Industrial divide
A recent Avison Young review of industrial markets noted that private investors are financing a surge in speculative industrial construction in Delta and Richmond, with Delta itself seeing “industrial leasing and sales activity in ascension.”
The news would seem to indicate that Lower Mainland industrial markets have found a new sweet spot, but the concentration of activity highlights the ongoing divide in the region between what users want and what exists.
Approximately 7.1% of industrial space in Metro Vancouver is available for lease, according to CBRE Ltd., and of this CBRE vice-president Chris MacCauley said a good proportion is older, inefficient space that doesn’t suit tenants’ needs.
“A lot of it has been on the market for a couple of years,” he said. “Any new product, or new generation product, is getting leased up.”
This has given developers such as Dayhu Group the confidence to undertake massive projects such as the 900,000-square-foot Boundary Bay Industrial Park with high ceilings and racking and manoeuvring capabilities that older buildings can’t offer.
Meanwhile, simple economics work against the renewal of older space.
Fraser River Terminal Inc. in Richmond has a 200,000-square-foot building with an asphalt floor. Redoing the floor to support racked goods would have triggered a costly building upgrade. MacCauley said the space sat vacant for years until being recently leased for dry storage.
Because older space rents for less, it undercuts rates across the entire market.
“It hurts us, but there’s nothing we can do about it,” MacCauley said.
On the positive side, short-term deals are being done for sites such as the old Safeway property in Burnaby, which Ledingham McAllister acquired last year with plans for residential units – a development that will eliminate it from the industrial inventory.
Office side
Despite “strong fundamentals,” the Metro Vancouver office market saw negative absorption in 2013’s first half, reports Avison Young in its mid-year update on the local office market.
While high-quality industrial space is in demand, the office market logged its worst six months since 2009 as 179,980 square feet returned for lease.
Avison Young offered some consoling statistics, however.
While more than a million square feet returned to the market in all of 2009, the years from 2010 to 2012 each saw strong positive absorption. Moreover, the 10-year average annual absorption through 2012 sits at 566,345 square feet.
Avison Young expects improvement as the market moves into 2014. Regional vacancies are projected to drop from the current 7.5% to 7% by next June.
Infrastructure key
The latest issue of the B.C. Major Projects Inventory notes that utilities and public services projects are assuming a greater role in the province’s construction industry.
The inventory for 2013’s first quarter details 958 projects, of which 255 are utilities or public services. By contrast, nearly double that number – 501 – are residential or commercial projects.
But five years earlier, the inventory recorded 858 projects. Of these, 470 projects were residential or commercial developments while a mere 185 were utilities or public services.
Doing the math, key infrastructure projects such as utilities and public services have gained ground in the intervening five years to the tune of five percentage points – they now account for 26.6% of all major projects – while residential and commercial projects have slipped 2.4 percentage points to account for 52.3% of all major projects.
This arcane data point illustrates the important role key infrastructure projects are playing in driving construction job growth across the province.
“Infrastructure is one of the big drivers we see,” said Bryan Yu, an economist with Central 1 Credit Union in Vancouver. “There’s still quite a bit of non-residential investment happening ... but if we’re profiling over the future, things look relatively bright on [the infrastructure] end.”
Yu sees the contribution from projects such as the Northwest Transmission Line and Lower Mainland transit projects growing, particularly from 2015 onward. The projects will in turn support other major projects, such as mine development and subdivisions.
