Amid record-level demand, Metro Vancouver’s industrial rates are now among the highest in Canada, according to commercial real estate services firm Lee & Associates.
As of the end of 2018, annual lease rates for the asset class stood at $17.70 per square foot in the city of Vancouver, which has an industrial vacancy rate of 1.4% – indeed, the lowest of any Canadian market. The price per square foot is also at an unprecedented $370, growing by $80/sf from a year earlier.
Sales activity in Metro Vancouver’s industrial sector was valued at a total of $385 million in Q4 2018, reaching a record for that quarter.
And even though nearly five million square feet of new industrial space is under construction in the region, approximately 60% is already pre-leased or sold, according to CBRE Ltd.
Potential trouble seems to be looming just beyond the horizon, however, as a “major deceleration of retail sales growth” from 9% in 2017 to 2% in 2018 has compelled the B.C. Real Estate Association to warn of a possible “flattening” of commercial and industrial markets this year.
Read more: Metro Vancouver commercial segment hits the ground running
At the current pace of demand, Vancouver’s industrial space will be depleted to near-zero by the next decade, CBRE cautioned.
E-commerce is the major driver for this activity, especially in the city’s warehouse space. Industrial rent rates shot up by 16% to reach a historic $11.86 per square foot in 2018 – the highest of any market nationwide for that year.
“There is a critical shortage of industrial land in Vancouver,” CBRE Canada vice chairman Paul Morassutti told Bloomberg, adding that developers might begin constructing industrial buildings vertically due to the lack of usable land.
“It was our estimation that they could potentially, literally run out of industrial land by the early 2020s.”