Avison Young releases its Fall/Winter 2010 Metro Vancouver Industrial Overview
VANCOUVER, Nov. 10 /CNW/ - Now that Canada's economy is moving into a
growth phase, the Metro Vancouver industrial market is proceeding into
recovery with little risk of setback anticipated. Although overall
growth has yet to occur, some submarkets in the traditionally tight
sector are witnessing small but steady improvements in sales and
leasing activity, sales dollar volume and sale prices, and lease rates.
These are some of the key trends noted in Avison Young's Fall/Winter 2010 Metro Vancouver Industrial Overview, released today.
"The local industrial real estate market is neither accelerating nor
decelerating - it's just rolling along," comments Avison Young
Principal Robert Gritten. "But I wouldn't say we're in recovery yet."
Gritten says the number of industrial sales transactions and sales
dollar volume are on pace to slightly exceed 2009 levels. But, unlike
in 2009 and early 2010, most of the recent deals are based on future
growth rather than downsizing, distress or forced relocations.
Metro Vancouver's industrial vacancy rate currently sits at 4.2%
compared to 4.7% in spring 2010 and 4.4% in fall 2009. The vacancy rate
remains above the 2.4% recorded in fall 2008, when vacancy rose above
2% for the first time since early 2006. The availability rate (which
includes space being marketed but is not physically vacant, or new
supply that is nearing completion and available for lease) is estimated
to be 7.2%, down slightly from 7.5% in spring 2010, but up from 7% in
fall 2009 and 6% in spring 2009.
"The slightly lower availability rate can be attributed to more tenants
starting to gain confidence and, subsequently, make decisions based on
expansion," says Avison Young Principal John Lecky.
Overall vacancy is expected to decrease in the next six to 12 months as
leasing activity picks up, although increases in Canadian unemployment
rates may temper demand.
Since peaking in 2008, rental rates have trended downward. However,
landlords are beginning to witness more bids as tenants seek to
capitalize on opportunities to relocate to newer and larger locations.
Average asking rents for large (75,000-sf-plus) distribution centres
range from $5.50 psf (year one) in the South Fraser Distribution Centre
(a.k.a. Hopcott Centre) in Delta to the mid-$6 psf level for new
product elsewhere. The market must gain more traction before fall 2009
rates of $6.50 to $7.50 psf can be realized again.
Average asking rents for sub-50,000-sf new and class A spaces in the
core areas of Richmond, Burnaby and Vancouver remain in the $7.50 to
$8.50 psf range witnessed in spring 2010, down modestly from $8 to $9
psf in fall 2009. Rents for sublease space remain lower, but these
opportunities are decreasing.
"Burnaby continues to outperform other districts as it records ongoing
increases in sales and leasing activity," points out Avison Young
industrial broker Kyle Blyth. "Meanwhile, large pockets of industrial space in areas such as Surrey,
Langley, Richmond and Delta are slowly but steadily leasing up."
Demand for investment product remains strong as buyer confidence
continues to rise and commercial real estate outperforms other sectors.
Some deals have resulted from pent-up demand, while vendor and
purchaser price expectations have narrowed. There continues to be a
lack of available investment-grade product.
"The market has potential for a turnaround in early-to-mid 2011 as sale
prices and vacancy hold steady, investors gain greater access to
capital and credit, and owner-users and tenants require more space for
expansion," says Blyth.
Meanwhile, developers are delaying speculative new-product deliveries
until vacancies show sustained reduction.
"With current rents failing to justify land costs and lender demands
continuing to be somewhat onerous, cautious developers are opting to
market build-to-suit strata properties with multiple small or mid-sized
bays rather than risk building large single-tenant or multi-tenant
properties," notes Gritten. "Owner-users, who seek to build equity or
consider expansion, are also showing resurgent demand for strata
properties. But in many cases, lenders require strata properties to be
significantly presold before financing construction."
In most areas of the region, prices for small ready-to-build sites,
designed for owner-users, are continuing to hold. However, sales of
large development land parcels are scarce throughout Metro Vancouver.
As a result, pricing levels for large land parcels have fallen 10% in
central areas, approximately 25% to 35% in secondary locations, and as
much as 50% in tertiary markets since peaking in 2008.
According to the report, historically-low capitalization rates continue
to hold, ranging from 6.25% for high-quality properties to 7.5% for
class C buildings. These figures are comparable to the 6.5% to 7.5%
range displayed in spring 2010, and can be attributed to the limited
product available and the substantial amount of equity looking to be
"The current ability to secure five-year financing below these yields
has served to suppress escalation in capitalization rates for the
foreseeable future," adds Lecky.
Founded in 1978, Avison Young is Canada's largest independently-owned commercial real estate services
company and the only national, Canadian-owned, principal-managed real
estate brokerage firm in the country. Headquartered in Toronto, Ontario
and ranked among Canada's leading national commercial real estate
organizations, Avison Young is a full-service commercial real estate
company comprising more than 700 real estate professionals in 23
offices across Canada and in the U.S. The company provides value-added,
client-centric investment sales, leasing, advisory, management,
financing and mortgage placement services to owners and occupiers of
office, retail, industrial and multi-residential properties.
Editors/Real Estate Reporters
∙ Click here to view Avison Young's Fall/Winter 2010 Metro Vancouver Industrial Overview:
SOURCE Avison Young
For further information: For further information:
- Monte Stewart, Communications Group, Avison Young: (604) 646-8381
- Robert Gritten, Principal, Avison Young:(604) 647-5063
- John Lecky, Principal, Avison Young:(604) 647-5061
- Kyle Blyth, Broker, Avison Young: (604) 647-5088
- Sherry Quan, National Director of Communications & Media Relations, Avison Young: (604) 647-5098;cell:(604) 726-0959
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