Fears of rising land and lease costs and the low cost of borrowing continue to drive demand for strata industrial space across Metro Vancouver, according to a report from Avison Young.
"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 explained.
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.
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.
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 per cent compared with 4.7 per cent in spring 2010.
Vacancy will remain low due to a measured increase in speculative supply brought on stream by the handful of large developers that control the majority of the industrial market, according to the report.
"You are going to see more [strata] construction in 2011," said Lecky. "The combination of low interest rates and increasing land and construction costs provokes users to seriously contemplate strata ownership versus lease obligations."
from Western Investor June 2011
