Judging from leading market reports and analysts focused on Metro Vancouver industrial real estate, it would appear that rabid demand and a looming shortage threaten the entire industrial market. But Western Investor has found there is a glut of the type of space that most small and mid-size companies need, even in supposedly super-tight markets like Vancouver.
"There's a finite amount [of industrial] that's left," warned Gaetan Royer, manager of metropolitan planning, environment and parks, for Metro Vancouver. "If we continue to build single-storey tilt-up concrete warehouses we're going to run out [of land] somewhere between 2020 and 2024." Chris MacAuley, a vice-president specializing in industrial properties with CBRE Ltd., is concerned that the shortage is even more acute than Metro Vancouver's report indicates. Both Avison Young and DTZ Commercial call the market "tight" in recent reports, with DTZ noting that just 2.3 per cent of the 23.8 million square feet of Vancouver industrial space is vacant.
In a May 23 address in Vancouver, Jennifer Podmore-Russell, director of Deloitte Real Estate, warned that the Metro region is in such dire need of more industrial space that "we could run out in 15 years". Podmore-Russell suggested that discussions should open on turning some of the region's Agricultural Land Reserve (ALR) over for distribution warehouses.
Yet, when a Western Investor reporter poised as a service company seeking small-bay industrial space of from 2,500 to 5,000 square feet, he was told there is plenty, even in Vancouver. "There is tons of space like that," one industrial agent said, offering to show sites across South Vancouver and Burnaby. In fact, Western Investor discovered that 70 per cent of space currently available for lease in Metro Vancouver is in units of less than 10,000 square feet.
Research analysts at both Avison Young and DTZ agreed that small bay space is widely available, each estimating that the vacancy rate for small bays is likely twice the level of the overall industrial vacancy rate. An Avison Young research analyst said a study has never been done tracking vacancies of smaller industrial properties, "but it is something we will definitely look at." Avison Young's most recent report focused on demand for industrial bays of 100,000 square feet or more, which constitute a small fraction of the market. In Vancouver, for example, there are only three industrial bays vacant that measure more than 30,000 square feet. Surrey has six.
Even if the industrial vacancy rate in Metro Vancouver is 4.3 per cent, as the most research indicates, the market itself may be taking care of any fears of a catastrophic shortage. In the first quarter of this year, DTZ reports, only 350,000 square feet of industrial space was leased up in Metro Vancouver, a dramatic plunge from the 1.7 million square feet taken up in the previous quarter. As well, despite reports of clamouring demand, sales of industrial property plunged 45 per cent in the same period, to $158.3 million and strata sales of industrial space plunged from $56 million in the fourth quarter of last year to just $17.7 million in the first three months of 2013.
