Skip to content

CRE OUTLOOK VANCOUVER: Follow the money to profit in 2022

Real estate lenders are hot for Vancouver, but even the bulls are skittish about some sectors in arguably the best property market in Canada

It is easy to understand the raw confidence that surrounds the outlook for Metro Vancouver commercial estate going into 2022.

When real estate lenders at 30 top Canadian financial firms were asked where they wished to place money this year, three cities and two sectors dominated every list. The cities included Vancouver and the sectors were residential and industrial, with core-based, grocery-anchored retail in a distant third place, according to the CBRE 2021 Canadian Real Estate Lender’s Report.

That neatly sums up the 2022 optics for normally conservative bankers, but Metro Vancouver investors and developers often play by their own rules and, judging by recent performance, they may be right, again, for the year ahead.

After all, in their 2021 outlook, less than 50 per cent of real estate lenders were bullish on the industrial sector and only 60 per cent wanted to increase lending to the multi-family apartment market.

Metro Vancouver, of course, went on a tear in both sectors, hitting record levels of investment and returns in rental apartments and all types of industrial. The concept of light-industrial strata, if not invented in Vancouver was certainly perfected here, turning in a stunning performance in 2021. Today strata is fast becoming the dominant industrial play in the region.


Locals are also turning a gloomy outlook for the retail sector on its head. According to the lenders, investors should shy away from most bricks-and-mortar retail, particularly regional malls in non-core markets. Yet, Metro Vancouver saw a multimillion-dollar shopping spree by investors snapping up retail assets last year, led by suburban assets.

These included Delta’s 42,000-square-foot Nordel Centre shopping centre, which sold for $21.3 million, nearly $3 million over its BC Assessment value. Skyline Real Estate Investment Trust (REIT) paid $31.4 million for a 71,800-square-foot Abbotsford shopping centre; and a private local investor bought the Rodeo Square strip mall in Surrey for $23.3 million.

As an indication of the confidence, 2021 ended with 27 acres of suburban Richmond selling for $300 million in the biggest commercial land deal of the year.

Lenders can be excused for a myopic vision. Like no other city, Metro Vancouver appears designed for commercial real estate success.

With two million restless big spenders – retail spending averaged $3.4 billion per month straight through a global pandemic – hemmed in by mountains, oceans, the U.S. border and decades of progressive politics that has frozen thousands of acres out of the market, there is nowhere better to make money in real estate.

Even in the worst streets in the region, the notorious Downtown East Side, land sells for the equivalent of $10 million an acre and retail space goes for $800 per square foot. When the province bought skid row hotels in the area last spring, it paid up to $327,000 per door.


Despite floors of empty office space due to work-from-homers, 6.5 million square feet of new office towers are construction across the Metro region, 63 per cent of it downtown, and giant tech firms are pre-leasing much of the space. Over the next 12 months, five downtown office towers will deliver 900,000 square feet of top-tier space.

The third quarter of 2021 saw net absorption of 713,000 square feet of downtown office space, compared to a negative of 420,000 square feet at the same time in 2020, and the average asking rent has shot up 12.7 per cent to nearly $30 per square foot, according to Colliers. The vacancy rate for Class AAA downtown office space is a tight 2.3 per cent.

“We expect 2022 to be a banner year for Vancouver’s commercial real estate sector,” said Madeleine Nicholls, managing director of Colliers Vancouver.

While the pandemic has helped drive the downtown vacancy rate to 6.2 per cent in late 2021, up from 3.8 per cent a year earlier, it has proved a boon to the suburban office sector.

There has been a movement of people to the suburbs, and many commuters are wary of riding public transit, so parking accessibility gives suburban offices an advantage, along with lower lease costs.

According to a recent survey, 70 per cent of the 543,000 square feet of new offices under development in suburban markets was pre-leased or sold before completion, including 280,000 square feet of space in two new Class AA towers in Surrey.

While it is declining, there remains a large amount of sublease space on the market across Metro Vancouver, including more than 725,000 square feet downtown and 1.7 million square feet across the region, most of it in older Class A and B buildings. The subleases, agents note, can give smaller firms and startups an opportunity to acquire lower-cost office space in some prime locations. With an overall absorption rate averaging about 230,000 square feet per month in late 2021, however, even sublease space could vanish early this year.


Metro Vancouver’s industrial real estate market is a victim of its own success.

It has the lowest industrial real estate vacancy in North America and the highest leasing and strata costs in the country. The industrial land base has shrunk close to zero, driving land prices into the stratosphere.

Demand has been so intense that the vacancy rate has fallen to 0.4 per cent, the lowest or major city in North America and every price metric – land costs, lease rates and strata values – have skyrocketed.

The fear now is that many companies, particularly large distribution firms, will move to much lower-cost Calgary or Edmonton. Freak floods that washed out major B.C. highways and crippled provincial supply chains in November 2021 didn’t help. Major Highway 5, the Coquihalla, may be closed for much of 2022.

“The availability of industrial space and warehouses in the Metro Vancouver region larger than 100,000 square feet has already dropped to virtually zero, which threatens to strangle economic growth and business expansion in the region — an issue exacerbated by Mother Nature’s potential to wreak havoc on our transport infrastructure,” said Josh Gaglardi is principal of Orion Construction in Surrey, a leading contractor for industrial construction.

Gaglardi argues that industrial developers and their clients should be looking outside of the Metro region to the Interior of B.C. even Vancouver Island to diversity the industrial base.

However, industrial land is also scarce on Vancouver Island, with a 0.2 per cent vacancy rate in Greater Victoria and few large parcels available south of Nanaimo. In Kelowna, 40 per cent of the city’s land – more than 17,000 acres - is within the Agricultural Land Reserve which precludes industrial development. Kamloops had a total of just 240 acres of vacant industrial land a decade ago and much of that is already developed. Last October, the City of Kamloops approved about 150 acres for future industrial development, but the land requires extensive environmental and other studies before anything is built.

This means that industrial density is about the only solution for industrial development in Metro Vancouver. Last year saw the first multi-storey industrial projects being built, a template for what may become normal in 2022.

In southwest Vancouver, developer Wesbild, with Kingsett Capital, is turning an old sawmill site into Canada’s largest stacked, mixed-use industrial- office complex in twin buildings. Its Marine Landing development will offer strata workspaces ranging from 600 square feet to 34,000 square feet. 

“We start demolition in January, [2022]” said Wesbild development manager Brennan Finley of a multi-level project at 8188 Manitoba Street, Vancouver that is expected to cost from $110 million to $120 million to build and be complete by 2024.

Unlike a lot of the industrial strata projects underway in Metro Vancouver, Wesbild is not building on speculation. According to Finley, 90 per cent of the industrial space in the first tower is already sold, as well as a 20 per cent of the office space. The industrial units are selling for $750 to $800 per square foot, while the office space on the top three floors sells for $950 to $1,000 per square foot.

In Vancouver’s False Creek Flats, Alliance Partners is redeveloping an old warehouse on a 1.5-acre site into a five-storey industrial-office project of 173,000 square feet at the corner of East 1st Avenue and Clark Drive.

The project is the first in the Flats with loading ramps to the first two floors of industrial space, in addition to freight elevators.

Frameworks starts construction this spring and is expected to complete in 2024.