East meets west
CBRE Ltd. reports that regional industrial vacancies ticked north in the second quarter, reaching 4.2%, and with significant new construction underway CBRE forecasts greater competition for tenants in the months ahead.
This stands to see landlords across the Fraser – in particular, south of the Port Mann and Golden Ears toll bridges – squaring off against one another.
Avison Young anticipates 1.4 million square feet of industrial space completed by mid-2015 in the Fraser Valley alone. That's close to 1% of the region's inventory of 187.7 million square feet. Areas south of the Fraser such as Delta are attracting the lion's share of construction, with vacancies in turn running at twice the regional average.
Avison Young expects investment in industrial space to increase in the coming months “with the accelerating arrival of new speculative, strata and build-to-suit developments.”
With respect to land, prices are strengthening to more than $1.5 million an acre in Surrey, a rare source of freehold industrial land in Metro Vancouver.
“Buying land and building a new building is a lot more cost-efficient than trying to buy a building on existing land in Port Kells or Newton,” said Joe Lehman, a commercial sales specialist with Frontline Real Estate Services Ltd. in Surrey. “From an economic standpoint it makes a lot of sense to buy land in Campbell Heights and build a new building.”
Many users find it easier than buying existing space, because most of what's available are smaller units of between $500,000 and $1.5 million. But the lack of investment opportunities also makes it attractive for some to sell their existing premises and move to new space, often banking some proceeds when they relocate to a cheaper locale.
Lehman said aversion to tolls as well as convenient access from points west via the South Fraser Perimeter Road are also spurring interest in Fraser Valley properties.
Industrial strength
Owners of industrial property aren't the only ones loath to part with their assets.
Rental apartment owners are also holding on to what they've got, boosting per-unit prices in some parts of Metro Vancouver by as much as 25%.
Brokers David and Mark Goodman report that sales in the first half of 2014 have been strong, totalling 61, compared with 45 sales in the first half of 2013.
But to obtain those properties, buyers paid an average of $302,179 a unit in Vancouver and $167,273 in the suburbs – increases of 13% and 22%, respectively, over prices paid in the first half of 2013.
While the effects of the provincial election last May can't be ruled out – deal activity surged across all asset classes when voters returned the BC Liberals to power – the Goodmans note that activity was especially strong in three areas: Kerrisdale, Burnaby and North Vancouver.
Developer activity has been key in Kerrisdale and particularly Burnaby, where five properties traded on the strength of their redevelopment potential.
Meanwhile, the Goodmans' $25.5 million sale of 151 East Keith Road in North Vancouver occurred at a significant premium to previous pricing for the area.
But buyers are tending not to overpay. While financing remains cheap, at less than 3.5% for a 10-year mortgage, and a lack of available assets favours vendors, buyers are savvy to value. David Goodman isn't sure sales volumes in the second half of the year will match those in the first half.
Many owners face hefty capital gains taxes on the sale of assets and have few other areas to invest their cash that provide such steady returns.
A 25-year-old city policy restricting the demolition of rental apartments in the West End was broadened in 2007 to prevent a net loss of rental units city-wide, and Goodman points out that even an uptick in new rental construction in Vancouver thanks to municipal policies has done nothing to soften vacancies or lower rents.
This leaves owners, in the Goodmans' words, “sitting pretty.” However, the shift in activity to suburban properties indicates that investors are increasingly willing to look beyond Vancouver proper to expand exposure to rental properties and provide opportunities for redevelopment.
