BC’s industrial real estate market and local manufacturers.

> Metro vancouver industrial market snapshot Market

Industrial Inventory (square feet)

Vacancy Spring 2014

Fall 2013

Spring 2013

Richmond

36,850,443

3.6%

4.4%

2.6%

Surrey

28,018,563

2.9%

2.3%

1.9%

Burnaby

27,459,097

3.4%

4.3%

4.6%

Vancouver

23,413,291

2.5%

2.5%

2.0%

Delta

21,026,298

8.0%

7.1%

6.9%

Langley

16,185,691

2.8%

3.1%

3.8%

Coquitlam

8,003,369

2.8%

4.4%

7.8%

Port Coquitlam

7,255930

5.1%

4.2%

2.5%

Abbotsford

7,081,192

4.6%

3.6%

2.8%

North Vancouver

5,452,983

2.3%

2.3%

2.2%

New Westminster

3,776,194

1.6%

3.1%

3.5%

Maple Ridge/Pitt Meadows

3,131,493

3.0%

3.3%

1.8%

187,654,544

3.7%

3.9%

3.5%

Total

> Market Indicators (change from six months ago)

absorption

cap rates

rental rates

Healthy Metro Vancouver industrial market active despite tight vacancy

T

he return of significant levels of speculative industrial construction, which commenced primarily in 2013, has boosted the inventory of large-floorplate developments throughout Metro Vancouver as demand from users seeking options in excess of 100,000 sf has abated. However, regional industrial sale and leasing velocity has remained high as many small- to mid-sized operators clamour for additional space, and factors such as a strengthening U.S. dollar against the loonie weighs on corporate decision-makers. Vacancy in Metro Vancouver’s active 187.6-million-square-foot (msf ) industrial market rose slightly to 3.7% at the end of the first quarter of 2014 from 3.5% a year earlier (but down from 3.9% in fall 2013) due primarily to the addition of almost 2.7 msf to the region’s industrial inventory in that 12-month period. With more than 2.2 msf of new inventory currently under construction, developers are gearing up to accommodate anticipated future demand spurred by the continued growth in container traffic, a nascent provincial LNG sector, and demand for Canadian exports of primary materials – all of which is fuelling additional expansion and demand for industrial properties throughout the region. While industrial vacancy tightened year-over-year in Burnaby, Langley, Coquitlam and New Westminster, industrial markets in Richmond, Surrey, Delta, Abbotsford and Maple Ridge/Pitt Meadows, which are also home to most of the region’s new construction, saw vacancy correspondingly rise. While large logistics/distribution users have generally gone quiet since fall 2013 – with no new entrants to the BC market and no new large contracts announced – industry awareness of the continued on page 2

vacancy rate

construction

retail sales

container shipping volume

continued from page 1

existing mandates still looking to enter the market (Amazon.com Inc. and Costco Wholesale among others) magnified the sense of ‘pause’ that has characterized much of the past six months. Until these significant tenants make a decision to proceed and select a development or location, industrial developers are likely to delay subsequent phases of speculative projects potentially serving that niche pending absorption of the initial construction. The mid-term redevelopment of large industrial sites in Metro Vancouver, such as Ledingham McAllister’s 42-acre Edmonds distribution centre site in south Burnaby and Bentall Kennedy’s Braid Street site in New Westminster, will require the large industrial tenants who continue to occupy those buildings to secure new industrial premises with long-term tenure. This exodus, when it occurs, will help reduce vacancy resulting from the current product coming to the market. Metro Vancouver’s supply of industrial land remains a concern as land pricing continues to establish the region as one of the most expensive in North America. Parcels of industrial land available in the mid-term for development remain and include the holdings of the Tsawwassen First Nation and Port Metro Vancouver (both leasehold) in Delta and East Richmond, respectively, along with Surrey City Development Corp.’s Campbell Heights business park. Remediation of Oxford

Phase one of Dayhu’s Boundary Bay Industrial Park was recently completed. The 440,000-sf distribution centre (with a second 440,000-sf building contemplated) has a new tenant, Apps Express, which took 110,220 sf in the new building.

Properties’ 64-acre Norampac mill property in South Burnaby is ongoing and will remain as industrial land, and provide – along with 55 acres in Glenlyon Business Park now owned by the Beedie Group – additional industrial land for development. While these development sites may satiate moderate industrial demand in the midterm, it is important to consider that some of the larger mandates in the market could consume significant acreage in a single transaction. Potential options to facilitate and promote industrial land redevelopment and intensification efforts were outlined in the December 2013 report to Metro Vancouver, Metro Vancouver Industrial Land Re-Development & Intensification Constraints & Solutions, that was prepared by Stantec Consulting and Site Economics Ltd. The report’s findings included: the importance of transportation infrastructure

2 I

ADDRESS

Despite the introduction of new legislation proposed to divide the province into two agricultural zones, farmland in the Lower Mainland, Fraser Valley, the Okanagan and Vancouver Island will remain unaffected, under the same Agricultural Land Commission (ALC) restrictions as before. continued on page 8

> Recent Notable lease deals MUNICIPALITY

and industrial land uses being fully coordinated; the encouragement of flexible industrial zoning; and the reexamination of land uses surrounding infrastructural services such as rail service and water access as well as proximity to highway interchanges. The report also suggested that municipalities review polices that hinder intensification such as regulations related to municipal approvals and permits. Design guidelines should also reflect industrial land use needs and contexts. Reduced development costs and amenity requirements in industrial zones as well as expedited and efficient approval processes were also recommended.

SQUARE FEET

TENANT

Richmond

16133 Blundell Road

635,639 (renewal)

ContainerWorld Forwarding Services Inc.

Richmond

16080 Portside Road

262,702 (renewal)

Coast 2000 Terminals Ltd.

Delta

1608 Cliveden Avenue

143,000

BCIT / VCC Heavy Equipment Training Facility

Delta

1344 Derwent Way

110,885

FLS Warehousing Inc.

Delta

540 Chester Road

110,668 (renewal)

The Fashion Distributors

Delta

8181 Churchill Street

110,220

Apps Cargo Terminals Inc.

Richmond

14260 Knox Way

110,095 (renewal)

Staples Canada

Pitt Meadows

19100 Airport Way

103,984

Keystone Automotive Industries

Richmond

18111 Blundell Road

102,500

Pro West Transport Partnership.Performance.

Source: Port Metro Vancouver

Benefits from natural resource development impact every industry and region in BC

A

10% increase in the value of BC’s natural resource outputs will have a significant impact on GDP and employment – not only for all industries and regions in the province but throughout all of Canada, according to a new report by the former chief economic analyst for Statistics Canada.

jobs and wages generated by meeting this increased demand,” the report says. “The impact is measured for a number of variables, including how much GDP (total income) is generated, by how much labour income rises, how many jobs are added, and the increase in demand for imports.”

Philip Cross, now the founding senior research fellow of Resource Works Society, has authored a new report called High Impact: The Importance of Natural Resources to the Economy of British Columbia, which seeks to explore the economic impact of a 10% increase in the value of the outputs of all BC’s resource industries. While the 10% figure is arbitrary for the sake of the report, BC’s resource sector has twice expanded by that multiple (or more) in a single year since 2002.

According to Cross, output in BC’s natural resource industries totalled $21.371 billion (or 11.2% of the province’s total GDP) in 2010. Increasing resources output by 10%, therefore, automatically means expanding that total by $2.137 billion. He adds that this 10% boost reflects increases of $904.7 million in mining, $439.8 million in resource-based manufacturing, $400 million in utilities, $150.1 million in forestry, $110.1 million in agriculture, $75.3 million in pipeline transport, and $57 million in other primary industries.

“The total impact of this expansion includes the direct effect of the 10% boost to output, the indirect impact of increased demand for suppliers (who in turn demand more inputs), and the induced impact of higher consumer spending from the growth in

The total benefit from the 10% expansion of the province’s natural resources sector adds $3.7 billion to GDP in BC (and $4.5 billion of increased GDP across Canada). Just over 50% of the increase in BC originates in the $2.1 billion boost to output in natural

Partnership.Performance.

resources from the initial 10% boost. Another $1.6 billion of output in BC occurs after the initial spurt in resource production. Mining posts the largest increase of any industry at $950 million, largely due to a combined expansion of almost $800 million in natural gas and coal mining, according to the report. “Forestry adds $301 million. The expansion of forestry and mining drives the growth of manufacturing, where wood, paper and primary metals (mostly aluminium) account for over 75% of the total increase of $542 million.” The report continues: “The bulk of the indirect increases occur in industries outside the resources sector. In particular, demand for services expands by almost $1.2 billion with $0.4 billion in spinoff effect in the goods-producing sector.” Of the 10 industries that indirectly benefit most from the initial 10% boost, only two are natural resources industries (forestry and utilities). In fact, the industry that benefits most is finance, insurance and real estate with a gain of $456 million.  I 3

Q&A How might the proposed development of BC’s LNG industry impact the province’s industrial real estate market along with manufacturers and suppliers? Marcus Ewert-Johns 1. LNG projects, along with other mega projects, should have a strong positive impact on the provincial economy if they proceed. When you think of the locations of the various project sites the industrial real estate markets in Terrace and Prince George, crossroads for pipelines and support centres for resource projects, stand to benefit. Terminuses like Prince Rupert and Kitimat would also see growth. Vancouver won’t benefit significantly as the costs to start up a new business or expand an existing one are prohibitive. Operations in more cost-effective locations also stand to gain as businesses expand to service projects from Surrey, Abbotsford and Chilliwack.

2. The predicted job growth is unprecedented. Government will have to support industries to ensure that we graduate, retrain and attract enough skilled workers. If not, we’ll see one business bleed workers to another, which could undermine growth by starving long-standing operations as workers flow to higher waged but shortterm mega-project jobs. BC is populated with great manufacturers who are eagerly Marcus Ewert-Johns Vice-President, British Columbia, Canadian Manufacturers & Exporters Former executive director of the International Business Development Branch in BC’s Ministry of Technology, Trade & Economic Development. 4 I

1. How will proposed LNG developments potentially impact BC’s industrial real estate market and assist in the expansion of BC industrial manufacturers and suppliers?

2. With the BC government indicating that 61,700 indirect FTEs of

annual employment will be generated in “supplier industries” once five plants are operational, will BC manufacturers and suppliers have the capacity and ability to expand and where in the province might they be located?

3. Considering the strong demand for industrial land and facilities from logistics and distribution activities, will there be suitable capacity in terms of BC industrial land and manufacturing capacity to support the projected employment and material needs of the BC government’s proposed level of LNG development?

anticipating the supplier opportunities. The project proponents and prime contractors could help by communicating as early as possible the potential opportunities, timelines and procurement standards. The last thing we want to see is items, like valves or pipe, manufactured elsewhere and shipped to BC if they could be manufactured here. That would be a tremendous opportunity lost for local BC companies and the local job market. If successful in becoming a supplier several would likely expand their operations in situ at plants in the South Fraser. Others might move to new sites in the Fraser Valley where land and facility costs are cheaper. Others still, might set up branch operations closer to the projects and transportation infrastructure in regional centres like Prince George or Terrace.

3. It depends on where businesses are located or want to locate. In the Lower Mainland, the perception is that industrial land is in very short supply as owners sit on land hoping to realize greater returns having it rezoned to residential. We know that

availability of industrial land in urban areas is decreasing dramatically as when you look at municipal taxes year after year you see fewer businesses subsidizing more and more residences. The provincial Agricultural Land Reserve prevents over-development to protect food supply. The province could also benefit from an Industrial Land Reserve so businesses are not displaced by residential projects. BC is great place to live; however, you also want to reside close to a job and can’t keep pushing industry further out. We also need to create some buffer between residential and industrial land. If factories are right next to a subdivision, people will complain if there is truck traffic, noises and smells related to various industrial processes.

Rich Coleman 1. The BC government believes LNG development will increase demand for new and expanded industrial infrastructure. LNG proposals in BC are significantly large-scale projects with long-term operations. The industry will support new manufacturing

Rich Coleman BC Minister of Natural Gas Development and Deputy Premier

Kim McCaig Executive director, CEPA Foundation

Coleman has been elected five times as MLA for Fort Langley-Aldergrove. He currently vice-chairs the Cabinet Working Group on LNG, and the Priorities & Planning Committee.

McCaig has worked within the pipeline transmission industry since 1974 in the areas of field operations as well as operational strategy, policy development and project management. Partnership.Performance.

enterprises; help BC-based and Canadian companies grow, and expand indirect industrial activity. An independent analysis by Grant Thornton this last year showed five LNG projects could translate into 75,000 jobs in British Columbia over the long term, in addition to construction jobs averaging over 39,000 a year.

2. The Province of British Columbia is confident these industries will flourish. The development of the LNG industry in British Columbia will have far-reaching benefits

Proposed LNG plants could spark new industrial real estate and employment opportunities, particularly in Northeast BC.

throughout a range of sectors in the province, and that’s why we launched the LNG Buy-BC initiative – to link enterprising British Columbians with the business and economic opportunities that this new industry is creating. Our vision also looks beyond the opportunity of LNG itself. The LNG-Buy BC Program will provide a platform for major investors in a wide range of industries to tap into everything BC’s business community has to offer.

3. Yes. This has been a priority from the start of our plans for LNG. A recent example of progress is the Premier’s Liquefied Natural Gas Working Group, which outlined recommendations that need to be taken to ensure the Province has the skilled workforce to meet the scale of development proposed. This report included the work of organized labour, trade unions, industry, and First Nations representatives. We will focus on these and other themes during the LNG international conference Partnership.Performance.

in Vancouver, May 21-23. A trade show will complement the conference agenda as well as the LNG Buy-BC program. Industry delegates from around the world, communities and First Nations, investors, and more will all participate.

Kim McCaig 1. BC’s oil and gas industry directly employed roughly 12,000 workers in 2012. BC’s LNG industry is currently in a development stage but has the potential to be a significant source of job creation with 60,000 workers expected during peak construction. Once operational, the five LNG terminals could support 75,000 direct/indirect jobs required to operate and supply goods and services. LNG projects each require the construction and operation of natural gas treatment facilities, LNG liquefaction and storage facilities, marine terminal facilitates, an interconnecting cryogenic LNG transfer pipeline, and supporting facilities/ infrastructure. None of the LNG export facilities and associated pipelines have been approved by BC’s regulatory body. Industry activity and employment is expected to remain stable through 2014. Once approvals are granted, a significant amount of construction activity is expected in a very short time period, and will greatly impact BC’s industrial real estate market and grow the need for BC industrial manufacturers and suppliers to support this business.

2. The BC government estimates that roughly 61,700 jobs are required to support the five proposed LNG facilities once in operation. The labour market in Northeast BC, where all the gas activity currently occurs, consistently has the province’s lowest unemployment rate, and is struggling to find and attract labour to keep up with its current operation and planned growth. The development of this sector is expected to have the highest growth of demand for workers. Workers needed to support LNG operations are required to drill, produce, process and transport the natural gas required to feed the export facilities.

Businesses that specialize in supplying natural gas drilling and production are commonly established in proximity to their customers. In Alberta, clustering of suppliers have developed near the oil sands mainly due to logistical challenges and the size of the equipment and components used in oil sands development. This same clustering of businesses for new BC manufacturers and suppliers most likely will be located near where natural gas drilling and production will be occurring (i.e. Fort St. John and Fort Nelson). In addition to drilling, producing and processing natural gas for LNG, there is a significant need for infrastructure (including manufacturers and suppliers) to support the development of a LNG export sector, including initial construction and then continuing operations. This will be developed on BC’s Northwest region as 2,400 permanent jobs are required to operate and maintain the LNG plants and pipelines on an ongoing basis (ie. near Kitimat and Prince Rupert). Infrastructure challenges such as roads and electricity supply will impact choice of location.

3. As it stands, northern BC’s labour force will not be able to meet the labour demand generated by the growth of the province’s natural gas industry. It’s our opinion that capacity for BC industrial land and manufacturing to support the projected employment and material needs will also be challenged. None of the five LNG export facilities has been approved so companies are waiting to see what happens. As a result, BC’s manufacturing capacity is expected to remain stable through 2014. Significant activity will be required to support the projected employment and material needs. The highest real estate prices in northern BC are in Fort St. John. Real estate prices in Kitimat are up more than 40% in less than two years. Housing inflation has begun at a time when no LNG projects have announced a final investment decision. The trend in residential housing could also be linked to property values for industrial real estate.  I 5

Avison Young Industrial Lease Listings

CO

1020 Derwent Way, Delta

M

2 ING

! 015

Campbell Heights west Business Park

• 95,000 sf - 251,222 sf available • Excellent distribution space Rob Gritten / Ryan Kerr

230 Brunette Avenue, New Westminster

• 56,000 sf free-standing office and warehouse facility with exposure • Excellent access/egress to the Trans-Canada Highway

Ryan Kerr / Rob Gritten / Gord Robson

John Lecky / Ryan Kerr / Kevin Kassautzki

18964 96th avenue, surrey

9425 190th st, surrey

• 28,800 sf of affordable warehouse/ office space • Fenced yard area for outdoor storage • Rail access if required

• 18,000 sf to 26,287 sf • Large service facility with professional offices, and yard area over two separate buildings on 3.96 acres

Ben Lutes / Kyle Blyth

Michael Farrell / Gord Robson

340-344 lynn avenue, north vancouver

Horizon Pacific Corp. Centre II, langley

• Light industrial units available from approximately 5,300 sf to 10,625 sf • Well-situated in Lower Lynnmour, which is currently undergoing a great deal of redevelopment

5495 Regent Street, Burnaby

• Up to 400,000 sf available • Preleasing opportunities in prime Campbell Heights location

• 9,000 sf to 86,000 sf available • Preleasing warehouse and built-tosuit office space in Gloucester • Move in December 2014

5563 268th street, langley

• 20,000 sf to 61,625 sf available • Build-to-suit industrial opportunity for lease in prime Port Kells location Michael Farrell / John Lecky

• Warehouse space with professional offices in Gloucester Industrial Estates • 16,627 sf available • Dock and grade loading Michael Farrell

1575 Vernon Drive, Vancouver

#109-1750 COAST MERIDIAN RD, PORT COQUITLAM

• 26,320 sf available • High exposure warehouse/production/ office building with refrigeration facilities

• Warehouse/office space in professionally managed complex • 13,234 sf available

Ryan Kerr / Kevin Kassautzki

Kyle Blyth / Ben Lutes / Matt Thomas

Michael Farrell

Terry Thies / Ian Whitchelo

#4 -1588 columbia street, north vancouver

1433 pemberton avenue, north Vancouver

81-91 Golden Drive, Coquitlam

11200 Twigg place, richmond

• Well finished office space with private offices • 9,753 sf available

• Sublease 4,796 sf of space in a prime, central location in North Vancouver • High exposure

• Units from 4,000 sf - 16,000 sf available • Professionally managed and maintained

• A rare opportunity to lease 5 acres of industrial zoned land with direct access to the Fraser River

Terry Thies / Ian Whitchelo

Matt Thomas

Ben Lutes / Kyle Blyth

John Lecky / Kevin Kassautzki

Recent Avison Young Transactions S OL

D

11200 twigg place, richmond

A LE

217,364 SF / 4.99 acres

John Lecky / Kevin Kassautzki

6 I

SE

D

915 cliveden avenue, delta

A LE

99,731 SF

Rob Gritten / Ryan Kerr

SE

D

5760 Production Way, langley

A LE

44,507 SF

John Eakin / Michael Farrell / Gord Robson

SE

D

9552 198 Street, langley Michael Farrell

A LE

35,011 SF

SE

D

915 cliveden avenue, delta

32,834 SF

Rob Gritten / Ryan Kerr


Avison Young Industrial Sale Listings

43833 Progress Way, Chilliwack

Bridgeview Dr. Business Centre, Surrey

• 14,098 sf on 1.63 acres • Heavy three-phase power • Two five-ton overhead cranes

8700 & 8790 Boundary Rd, Burnaby

• 2,625 sf to 40,000 sf available fall 2014 • Light industrial strata units and grade-level loading

• 4.05-acre development site • Corner of Marine Way & Boundary Road Kyle Blyth / Matt Thomas / Ben Lutes

John Eakin / Michael Farrell / Gord Robson

John Eakin

ale nt s e m est inv

#1 – 75 Blue Mountain Street, coquitlam • 4,702 sf available • Corner strata unit with exceptional exposure Kyle Blyth / Ben Lutes / Matt Thomas

3399 bridgeway street, vancouver • 0.886-acre industrial development site • Up to 115,000 sf on 4 to 5 storeys Struan Saddler / Kevin Kassautzki

14093 256th street, maple ridge

#106-19188 94th avenue, surrey

• 5.25 acres of heavy industrial land with warehouse and office buildings • Three buildings totalling 30,884 sf

#1130-13700 mayfield place, richmond

• Located within the desirable Port Kells Industrial Park • 3,535 sf

John Eakin / Gord Robson

John Eakin / Gord Robson

30331-30389 Brookside Ave, Abbotsford

300 West Esplanade, North Vancouver

• Zoned and serviced industrial land • 1.0-, 2.25- and 3.25-acre lots • Located north of Hwy 1 on Mt. Lehman Road

• 5,984 sf available • Multi-tenant industrial building with redevelopment potential

Michael Farrell /John Eakin

Ian Whitchelo / Terry Thies

• Located in multi-unit professional office and light warehouse complex • 2,800 sf (1,400 per side) Jeron Dillon / Ryan Kerr

33859 enterprise avenue, abbotsford • Opportunity to purchase a zoned, serviced and ready-to-build industrial lot • 30,724 sf Michael Farrell

Recent Metro Vancouver Industrial Investment Sales

19540 94th Avenue, surrey • Vendor: Premium Brands Operating GP Inc. • Purchaser: 0991486 B.C. Ltd. • Purchase Price: $10,500,000 • Price Per Square Foot: $182 • Building Size/Site Area: 57,750 sf / 4.44 acres

850 West Kent Avenue South, vancouver • Vendor: 850 West Kent Ltd. • Purchaser:The AuthenticT-Shirt Holding Company ULC • Purchase Price: $11,500,000 • Price Per Square Foot: $124 • Building Size/Site Area: 92,520 sf / 4.20 acres

South Burnaby Corporate Centre, burnaby • Vendor: Westbank Projects Corp. • Purchaser: Investors Group • Purchase Price: $47,600,000 • Price Per Square Foot: $213 • Building Size/Site Area: 223,103 sf / 11.2 acres

7846 128th Street, surrey • Vendor: Irly Distributors Ltd. • Purchaser: Jag & Jag Holdings Inc. • Purchase Price: $13,325,000 • Price Per Square Foot: $108 • Building Size/Site Area: 123,210 sf / 7.88 acres

> Recent Notable Industrial Land Sales

1337 Townline Road, abbotsford • Vendor: Aero Abbotsford Nominee Corp. • Purchaser: AG Net Lease Acquisition Corp. (AGL Avionics Abbotsford Nominee ULC) • Purchase Price: $54,000,000 • Price Per Square Foot: $234 • Building Size/Site Area: 231,000 sf / 22.86 acres

ADDRESS

VENDOR

PURCHASER

SALE PRICE

SITE AREA (ACRES)

3733 192nd Street, Surrey

BC Transportation Financing Authority

City of Surrey

$23,474,600

59.55

$394,187

13060 -13090 78A Avenue & 7721 132nd Street, Surrey

Ewos Canada Ltd.

0979376 B.C. Ltd.

$16,000,000

10.49

$1,525,117

12360 No. 5 Road, Richmond

No. 5 Road Holdings Ltd.

Mainland Sand and Gravel Ltd.

$10,500,000

6.58

$1,596,473

2098, 2128, 2160 & 2178 Peardonville Road, Abbotsford

A. & K. Poultry Ltd.

Arora Bros Holding Ltd.

$8,562,940

18.30

$467,920

11200 Twigg Place, Richmond

Mitchell Island Holdings Inc.

British Columbia Maritime Employers Association

$8,233,500

4.99

$1,649,669

8020 128th Street & 12829 80th Avenue, , Surrey

Muric Enterprises Ltd.

0712680 B.C. Ltd.

$6,150,000

3.66

$1,682,166

3399 & 3425 189th Street, Surrey

City of Surrey

0988148 B.C. Ltd.

$5,090,879

6.79

$749,982


PRICE/ACRE

I 7

continued from page 2

The need to review, refine and update the ALC’s 40-year-old mandate as it pertains to “agricultural” lands near or in Metro Vancouver was not addressed by the provincial government. The continuing unwillingness by successive provincial governments to address this ongoing and fractious land-use debate will heighten both industrial land prices and fuel land supply concerns in Metro Vancouver. Until decisive action is taken to reconcile the province’s stated intentions on job creation, boosting trade and protecting agricultural land, the supply of industrial land will continue to diminish. Notwithstanding high land costs, asking rental rates for new large-floorplate tier 1 space remains strong, but a lack of comparables makes it difficult to demonstrate either a strengthening rate environment due to higher costs associated with new product, or an erosion of rates as developers seek to secure tenants at favourable terms to fill their space. Leasing activity among small- to mid-sized users remains active, but is constrained by a lack of options and limited new small- and mid-bay lease product in the development pipeline. Industrial asset pricing remains high with extremely limited options available in terms of both land and built product for all purchaser types. Strata remains a very popular alternative for users seeking less than 25,000 sf, with low interest rates making mortgage payments comparable or less expensive than leasing. Resultantly, small- and medium-sized companies are currently responsible for most of the demand for industrial space in Metro Vancouver. The relatively recent emergence of demand for order fulfillment centres in Metro Vancouver – driven by the rising tide of e-commerce activity – will continue to play a significant role, provided retail sales remain strong and that they support the expansion of logistics and distribution facilities along with related transportation infrastructure. This anticipated demand is helping populate Metro Vancouver’s development pipeline with large-scale projects able to support mandates of up to 450,000 sf in a single phase and more than 1 msf within two/three phases. While it may seem counterintuitive to proceed with additional speculative construction of large-floorplate facilities, given that demand is currently generated by small- to mid-sized users, a longer view is necessary if Metro Vancouver is to realize its potential as a significant container port. Large-floorplate buildings can always be reconfigured to smaller bays for users vacating less efficient premises. Another factor contributing to heightened activity among small- to mid-sized users, particularly manufacturers, has been the slide of the Canadian dollar against its U.S. counterpart during the past six months. With a current 10% discount attached to Canadian manufactured goods likely to remain throughout 2014 and possibly rise to 15% in 2015, demand for expansion space by BC manufacturers has started to increase in tandem with the U.S. economic recovery. Excess production capacity that had been idled since the downturn in 2008/09 is being returned to production. This increased production combined with efficiencies achieved through consolidations all point to the exchange rate differential providing additional impetus to industrial expansion and export-focused demand. With the additional supply of primarily large-bay inventory currently coming to market, and expansion decisions by large distribution/logistics tenants on hold, Metro Vancouver’s industrial market will see slight downward pressure on rates for large space. Demand from small- to mid-sized users is anticipated to remain strong, with older large buildings potentially being repurposed to accommodate smaller tenants, and strata construction remaining an option while interest rates remain low. Overall vacancy is expected to remain tight with increases in select areas due to the completion of new product. 

Vancouver Industrial Team Kyle Blyth 604.647.5088 [email protected]

Bennett Lutes 604.646.8382 [email protected]

Jeron Dillon 604.647.1330 [email protected]

Douglas McMurray 604.647.5082 [email protected]

John Eakin 604.646.8399 [email protected]

Gord Robson 604.647.1331 [email protected]

Michael Farrell 604.646.8388 [email protected]

Struan Saddler 604.64.5077 [email protected]

Rob Gritten 604.647.5063 [email protected]

Dan Smith 604.646.8397 [email protected]

Kevin Kassautzki 604.646.8393 [email protected]

Terry Thies 604.646.8398 [email protected]

Ryan Kerr 604.647.5094 [email protected]

Matt Thomas 604.646.8383 [email protected]

John Lecky 604.647.5061 [email protected]

Ian Whitchelo 604.647.5095 [email protected]

Jake Luft 604.647.1340 [email protected] For more information please contact: Michael Keenan, Principal & Managing Director Direct Line: 604.647.5081 [email protected] Andrew Petrozzi, Vice-President, Research (BC) Direct Line: 604.646.8392 [email protected] Saundra Bahrini, Research Manager & Client Services Coordinator, Industrial Direct Line: 604.647.1345 [email protected]

Avison Young Commercial Real Estate Inc. #2100-1055 W. Georgia Street Box 11109 Royal Centre Vancouver, BC V6E 3P3, Canada

avisonyoung.com © 2014 Avison Young (Canada) Inc. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young Commercial Real Estate (BC) Inc.