Here is the latest industrial market report provided by Colliers International:
The Canadian economy soldiers on despite the ongoing uncertainty surrounding the
Euro zone economic crisis and the spectre of the U.S. debt discussions. These destabilizing
influences have tempered Canadian business spending on equipment and new hires, with
this hesitancy beginning to manifest as softer demand.
The coming year looks to be similar in terms of economic performance, with the East versus West divide remaining in place.
Western markets have seen solid absorption and rent growth for office and industrial
property, while eastern markets experienced softer occupier demand and rent conditions.
Canadian markets are well positioned for a period of softer demand, with national vacancy
rates in the single digits for both Office and Industrial property.
Industrial development has been well balanced with demand and looks to continue on that path, with stable occupancy projected for 2013.
Q4 2012 | INDUSTRIAL REPORT
Metro Vancouver Market Overview
Declining to 3.7 percent in the fourth quarter of 2012, as compared to 3.9 percent in
the fourth quarter of 2011, Metro Vancouver’s industrial market continues to have one
of the lowest vacancy rates in the country. While leasing activity increased in the fourth
quarter, the investment market was the most notable, with the completion of several large
transactions, one of which was the largest-ever industrial investment in Metro Vancouver.
The leasing market in Richmond and Delta picked up modestly in the fourth quarter of
2012, and a number of lease renewals were also completed. The vacancy rate in Richmond
during the fourth quarter of 2012 declined to 2.8 percent from 3.6 percent in the fourth
quarter of 2011. Similarly in Delta, vacancy declined to 6.1 percent from 8.8 percent year
Although Richmond posted 416,446 square feet of positive net absorption in
the fourth quarter of 2012, 275,000 square feet can be attributed to construction being
completed at Hopewell III (16111 Blundell Road) and Albion Fisheries (1900 No. 6 Road).
While macro-economic factors continue to warrant uncertainty, there are limited options
for lease over 100,000 square feet in Richmond and Delta. Some of the most significant
transactions that occurred in the fourth quarter of 2012 included Orbit Distribution Systems
Ltd.’s lease of 141,860 square feet at 7271 Nelson Road and Viceroy Homes Ltd.’s lease of
106,380 square feet at 12211 Horseshoe Way, in Richmond. In addition, Coca-Cola has
reportedly subleased 135,000 square feet at 7200 Nelson Road until 2017.
The Richmond and Delta markets saw a substantial amount of investment activity in the
fourth quarter of 2012. Most notably, Pure Industrial Real Estate Trust’s (PIRET) purchase
of Hopewell I and II, in East Richmond, from KingSett Capital for $102.46 million. These AAA
class distribution centres are located at 16131 and 16133 Blundell Road and are fully leased
to four high-quality, multi-national tenants. These buildings represent a gross leasable
area of 927,429 square feet on 47.27 acres. This sale, brokered by Colliers International,
represents the largest industrial investment trade ever completed in Metro Vancouver.
Vacancy rates in Richmond are expected to increase in the first half of 2013 as the building
At 16100 Blundell Road is completed. The building, scheduled for completion in mid-2013,
consists of nearly 300,000 square feet and has not yet been committed to by a tenant. It
is also reasonable to presume that rental rates will likely remain flat in the first quarter of
2013 as new supply is limited to a few large speculative distribution-style developments.
With the exception of Burnaby and Coquitlam, vacancy rates remained reasonably flat throughout 2012. While vacancy rates in Burnaby and Coquitlam may appear unusually high, closer inspection reveals nearly 500,000 square feet of Burnaby’s vacancy rate of 5.2 percent can be accounted for between New Haven’s phase II and the temporary space located at the Safeway Canada Distribution Centre.
Similarly, in Coquitlam, vacancy rates are 8.1 percent. However, when the sublease space at 1050 United Boulevard is excluded, vacancy rates drop to 5.6 percent.
Interest increased in the fourth quarter of 2012 as tenants were actively touring. Significant transactions in the region included A1 Universal Terminal Ltd.’s lease of 51,877 square feet at 230 Brunette Avenue in New Westminster , and Arc’Teryx Equipment Inc.’s 61,700 square foot renewal of their existing facility at 2820 Underhill Avenue in North Burnaby.
While continuing to be challenged by limited supply, significant demand for quality investment properties persists with the completion of a few large investment transactions. Most notably, the Sun Life Assurance Company of Canada purchased Lake City Court - an 113,876 square foot, AAA class flex industrial/office business park facility – from Triovest Realty Advisors for approximately $26 million and a cap rate at under six percent.
With the expectation of increased activity in these relatively tight markets, vacancy rates are expected to continue to compress. Rental rates are expected to remain firm, but not increase, until new and existing inventory is further absorbed. In addition, with no speculative development, Coquitlam is expected to finally have a decrease in vacancy rates following the completion of construction surrounding the Port Mann Bridge. However, Coquitlam continues to suffer from abnormally high property taxes.
Due to limited speculative development, industrial facilities in the Fraser Valley markets
continue to be in high demand and vacancy rates have continued to contract. Vacancy rates
in Surrey and Langley declined from 2.3 and 3.8 percent to 1.9 and 3.1 percent respectively,
during the course of 2012. The decline can be attributed to 665,625 square feet of positive
net absorption year-to-date. It is important to note that while 459,391 square feet was
absorbed in Surrey in the fourth quarter of 2012, roughly 250,000 square feet was a result
of the completion of Blackthorn I and II – a speculative development in Campbell Heights
that was pre-leased prior to completion.
While demand across all submarkets in the Fraser Valley was notable, the limited supply of available space for lease can be best illustrated by the Gloucester submarket, where in the quarter of 2012 only 122,850 square feet of space is currently vacant.
The most notable transaction in Langley this quarter was Heartwood Distributors Ltd.’s 50,000 square foot lease of 19750 92A Avenue in Langley. The sale market in the Fraser Valley remains primarily user-driven with strong interest in vacant buildings for sale. The most notable owner/user sale transactions this quarter included the purchase of 74,050 square feet at 9770 199A Street in Langley for $9.35 million
By Valley Traffic Systems, as well as Mitsui Homes Canada Inc.’s purchase of 138,000 square feet at 19680 94A Avenue in Langley for $14.9 million. Similar to all other Metro Vancouver markets, demand for quality investment product continues to outstrip supply.
The most notable investment transaction in the fourth quarter included the purchase of a
76,605 square foot, single-tenant facility at 2330 190th Street, in Langley for $8.2 million
by a private investor.
The Fraser Valley is expected to continue to post significantly low vacancy rates into the
beginning of 2013. In the spring however, we are likely to see a number of projects planned
for Campbell Heights commence construction. Consequently, vacancy rates are expected
to increase as new space is introduced to the market in early 2014.
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