As we discussed in our last blog, 2015 was a record year for the industrial real estate market. Low supply and high demand paired with rising housing costs and accommodative borrowing contributed to a successful year for landlords, developers, and tenants.
So what do these next 12 months have in store? According to our expert panel, only more demand. With more companies looking for 100,000 square feet or more, the continuing lack of properties available is expected to drive price increases. Darren Cannon, Executive Vice President at Colliers International Canada, further predicts that capitalization rates will continue to compress, expecting a 4.5% rate for AAA properties.
Photo: Boundary Bay Industrial Park
There are additional external factors that, if they continue at their current rate, will also add to the price per square foot. One of these is the cost of construction, which has also increased. The rising U.S. dollar has become a concern for some of B.C.’s largest occupiers, such as furniture and e-commerce tenants. As their wholesale and shipping costs have significantly increased due to the exchange rate, they’ll have to increase the price of their products, which affects their customers and possibly jeopardizes sales.
Much like last year, 2016 is expected to see only two markets for industrial development and leasing: the Greater Toronto and Vancouver areas. However, our expert panel feels this could change if we can no longer produce the properties needed, forcing us to miss out to more land-abundant regions such as Calgary. To avoid this, Sean Ungemach, Senior Vice President Cushman & Wakefield, shared that there needs to be more political pressure on the MLAs to release industrial reserve lands, otherwise it could affect B.C.’s economy.
Photo: Port of Vancouver/Facebook
As for the tenants that need to grow, well, “there’s not a lot of options”, according to Blake Asselstine, Director of Leasing Beedie Development Group. However, there is some development in the works, as more than 4.6 million square feet of inventory is coming to the market within the next 18 months (although 60% is already pre-leased).
According to Business in Vancouver, “The [industrial real estate] market is considered a safe bet” – for now. The overall outlook is that land rates will increase, cap rates will decrease, and available property will be a pressing issue. Meanwhile factors like price of oil, terrorism threats, and Chinese investments are all affecting the future of the industrial real estate market, which could quickly change the current record-breaking sales. To protect themselves and stay competitive, Ungemach suggests that developers and landlords diversify, looking to industries like technology to replace lost business from the oil and gas.
What do you expect will happen to Vancouver’s industrial real estate market? Tweet @NAIOPvancouver and let us know