Annacis Island in Delta. This 143,000-sf facility is jointly owned by Artis REIT and Kingswood. Capital after it was acq
Richmond/Delta, BC Industrial Report Fall 2014
Industrial sales and leasing activity moderating after surge
E
xceptionally strong demand for Richmond and Delta industrial properties in 2013 did not translate into heightened sales activity in the first half of 2014 as a lack of available quality industrial product and capitalization rate compression contributed to high vendor expectations and fewer transactions. Slowing deal flow was particularly notable in Delta and, to a lesser extent, in Richmond during the first half of 2014. Industrial sales activity in Delta, which registered a record $236.3 million in dollar volume and 46 transactions in 2013, slipped to just 10 transactions with a combined value of $14.1 million in the first half of 2014. A single transaction was responsible for one-third of the total industrial dollar volume, with strata sales accounting for the majority of the transactions. Richmond’s industrial market remained active in the first half 2014 with 43 transactions totalling $60.2 million. For comparison, there were 86 transactions in Richmond valued at $158.2 million in all of 2013. However, just two Richmond industrial transactions represented
Inside
42% of dollar volume in the first half of 2014. Delta and Richmond both remain very competitive industrial markets due in part to a lack of investment-grade product and a lean pipeline of new development, particularly in Richmond. With industrial vacancy in Richmond at 3.1% as of June 30, 2014, expanding businesses that wish to remain in the city do not have a lot of options. Owner/users (and tenants) tend to be smaller than those typically located in Delta. Strata sales of units less than 3,000 sf in Richmond constituted a significant portion of transactional activity as churn in older industrial parks maintained deal volume. New strata developments in Richmond remain elusive due to a lack of suitable sites and the costs associated with acquiring those few sites that do come available. This situation has been compounded further by increasing municipal costs related to light industrial development. Industrial deal volume in Richmond is typically much higher than in Delta, but dollar volume is significantly lower. continued on page 4
Richmond & Delta Industrial Real Estate Sales and Transactions 2007 - 2013
Transaction Summary p. 2 Updating Richmond DCC s p. 3 Deal Tracker p. 4
Market Outlook Richmond
Delta
Cap Rates
Industrial Vacancy
Sales Volume
$280 46
$240 #
#
Number of Transactions
Richmond Delta
115
$200 $160 $ Million
#
86
122
113
40
$120 $80 $40 0
Partnership.Performance.
80
73 24
28
2009
2010
98 25
30
Lease Rates
28 2007
2008
Absorption
2011
2012
2013 I 1
Industrial leasing remains strong as sales activity slows
Ryan Kerr, Vice-President 604.647.5094
[email protected] Ryan Kerr specializes in Delta industrial property sales and leasing transactions, including tenant representation. During his time with Avison Young, Ryan has proven to be an integral member and emerging leader of the growing industrial services division in the Vancouver office.
Jeron Dillon, Associate 604.647.1330
[email protected] Upon graduating from BCIT, Jeron has spent the last two years specializing in the Richmond/ Delta industrial market. Jeron focuses predominantly on strata and multi-tenant facilities representing both vendor/ landlords and purchasers/tenants.
Source: Artis REIT
BC Institute of Technology and Vancouver Community College will establish their new heavy equipment training facility - the Motive Power Centre of Excellence - at 1608 Cliveden on Annacis Island in Delta.
T
here have been a number of significant industrial lease transactions in Richmond and Delta since the start of 2014. Most notable, BC Institute of Technology (BCIT) and Vancouver Community College are amalgamating and relocating their heavy equipment training facilities to the old Kodak/ Creo facility at 1608 Cliveden Avenue on Annacis Island in Delta. This 143,000-sf facility is jointly owned by Artis REIT and Kingswood Capital after it was acquired in a bankruptcy portfolio sale in 2009. The refurbished facility will be the primary training facility for heavy equipment professionals in the province for years to come. Three recent renewals have characterized the Richmond industrial market year-to-date in 2014. Most notably, Ingram Micro renewed the lease of its 230,050-sf facility at 7451 Nelson Road in the Emerson Real Estatemanaged Kingswood Industrial Park in East Richmond. Western Canada Express Inc. renewed its lease in its 212,761-sf facility on the Port Metro Vancouver lands in East Richmond at 16068 Portside Road with its sub-landlord Triovest, which had acquired the land-lease title to the property in 2012. And Staples Distribution Centre renewed its lease at 14260 Knox Way in northeast Richmond. The 110,095-sf facility was had been recently acquired by the RCG Group from the original developers in 2012. One of the most recent notable lease transactions to occur in Delta was a new deal at 1302/1344 Derwent Way, which saw LG Electronics outsource its logistics to Montreal-
Partnership.Performance.
based FLS Warehousing Inc. FLS took on the sublease of Big Lots and also took adjacent headlease space with Grosvenor, which owns the property. The total lease transaction was for approximately 170,000 sf. On the sales front, Panasonic Canada sold its facility in South Richmond at 12111 Riverside Way to Canasia Toys and Gifts for $16.6 million, which represents a price per square foot of $124 for the 133,623-sf facility. Panasonic, which is vacating the premises, is reducing its Vancouver exposure similar to that of other Japanese companies such as Honda Canada Inc. and Sony Corp., which have either sold, or are selling, their Vancouver facilities. In Tilbury Industrial Park, Bosa Properties acquired 7880 and 7890 Vantage Way from Rock Cliffe Enterprises, which owns and operates Haney Pottery, one of the tenants of the property. Bosa Properties acquired the 60,000-sf property for $6.1 million, which represents a per-square-foot price of $102. Lastly, Joriki Inc. acquired its bottling and distribution plant at 695 Derwent Way on Annacis Island. Joriki purchased the property after it was marketed for sale by its landlord Cottingham Developments. The total purchase price for the property was $5.3 million for the 51,748-sf facility, which represents a price per square foot of $102. Subsequent to the sale, Joriki leased 33,000 sf from Bosa Development Corp. at 915 Cliveden Avenue for additional space for its bottling facility. I 2
Updates to Richmond’s development cost charge regime on the horizon
T
he City of Richmond is seeking to update its development cost charge (DCC) program and has hired a consulting firm, which will deliver its findings and recommendations by the end of 2014.
According to the RFP, some of the City of Richmond’s current guidelines and principles for its DCC program and rate calculation include:
The Request for Proposal (RFP) that was disclosed in March 2014 called for “an experienced engineering/planning consultant to review and recommend changes to the City’s Development Cost Charge program” with a proponent to be chosen by April 2014. Urban Systems Ltd. was subsequently awarded the contract. City staff hopes that the process will be completed in 2014.
•
Rates are levied on a municipal-wide basis and an areaspecific basis in the Alexandra area;
•
DCC program and projected growth are based on “build-out” scenario of all current Official Community Plans and Area Plans;
•
Charges are assessed based on the actual use of the land, regardless of zoning;
•
There are no developments exempt from DCCs, expect those specified under the Local Government Act;
•
Commercial DCCs and light industrial are based on building area;
•
Industrial DCCs are based on gross site area;
•
Benefit allocation and cost apportionment between existing taxpayers and new development are analyzed for each group of projects, based on specific merits;
•
There are separate DCCs for park acquisition and park development;
•
A grace period (normally one year) has been previously offered, as notification that new DCC bylaw is coming into effect.
Richmond’s Director of Finance Jerry Chong confirms that the DCC review process is underway and that the city decided to review and update its DCC program because it had not been evaluated since 2008. He said it was “too early to determine” if developers were likely to see an increase in DCC-related costs as a result of the review and any subsequent recommendations. According to the RFP, the project’s primary objective is “to devise a DCC program and corresponding rate structure that will ensure an adequate and equitable distribution of costs associated with the provision of services necessary to support the projected growth in the City.” Additional objectives include: a review of the current and proposed policies and procedures relating to DCCs; to identify alternatives to maintain/increase regional competitiveness in DCC rates; to provide the City with an assessment of the range of tools available to the City/Developers for funding DCC items; and to ensure the City aligns with best practices of DCC programs in general.
Major industrial development is anticipated for the east sector of Lulu Island as well as Mitchell and Twigg Islands, while urban growth has been directed primarily to the city centre.
Higher development costs coming? The impact on industrial development costs as a result of possible changes to the City of Richmond’s development cost charge (DCC) program will not be known until the end of 2014 at the earliest. Partnership.Performance.
I 3
richmond & delta industrial sales transactions (>$1.5 million) May 1, 2013 to June 30, 2014 ADDRESS 12111 Bridgeport Way
MUNICIPALITY
TRANSACTION VALUE
SQUARE FEET (SF)
PER SQUARE FOOT (PSF)
DATE
Richmond
$8,900,000
40,700
$219
June 2014
12111 Riverside Way
Richmond
$16,600,000
133,623
$124
May 2014
11060 Horseshoe Way
Richmond
$3,500,000
28,359
$123
May 2014
12280 Vickers Way
Richmond
$2,390,000
12,500
$191
May 2014
2451 Vauxhall Place
Richmond
$1,798,000
10,525
$171
April 2014
12031 No. 5 Road
Richmond
$5,155,000
31,212
$165
March 2014
5400 No. 6 Road
Richmond
$3,770,000
25,700
$147
January 2014
5355 Parkwood Place
Richmond
$3,600,000
13,962
$258
December 2013
2780-2800 Olafsen Avenue
Richmond
$3,100,000
22,894
$135
December 2013
3831 No. 6 Road
Richmond
$5,025,000
33,400
$150
October 2013
11760 Machrina Way
Richmond
$9,960,000
66,400
$150
September 2013
2440 Shell Road
Richmond
$2,660,000
7,630
$349
August 2013
5720-5800 Minoru Boulevard
Richmond
$36,000,000
80,775
$446
July 2013
7601 Macdonald Road
Delta
$4,700,000
32,551
$144
April 2014
Tilbury West Corporate Centre II - Phase I
Delta
$3,290,765
22,847
$144
February 2014
7880 & 7890 Vantage Way
Delta
$6,100,000
60,000
$102
December 2013
Buckingham Corporate Centre
Delta
$1,174,355
8,027
$146
December 2013
7393 Hopcott Road
Delta
$8,352,080
77,200
$108
November 2013
695 Derwent Way
Delta
$5,300,000
51,748
$102
November 2013
8003 Webster Road
Delta
$1,710,000
10,900
$157
November 2013
Tilbury West Corporate Centre - Phase II
Delta
$1,800,000
12,002
$150
November 2013
7168 Honeyman Street
Delta
$2,995,000
24,196
$124
October 2013
7722 Progress Way
Delta
$2,800,000
16,025
$175
October 2013
7901 Progress Way
Delta
$4,750,000
35,158
$135
September 2013
Tilbury West Corporate Centre II
Delta
$1,636,600
11,692
$140
September 2013
7003 72nd Street
Delta
$62,750,000
412,000
$152
August 2013
8166 92nd Street
Delta
$6,600,000
41,314
$160
August 2013
7979 82nd Street
Delta
$4,280,000
35,146
$122
July 2013
7861-7878 82nd Street & 7848 Hoskins Street
Delta
$43,150,000
276,146
$156
July 2013
7781 Vantage Way
Delta
$5,650,000
56,214
$101
June 2013
788 Caldew Street
Delta
$6,000,000
55,993
$107
June 2013
7119 River Road
Delta
$2,500,000
8,792
$284
May 2013
7533 Progress Way
Delta
$5,650,000
56,649
$100
May 2013
Industrial Team Kyle Blyth 604.647.5088
[email protected]
Jake Luft 604.647.1340
[email protected]
Jeron Dillon 604.647.1330
[email protected]
Bennett Lutes 604.646.8382
[email protected]
John Eakin 604.646.8399
[email protected]
Douglas McMurray 604.647.5082
[email protected]
Michael Farrell 604.646.8388
[email protected]
Gord Robson 604.647.1331
[email protected]
Rob Gritten 604.647.5063
[email protected]
Struan Saddler 604.64.5077
[email protected]
Kevin Kassautzki 604.646.8393
[email protected]
Dan Smith 604.646.8397
[email protected]
Sean Keenan 604.647.1334
[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]
For more information please contact: Michael Keenan, Principal & Managing Director, Vancouver Direct Line: 604.647.5081
[email protected] Andrew Petrozzi, Vice-President, Research (BC) Direct Line: 604.646.8392
[email protected]
continued frompage 1
Larger industrial users are more typically located in Delta, which has a vacancy rate of 8.4% (as of June 30, 2014), and as a result, sales activity slowed as distribution, logistics and large-scale manufacturers delayed further real estate decisions throughout the first half of 2014 after a flurry of activity in 2013. Strata remains a significant component of activity in Delta and demand is strong, but sites remain difficult (and expensive) to come by for those seeking to build their own facility. New development is ongoing with some significant speculative construction underway. Delta’s elevated vacancy rate in comparison to Richmond and Metro Vancouver as whole is the result of pockets of new supply being delivered vacant. Rental rates remain stable and are not expected to increase until more space is absorbed. Strata remains competitively priced in comparison to securing a stand-alone building. Slowing sales and leasing activity in the first half of 2014 combined with a stabilization in cap rates likely indicate that the Richmond and Delta markets have compressed as much as investors are willing to accept. It remains a tenant’s market on the distribution and large-scale manufacturing side with small to mid-sized owner/users increasingly relying on strata product if they choose to own their premises.
Avison Young Commercial Real Estate (B.C.) 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 (B.C.) Inc.
