The Top 5 Driving Industrial Commercial Real Estate Rates Up in Metro Vancouver

It’s taken twenty years for the industrial real estate market to reach the current record-breaking rates. And everyone in the industry seems to have different reasons as to why.

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“There has been a profound change in the market,” said Jeff Juhala, Director of Investment at Concert Properties. “I’ve spent over 26 years in the business, and it’s not until recently that it’s been like The Wizard of Oz. Instead of yelling ‘Lions and tigers and bears!’, people are crying ‘Borders and mountains and oceans, oh my!’”

But why now? Why not 10 years ago?

Ryan Kerr, Principal of Industrial, Investment, Sales and Leasing at Avison Young, shared the top 5 culprits that he feels are driving the increase:

  1. The growth of the gross domestic product (GDP) in B.C., and how the province has been leading Canada's economy for the past two years.
  2. Population increases in Metro Vancouver.
  3. Appreciation of U.S. to Canadian Dollar. This has been particularly influential in the film industry. In 2015 and 2016, there have been massive spaces taken up by film groups with deals that last 10 years; quite different than the typical month-to-month terms. 
  4. Realisation of Gateway. In 2017, there were 7 deals over 200,000 feet and 10 deals over 100,000 square feet. From a historical context, these are massive deals for Metro Vancouver. There’s clearly a demand for large distribution centres in our market.
  5. Densification of industrial core. Increased rental rates are pushing tenants outwards to the suburbs.
  6. According to Blake Asselstine, Director of Leasing at Beedie, there’s a more underlining issue as to what’s driving rates up.

“You have to talk about scarcity of land in this category. There’s a big gap between old product and new product, but five years ago there wasn’t. Now land is going through the roof. As a developer, we’re paying millions for properties, so if we want to make money, we have to take $12-$13 per square foot. Having higher priced leases on these new properties allows us to push up rates on older ones.”

As rates have increased and land has become scarce, so too has the hype and sense of urgency for developers and businesses to get into the industrial market.

“In the last three years, absorption has increased two-and-a-half times the annual rate than the previous eight years,” said Jason Kiselbach, Vice President of Personal Real Estate Corporation at CBRE Limited. “We’ve also had record low vacancy, and as a byproduct, people have purchased land based on that they think rates will go up. So you have the perfect storm.”

Why do you think rates have been increasing so much? Tweet @naiopvancouver and let us know!

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