Industrial intensity
The meta-narrative for Vancouver real estate is one of strong demand and tight supply, and this is especially true of industrial. Typically one step up from agricultural land, it faces pressure from competing uses and rising land values. It’s tough to make the economics work.
According to CBRE Ltd. statistics recently presented to commercial real estate association NAIOP, prices have risen to $195 per square foot from $145 per square foot over the past decade. The effective price has remained the same, however, thanks to lower interest rates. In short, the money that buyers would otherwise have spent servicing debt is now spent outbidding other parties.
Still, price increases mean that many deals today are for smaller properties, and given the scarcity of available properties, there are fewer deals.
While total industrial sales hit a new record of $1.2 billion, most deals were for properties smaller than 5,000 square feet and worth less than $2 million. Underscoring this is the fact that about half of the largest deals were either non-arm’s length or went firm in 2015. The deals completed in 2016 were largely small trades.
Similarly, industrial land trades totalled 312 acres – and again, the deals were small. Just three properties in excess of 10 acres changed hands, the lowest number of large transactions in five years.
But don’t just take CBRE’s word for it.
Over in North Vancouver, Avison Young reports that vacancies remain tight at 0.6%, while just 16 deals occurred last year – among the lowest tally this decade, and not likely to be alleviated by new supply in the near future. Everyone’s holding on to what they’ve got, and even incoming strata units face fierce demand.
Pleasant strata
Speaking of strata, CBRE considers the market “alive and well in Metro Vancouver,” and Chard Development Ltd. is transforming a cinder-block warehouse in Mount Pleasant into a project set to complete in 2018.
Situated at 34 West 7th Avenue, the former Far-Met Importers warehouse will become a four-storey commercial strata development for up to five companies. The project will have 49,500 square feet of interior space plus 6,000 square feet of terraces that will include what Chard acquisitions officer Byron Chard terms an “outdoor boardroom.”
“We’re really trying to play on that and get the creative class to be in the area,” Chard said.
The vision is for units at grade to house light industrial users, with offices suitable for tech companies on the upper levels. Rather than the yellow brick that formerly fronted onto West 7th, a glass wall will let passersby see the kind of activities that make up the new industrial cityscape.
“[It’s] taking the skin off of Mount Pleasant,” Chard said. “We’re really accenting it and showing the great companies that work there.”
Chard envisions 300 to 500 people employed on a site that formerly had just 10 employees.
The densification of job space is taking place in tandem with other local developments, both Chard’s six-storey residential projects on Main Street as well as a host of commercial projects.
Avison Young’s most recent office report enumerates a half-dozen commercial projects in Mount Pleasant, where, it says, “pre-leasing activity remains dynamic.”
“Market activity is anticipated to remain strong for the next six to 12 months as new supply is delivered to the market fully leased in late 2017,” Avison Young reports.
Deals take Form
Chevron Canada Ltd. recently listed five of its service stations for sale with Form Retail Advisors. The move follows the listing of three properties last August.
Chevron spokesman Adrien Byrne wouldn’t provide details or an expected timeline for completion of deals for the original three stations, however.
The transactions are at various stages of negotiation, reflecting strong demand for prime redevelopment sites, but past experience suggests that redevelopment could take time.
Most former service station sites require remediation, meaning their transformation is likely years away, especially factoring in city approval times for any redevelopment proposals.
