A new report by CBRE that provides an update on the state of Metro Vancouver’s industrial space market paints yet another troubling picture for this economy-supporting segment of the region’s real estate market.
The industrial vacancy rate is now at just 1.4% — even tighter, compared to the rate of 1.7% this time last year. Buoyed by high demand but low supply, industrial rental rates increased by 16% in 2018 to $11.86/sq-ft, marking the highest market average rate on record in the region.
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“The rise has been unprecedented but they can be absorbed by multi-national tenants. The big concern is for the regional and local occupiers,” said Chris MacCauley, Senior Vice-President for CBRE Vancouver.
“We predict a slight increase this year, with a continued upward projection into 2020. When we compare Metro Vancouver to other industrial markets on the west coast like Portland, Seattle and Oakland, there is significantly more potential for industrial lease rates to grow.”
There will be some relief in 2019 in the form of new supply, which should provide the industrial space market with some stabilization. About five million-sq-ft of new space is currently under construction.
It is anticipated that there will be a positive absorption of between four and 4.5 million-sq-ft in 2019, with construction supply levels now reaching the highest in 10 years. Already more than 40% of this space is pre-leased.
However, the options for large spaces over 100,000-sq-ft are severely limited; at this time, only four existing options are on the market.
“We need to continue to try to meet the supply demands to strengthen our local economy. But we need a multi-pronged approach to solutions including intensifying industrial lands as well as looking at land use policies and the ability to expand existing industrial parks,” continued MacCauley. “Local government and policy makers should be motivated by the latest statistics.”
With continued shortages, the region’s industrial spaces have experienced the world’s largest increase in average rental rates. An increase of 29.1% was recorded in the first quarter of 2018, making it the largest increase in the world for these type of spaces.
Industrial spaces are necessary to support the underlying functions and operations of the economy, including retail, food supply, manufacturing, shipping, and building supplies. A shortage in industrial space could affect the cost of goods and services in the region.
However, these spaces have increasingly been absorbed by the film industry or even completely demolished for new residential developments.