Industrial space in Metro Vancouver continues to face high demand amid low vacancies and supply; but the trend of rising rental growth has slowed.
Avison Young’s Spring 2019 Metro Vancouver Industrial Overview shows that the ravenous appetite for industrial real estate among tenants, owner-occupiers, developers as well as private and institutional investors to date in 2019, is unchanged from the trend seen in 2018.
Regional industrial vacancy sank to a record low of 1.2% at the end of the first quarter of 2019 – the lowest in Canada – and has remained below 2% for the past three years and below 1.5% during 2018.
Industrial sale totals exceeded $150 million in the first three months of the year after a record-setting $1.8 billion of investment in 2018.
But average asking net rental rate for Metro Vancouver industrial space slipped slightly to $11.49 psf from $11.52 psf three months earlier at year-end 2018; the first time that asking rental rates did not increase quarter-over-quarter since the first quarter of 2017.
“The reason for this pause in rent escalation is that there was almost no new supply delivered in the first quarter of 2019, and the newer more expensive space had already been leased while older product remained available, which led the average asking rental rate to decline slightly,” comments Avison Young Principal Ryan Kerr. “New deals continue to achieve higher rental rates and asking rates are expected to continue to escalate. Furthermore, lease turnover will continue Vancouver, BC ─ Partnership. Performance Page 2 of 3 occurring and new listings will come available, which should also contribute to asking-rent escalation in the near term.”
Strata projects winning as land pricing rises
The increasing cost of industrial land means that developers are often favouring strata projects, which is not providing relief for the tight vacancy rates.
“While construction of lease product is continuing by institutional investors seeking to hold assets long term as well as by those developers who acquired land at historical costs, the volume is unlikely to have much of an impact on vacancy,” says Avison Young Principal Garth White. “Much of this new lease supply is focused on large logistics/distribution users and is often preleased years in advance of completion. Small- to mid-sized industrial tenants are increasingly left with very limited options. Furthermore, we continue to see a shift in the development pipeline to strata projects, which will have significant consequences in the near future.”
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