Lack of industrial land and soaring prices are leading to more volatile rents that are spreading to the edges of Metro Vancouver, analysts say.
Some industrial landlords are no longer posting asking rents and instead are renting to the highest bidder. Others don’t want to lock in a rate for a longer term.
Some developers of industrial strata units are selling units more slowly, believing if they hold back some units, they will get higher prices for them later.
What might all this mean for local businesses and consumers?
“I think it is pretty much universally a bad thing, unless you are a real estate developer or owner of real estate,” said Michael Farrell, a principal at Avison Young who specializes in industrial property.
“But I think even some of those groups might be willing to admit that some of the price gains are maybe unhealthy or at least unsustainable.”
While landlords used to set average asking rents based on semi-annual or quarterly numbers, there is so much demand for such tight supply that some are now able to raise rents based on each new leasing deal in the market.
Companies are eager to lock-in a rental rate before prices rise more. Meanwhile, developers or investors, seeing the potential to get higher rents, are paying more to buy and develop industrial properties into strata units they can sell or lease, especially in a lower interest rate environment.
“You could say we’re literally pricing strata units on a week-to-week basis so, in a sense, real estate in Greater Vancouver on the industrial side has become a commodity,” said Chris Morrison, a Vancouver-based executive vice president of industrial at Colliers International, which this week released a national snapshot with some of these details.
The average rental asking rate for industrial properties in Greater Vancouver reached a new high in the first quarter of 2022 at $16.93 a square foot, according to Colliers.
For years, the vacancy rate for industrial space in Metro Vancouver had hovered between one and two per cent, but in the second quarter of 2021, it dropped to 0.5 per cent and is now at 0.4 per cent.
For one building that Morrison was leasing in Surrey, the asking rental rate per square foot increased by over seven per cent from six weeks ago to today.
“I wouldn’t say (rates are changing) every week, but you have to check every week to make sure that the prices previously stated are still in effect,” said Farrell of Avison Young.
Steve Brooke, senior vice-president at CBRE, said one result is that while properties closer to the city core, such as in Richmond and Burnaby, used to command higher rates, there is no longer a discount for properties, such as in Surrey and Langley, that are farther away.
In February, developer Beedie beat 14 other bidders to buy a 22-acre vacant industrial site in Delta for $117 million, according to Brooke, who was involved with the deal.
“It’s a very exciting time for industrial owners and the asset class is very popular right now,” said Mark Goodman of Goodman Commercial Inc.
His company is better known for multi-family deals, but it recently sold an automobile showroom property on a 19,500-square-foot lot on West 5th Avenue in Vancouver for over $25 million.
“We actually went out with an unpriced listing and had over 80 inquiries over a two-week whirlwind, from major developers, owner users and other car dealership owners.”
Brooke of CBRE thinks these prices may just be moving to “be more on par with other global markets such as Seattle and Oakland.”
Some companies had been taking more industrial space in Calgary than they would otherwise because they can’t get the space they need in Vancouver, said Farrell of Avison Young.
But then last winter, “every single highway and railway between us and Calgary got ripped out by a single rain event. All of a sudden, the idea of having a bunch of commodities and consumer goods that supply the Metro Vancouver market, across (several) mountain ranges seems like a bad idea.”
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