Metro Vancouver's industrial space shortage is now Calgary's economic gain

Completed solar panel system atop Lululemon's distribution centre in Delta. (Wesgroup)

The industrial land shortage in Metro Vancouver has passed the “tipping point” and reached a “critical juncture” for policymakers to make impactful changes to preserve the region’s economic health and reduce the shed of potential high-paying jobs.

Vacancy rates for industrial space in Metro Vancouver have been persistently hovering below 1%, and available rates are below 2%, marking some of the lowest rates in Canada and the United States. This shortage has been building up over the past decade and has particularly grown over the last few years following the pandemic.

With a shortage of land to build more industrial spaces, land costs have tripled in the last five years, and average costs per acre of industrial land are now about six times higher in Metro Vancouver than in the Seattle and Calgary areas. Metro Vancouver’s industrial lease rates are also amongst the highest in North America — the highest amongst Canadian urban regions and only comparable to Long Beach in the Los Angeles area.

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These are the findings of a new report on the state of Metro Vancouver’s industrial land supply shortage and the resulting economic implications conducted by Intervistas Consulting and Urban Systems. The report was jointly commissioned by the Greater Vancouver Board of Trade (GVBOT) and commercial real estate development association NAIOP’s Vancouver Chapter.

Researchers state Metro Vancouver has lost an estimated 5.1 million sq ft of industrial businesses to Calgary, including companies that have left the region and others that have preferred to invest in Vancouver but were forced to choose Calgary. It is estimated the economic impact to Metro Vancouver is a loss of 6,300 direct jobs, $477 million in wages, and nearly $500 million in GDP. The average salary per job is over $75,000 annually — well above the average provincial salary of $54,700.

Moreover, there is now a growing pattern of goods being shipped through the Port of Vancouver, then moved to Calgary, where the industrial businesses are located, and then trucked back to Vancouver, which creates an environmental impact.

In one real example, a Metro Vancouver green-tech manufacturer chose to invest $27 million in new state-of-the-art manufacturing equipment in Calgary because there was nowhere available to expand in their home region.

Other examples include an animal products business that moved from the Lower Mainland to Calgary due to a lack of land to build a new processing facility and a Canadian vegetable producer that wanted to expand its operations to the Lower Mainland but could not do so for the same reasons.

A combination of factors for determining the viability of industrial businesses includes not just the availability of the land but the cost of land acquisition and/or rents, the cost of building construction, the suitable size of a property for development needs, the ground conditions for the suitability of industrial development, and the precise location for its convenience to access major road links.

Currently, just 4% of Metro Vancouver’s land area is for industrial uses, and there are over 200,000 direct industrial jobs located on such industrial lands in the region. When industrial jobs on non-industrial lands are accounted for, the industrial employment-population grows to about 364,000 jobs or 27% of the total jobs in Metro Vancouver. These businesses on industrial lands also pay, on average, a wage over 10% higher than the national average.

Industrial lands and their resulting jobs provide $50 billion in GPD, or one-third of Metro Vancouver’s GDP, and an overall output of $92.5 billion.

A 1% increase in the region’s industrial land would result in 126,000 new jobs and $12 billion in additional GDP, according to the report.

Without an adequate industrial land supply that better meets real demand and improves affordability, Metro Vancouver will struggle to maintain its economic competitiveness, not only to attract new businesses to the region but also for the ability for businesses to start and grow from the region.

It is estimated Metro Vancouver will need about 250 acres to 300 acres of additional industrial land on an annual basis, which is equivalent to 25% to 30% of the size of Stanley Park’s land area. This includes 80 to 100 acres annually for trade-enabling activities to support supply chains, such as the growing freight traffic through the Port of Vancouver.

Significant new additional industrial building space has been added in Metro Vancouver over the past decade, with over 36 million sq ft added, but it is still far from sufficient, which is made evident by the extremely low vacancy and availability rates and skyrocketing costs. According to CBRE’s latest market update, as of the second quarter of 2023, nearly 3.7 million sq ft of industrial space reached completion this year to date, and 8.4 million sq ft is currently under construction, with the majority of this future space already pre-leased.

Industrial lands are traditionally used for warehousing, distributing, manufacturing, and processing, but there are also growing uses for e-commerce, agriculture, and the region’s major film and television production industry.

Even Metro Vancouver’s public transit authority’s industrial land requirements are expected to grow exponentially over the coming years. TransLink needs significantly more land to build additional bus depots to meet the maintenance, operations, and parking needs of growing the bus fleet by 90% or an increase of 2,000 additional bus spaces by 2035 for service expansion. Their existing bus depots to support the current fleet sizes of 1,500 vehicles are largely located on industrial lands.

Using the report’s findings as its basis, GVBOT is calling on all governments to work with the private sector to address key issues that inhibit the region’s industrial businesses.

This includes preventing non-industrial uses on industrial lands, creating long-term protections for industrial lands, relaxing red tape and high fees for industrial developments, and providing major transportation access for industrial lands. They suggest Metro Vancouver Regional District’s land use plans should be revised every three years to require enough supply of industrial and employment lands.

Some municipal governments in Metro Vancouver have allowed vast industrial properties to be redeveloped into other uses, particularly for residential developments, which generally provides municipalities with greater development fee revenues and ongoing property tax revenue than industrial uses.

There is growing pressure to convert more of the region’s vast tracks of protected agricultural lands for industrial uses.

Last year, a long process culminated with Metro Vancouver Regional District’s narrow approval of an expansion of Surrey’s Campbell Heights industrial park by 400 acres of buildable land, which was the largest net gain of industrial land in many years. It is estimated the designation will enable over 8.5 million sq ft of industrial building floor area, employing as many as 20,000 people in up to 150 businesses.

Campbell Heights’ original industrial lands span about 1,900 acres, but these lands are set to be fully developed by the end of the decade.

There could also be some competing uses for existing industrial lands adjacent to SkyTrain stations following the regional district’s approval of its new Metro 2050 plan last year. It calls for the possible combination of residential uses above industrial and commercial uses for such major transit-oriented development sites, which may not be suitable for certain types of industrial businesses that require larger spaces and a high degree of on-site operational flexibility.

A 2019 report commissioned by the regional district also forecast the region is highly likely to run out of industrial land by 2035.

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