Demanding circumstances
Tenants and owner-occupiers are becoming increasingly demanding when it comes to industrial space in Metro Vancouver.
On the one hand, leasing activity is slow and sales activity also dropped in the second quarter of the year, according to the latest report from DTZ Barnicke. Second-quarter vacancies rose three-quarters of a percentage point to 4.1%, while “an overall lack of quality product” stalled sales.
But a closer look at the market by the Vancouver office of CBRE Ltd. suggests a divide in the deals being done. CBRE notes an uptick in leasing by logistics companies in 2012 in contrast to the slow conclusion to 2011.
“Most of the leasing activity over the past six months has been for large-format distribution space, with preference for high ceiling heights above 28 feet,” its second-quarter report states. “The majority of the market availability (72.2%) in spaces above 25,000 square feet in Metro Vancouver is comprised of properties with ceiling heights below 28 feet.”
Demand from logistics companies is driving the shift in occupants' requirements of buildings.
“Just because of the way companies are operating now, they need that higher degree of space,” said Anthio Yuen, senior research analyst with CBRE in Vancouver. “They want the higher efficiency space, ones that have higher ceiling heights ... good storage, good racking capabilities.”
Most new buildings have ceilings of at least 28 feet, Yuen said, among other features that command top dollar.
“Users are willing to pay a little more for an efficient building,” said Joe Inkster, a vice-president with CBRE specializing in industrial properties.
The willingness to spend to secure features applies equally to tenants and owner-occupiers, both of which are squeezed by a lack of suitable product.
CMHC starts stats
The latest Canada Mortgage and Housing Corp. (CMHC) report forecasts a decelerating housing market across the country through 2012's latter half, but housing starts in Vancouver are ahead of starts in 2011.
While not making a firm call on what the total tally of housing starts in the Vancouver metropolitan area will be for 2012, the CMHC reported that housing starts thus far this year stood at 11,341 units as of July 31. This compares with 9,831 for the same period of 2011.
By extrapolating from the monthly total across the entire year, the CMHC calculated an annual starts figure of 19,600 units. This is ahead of the forecast of 18,000 for the year, which itself is ahead of the 2011 final tally of 17,867 starts.
While the performance is an improvement on last year, CMHC senior market analyst Robyn Adamache noted in the release accompanying the figures that the momentum underpinning housing starts decreased between June and July. This was consistent with last week's third-quarter forecast from CMHC, in which the corporation's deputy chief economist Mathieu Laberge observed that the country's housing markets will moderate in the closing months of the year. The multi-family segment of the market will be particularly affected by the slowdown.
Rental starts planned
Vancouver city staff are planning 500 starts of their own to feed the city's rental market.
Proposals are being sought for six city-owned sites, primarily in the southeast corner of the city: two sites in the River District (the East Fraser lands), and three along Marine Drive and East Kent Avenue immediately to the west of the River District. The one exception is 1700 Kingsway, in the Cedar Cottage neighbourhood.
Targeted for completion by the end of 2015, the units will rent at below market rates – rates Mayor Gregor Robertson says residents will be able to afford.
Projects will be awarded in early 2013 to developers that submit proposals. •
