Metro Vancouver’s industrial real estate market, which has been fueled by widespread speculation over the past year, has apparently hit the pause button.
Vacancy rates are edging up amidst a mounting inventory of both new, large-format warehouses and smaller, older properties that don’t fit modern demand.
In the past 12 months, 2.7 million square feet has been built, much of it on speculation, and another 2.2 million square feet is under construction, according to a survey by Avison Young.
But demand for the big warehouses, built to accommodate large retail distribution centres, has slowed.
“There are numerous options in excess of 100,000 square feet compared to only a handful at this time last year,” said Cushman & Wakefield Ltd. research analyst Andrea Wellburn.
The vacancy rate in Metro’s 187.6 million square-foot industrial sector rose to 3.7% in the first quarter, up marginally from 3.5% a year earlier, but signals are that it could go higher, especially for big buildings.
“Large logistics/distribution users have generally gone quiet since fall 2013,” Avison Young confirms. Avison Young says the “pause” in the market reflects cold feet on the part of giants such as Amazon.com Inc., Costco Wholesale and others, which have yet to pull the trigger on proposed – and widely anticipated – distribution facilities.
Adding to the market overhang is aging industrial space, some dating back 30 or 40 years. “Older product with lower ceiling heights, fewer loading docks, tight truck turning areas and antiquated operating systems are also struggling and must be priced aggressively to attract attention,” Welburn noted. Some of these spaces have been dark for 12 to 18 months, she noted.
Still, Avison Young found that more than 1.6 million square feet of industrial space was leased or sold during the first quarter, which is considered healthy. Avison Young notes that growth in container traffic, a nascent provincial liquefied natural gas sector and demand for exports of primary materials should fuel future demand for industrial properties.
