New strata and some speculative construction emerging to satisfy tenant
and owner-user appetites for expansion
VANCOUVER, May 3 /CNW/ - Strong debt markets and constrained supply
defined the recovery of the Metro Vancouver industrial market in 2010
and continues attracting investor capital in the battle to achieve
yield in 2011.
With the BC and Canadian economies forecasted to achieve in excess of 3%
annual GDP growth in the year ahead, investor demand remains high for
industrial product. New strata and some speculative construction are
emerging to satisfy tenant and owner-user appetites for expansion.
These are some of the key trends noted in Avison Young's Spring 2011 Metro Vancouver Industrial Overview, released today.
"With a slight increase in the value of Canadian treasuries during the
past six months, offset to some degree by the compression in the
premium charged by lenders, capitalization (cap) rates that typically
trade in a very narrow range (about 200 basis points) higher than the
Canadian benchmark interest rate, have thus far lessened the impact of
a slightly increased lending rate," comments Avison Young Principal Rob Gritten. "In short, until we see a sustained increase in interest rates, we
will not see a corresponding increase in cap rates."
According to the semi-annual report, pent-up demand propelled industrial
deal velocity in 2010, particularly in the second half of the year.
This increased activity is anticipated to continue in 2011 as cap rate
compression stagnates, and given that interest rates will not start
trending upwards until inflationary pressures build.
"When interest rates rise to an extent that effectively ends cap rate
compression - and triggers upward movement more in line with its
historical trading range vis-a-vis the lending rate - the subsequent
impact on the Metro Vancouver industrial market could affect deal and
dollar volume," says Gritten. "Velocity of activity will likely fall
because vendors will not react to lower pricing expectations of buyers
based on higher debt costs."
According to Avison Young Principal John Lecky, more industrial tenants are looking for relocation opportunities as
the market outlook improves.
Renewed economic confidence is also generating investor interest in
industrial real estate, he says, but that enthusiasm may be tempered by
a limited supply of available real estate product.
"The mindset of vendors is that - by and large - they are happy with
their industrial real estate holdings," comments Lecky. "In order to
motivate them to transact a scarce commodity like Metro Vancouver
industrial real estate, cap rate compression is necessary."
Industrial vacancy tightens year-over-year in Metro Vancouver
Metro Vancouver's industrial vacancy rate continues trending lower
year-over-year as the lack of land and new development pushes lease
rates, as well as deal and dollar volumes, higher. Overall vacancy
currently sits at 4.5% compared with 4.7% in spring 2010. The vacancy
rate remains above the 2.4% recorded in fall 2008, when vacancy rose
above 2% for the first time since early 2006.
Significant positive absorption in industrial parks such as Gloucester
Industrial Estates in Langley and Campbell Heights Business Park in
Surrey has demonstrated pent-up demand for industrial real estate of
all types, including freestanding, strata and lease product.
"Vacancy will remain low going forward due to a measured increase in
speculative supply brought on stream by the handful of large developers
that control the majority of the land-constrained Metro Vancouver
industrial market," says Gritten.
Mortgage payments versus rental rates
With rental rates likely increasing and interest rates remaining low,
mortgage payments could prove to be more cost effective than monthly
rent in 2011. Vendors of presale or finished product are maintaining
price expectations so users are only making purchases after careful due
diligence. Developers are only acquiring land where pricing meets the
cost to deliver at retail after servicing, subdivision, and development
"You are going to see more construction in 2011," says Lecky. "The
combination of low interest rates and increasing land and construction
costs provokes users to seriously contemplate strata ownership versus
Land prices driving demand for strata
Strong demand and a constrained supply of new industrial product
combined with the low cost of borrowing have caused demand for strata
industrial space to spike in recent years. Until interest rates
appreciate considerably, the trend is expected to continue in a market
where land remains at a premium.
Gritten adds: "Owning real estate is an inflationary hedge and with such
pressures building in the short to medium term, the option to purchase
is appealing to many owner-users."
Avison Young's Spring 2011 Metro Vancouver Industrial Overview features a detailed primer on Metro Vancouver's proposed Regional
Growth Strategy (RGS) as well as a Q&A panel discussion with Burnaby
Mayor Derek Corrigan; the Beedie Group's vice-president of land development, Dave Gormley; and Coquitlam Mayor Richard Stewart. All three discuss and debate the merits or drawbacks of the impact of
the RGS on industrial land development in the region.
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
∙ Please click on link to view Avison Young's Spring 2011 Metro Vancouver Industrial Overview:
SOURCE Avison Young (Canada) Inc.
For further information:
For further information/comment/photos:
- Andrew Petrozzi, Research Manager, Vancouver, Avison Young: (604) 646-8392
- Rob Gritten, Principal, Avison Young: (604) 647-5063
- John Lecky, Principal, Avison Young: (604) 647-5061
- Sherry Quan, National Director of Communications & Media Relations, Avison Young:
(604) 647-5098; cell: (604) 726-0959
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