Weekly Buzz: Office and industrial shortage, cannabis legalization

Western Canada's top commercial real estate stories, featuring coverage on Metro Vancouver's commercial shortage and how cannabis legalization will affect industrial and retail demand

By
Western Investor
October 12, 2018





Vancouver

 

This week’s top stories cover the shortage of available industrial and office space in Metro Vancouver, causing new, unlikely hubs for commercial real estate outside of downtown Vancouver. Meanwhile, marijuana legalization coming into effect this month is expected to affect demand for retail and industrial properties outside Vancouver, namely in the Okanagan and Edmonton.

Here is Western Investor’s pick of the top commercial real estate stories published this week.

 

Tight downtown office market sends companies to Broadway – Business in Vancouver

With little office space available in the downtown Vancouver, tenants are looking to the Broadway corridor and beyond.

Triple-A office vacancies in Vancouver continued to decline in the third quarter. Preliminary numbers from Cushman & Wakefield indicate a dramatic drop in the city proper from 4% to 1.4% during the period, with the downtown core tightening slightly from 2.7% to 1.7%.

The tightening downtown is even slighter when real numbers come into play. With a total inventory in the core of 27 million square feet, Cushman & Wakefield reports that total downtown absorption in the third quarter was just 14,439 square feet.

With so little space available in the core, tenants have looked to the Broadway corridor and beyond, where absorption totalled 202,188 square feet.

Statistics from Colliers International paint a similar picture.

Just 11,599 square feet of triple-A space is available in the core, for a 6% vacancy rate and an availability rate approaching nil. Gastown, Railtown and Yaletown have zero vacancies in A-class space, driving tenants to Broadway, which saw 148,646 square feet of absorption in the third quarter. This was the biggest portion of the market’s 161,049 square feet of absorption. Corridor vacancies fell from 4.3% in the second quarter to 3.6% in the third quarter.

The strength of the market underscores the demand for new construction, of which 2.2 million square feet is on the go downtown. This is drawing the likes of not only high-profile tenants such as Amazon and WeWork Cos. Inc., but also professional firms including Ernst & Young, Blakes and DLA Piper, which have signed for a total of 207,000 square feet at Oxford Properties Group’s new office tower at 1133 Melville Street.

An additional 375,048 square feet is being built elsewhere in the city, primarily in the Broadway corridor, which is slated to see increased construction as the Millennium Line extension gets rolling.

Island time

Demand for space outside the core could be partly met on Granville Island, where Canada Mortgage and Housing Corp. (CMHC) is seeking to develop an arts and innovation hub on the north side of the old Emily Carr University of Art + Design campus.

CMHC issued a call for ideas on September 1, a week after hosting a tour of the site for interested parties and prospective tenants. Registered attendees included not-for-profits such as the Red Gate Arts Society, Langara College and groups supporting entrepreneurs such as Vancouver Hack Space.

[Business in Vancouver]

 

Metro Vancouver land squeeze chokes business growth – Business in Vancouver 

Affordable industrial land shortage is limiting manufacturer’s expansion options.

A Metro Vancouver manufacturing firm lost between 20 per cent and 30 per cent of its potential business last year due to the region’s lack of affordable land, and the company’s top executive is imploring the province to consider digging into B.C.’s agricultural land supply as a solution.

Greenlight Innovation president and CEO Ross Bailey added that not doing that digging will ensure that B.C. will continue to fall behind other jurisdictions in economic development, especially in sectors like green technology, where the global market landscape is becoming hyper-competitive for talent, cost certainty and efficiency.

Bailey noted that expensive land creates two key problems:

  •  high residential costs increase the difficulty of attracting scientists and engineers to the city; and
  • the lack of industrial land means it is almost impossible to expand without making operational sacrifices such as moving into warehouse buildings that lack adequate power supply to support a tech-manufacturing operation like Greenlight’s.

“If we had more people and more power, we could have been doing 20 per cent to 30 per cent more business this past year,” said Bailey, whose company specializes in sensors and test stations for alternative energy applications like fuel cells, batteries and hybrid electric vehicles. “We’ve had to bring in a diesel generator just to make up electrical power in the building here. There’s a bit of irony there, given that we are a clean-tech company … but we need the power.”

Greenlight, currently based in Burnaby, has grown rapidly in the last two years – a trend driven by huge demand from vehicle manufacturers to turn out zero-emission products in light of regulatory deadlines and incentives imposed in jurisdictions like the United States and China.

Many of Greenlight’s main clients are either major carmakers from markets like Germany, South Korea and China or their key suppliers, keen to test the efficiency and effectiveness of new electric, hybrid and fuel-cell systems.

A decade ago, Greenlight had nine employees; today it has more than 100, and Bailey said the company hopes to hire for an additional 40 positions within 18 months – if the labour and industrial land situation improves.

Unfortunately, the lack of affordable housing in Metro Vancouver has meant that companies like Greenlight not only are unable to attract new talent here but also now face the challenge of having to fight to keep or “re-recruit” current employees.

“We’ve actually had a few employees leave the Lower Mainland because they wanted to buy a house and start a family,” he said. “A couple of them moved to Ontario.… For people coming from, say, Michigan – where people are from traditionally in the automotive sector – it would not make sense for them to come here. And here in Canada, with the oil downturn the last few years, we were receiving quite a few resumés from Alberta. So we made three job offers to candidates from there, and they all turned us down after they came here to kick the tires and look for housing.”

Bailey added that the problem is exacerbated by the lack of a B.C. manufacturing hub. The wealth of manufacturing jobs in places like Ontario and Michigan draws an abundance of talent that can be tapped to support burgeoning firms.

In B.C., companies often have to hire engineers straight out of school to avoid losing more talent to other regions.

“There are definitely lost jobs, and they are being lost to foreign jurisdictions,” Bailey said. “And these are high-quality jobs; of our 105, 110 people, we’ve got over 60 engineers and scientists, plus a number of other professionals. And these jobs are going elsewhere if companies like ours are having problems scaling up.”

On the industrial land shortage front, officials noted that the region is plagued not only by a lack of industrial land, but also by the fact that the majority of existing industrial properties are filled with low-power warehouses ill-suited for tech-manufacturing use. Bailey added that for a tech company to move quickly in an industry where the landscape is constantly changing, it is crucial to have design, engineering, manufacturing and decision-making departments at the same location. In land-poor Metro Vancouver, finding a single space to fulfil all criteria can be almost impossible.

[Business in Vancouver]

 

Moving modular design beyond temporary – Business in Vancouver

Multi-purpose housing option is meeting permitting impediments.

Modular housing units are popping up in various unoccupied downtown Vancouver spaces, but their numbers represent only a fraction of the potential total, say industry and government professionals.

According to the province’s fall budget update, the province donated $291 million for construction of 2,000 units of modular housing for the homeless. Only 421 units in eight modular supportive-housing projects have been completed and are being occupied; five are in Vancouver and three are in Surrey.

But modular housing initiatives are facing delays in finding land and getting municipal approvals.

Education and approval are also being identified as the main barriers for increased adoption of modular developments.

“In the city of Vancouver, we are hanging around in the preconstruction phase for almost three years,” said Matt Hallaran, operations manager at Stack Modular.

Stack Modular manufactures steel modular structures. Permitting has often been a factor in delaying modular development.

Industry contenders Metric Modular and Horizon North Logistics Inc. primarily use wood construction while Stack uses steel with the aim of building taller, multi-purpose structures. Whether they’re wood or steel, modular projects must be planned from the ground up.

“If a developer comes to us with a development permit and says, ‘Hey, we were building this conventional, but we want to take this modular,’ we have to pass on that project almost 100 per cent of the time because it has to be designed modular from the get-go to be successful,” Hallaran said.

Last year, Bird Construction Inc. bought 50 per cent of Stack. The investment was motivated by trends in Europe and Asia and by Bird wanting to be one step ahead of the game, according to Hallaran. It has also accelerated project approval time.

“Being joined at the hip with a general contractor is a huge win in modular. That’s where things go wrong big time and people point fingers at each other because they are separate entities,” he said. “When we have [Bird] at the table, [the banks] accept more of our projects.”

The Vancouver Affordable Housing Agency selected Horizon North Logistics as the sole partnering company for current Vancouver-area housing projects. Horizon has a teaming agreement that allows for an expedited approval process, ensuring supply hits the market.

“We are basically turning over a building a month these days, and each building constitutes about 50 units,” said Horizon North Logistics president Joseph Kiss.

M. Mitchell Place at 2132 Ash Street is the latest modular housing structure to be erected in Metro Vancouver. Manufacturing and implementation took less than 10 months.

“We are growing, we made an acquisition in the Lower Mainland of Shelter Modular and we continue to ramp up our operations,” Kiss said.

[Business in Vancouver]

 

Edmonton, Kelowna deemed commercial real estate ‘hot spots’ for cannabis industry – Western Investor

Western Canada is expected to see a considerable increase in retail and industrial sales post-legalization, says report.

Cannabis companies are expected to lead demand for commercial real estate in Kelowna and Edmonton following marijuana legalization, according to a new report.

The Western Canadian cities are already seeing a significant amount of interest in retail spaces and production facilities, RE/MAX’s Commercial Investor Report 2018 states.

Kelowna posted an 8 per cent decrease in commercial sales total sales value year-over-year. That decrease isn’t expected to last, as the city has identified over 900 potential dispensary locations to be approved for licenses post-legalization. Retail prices are expected to rise as cannabis companies compete for space.

 “The upcoming legalization of cannabis is continuing to have a major impact on the commercial real estate market this year,” says Elton Ash, regional executive vice-president, RE/MAX of Western Canada. “In Kelowna and Edmonton, the cannabis industry is slowly absorbing the existing industrial spaces and development lands, which has contributed to the rise in lease rates for those areas.”

A 800,000-square-foot facility in under construction by Aurora Cannabis in Greater Edmonton’s Leduc County has already contributed to a positive growth in commercial sales in the city. Sales are up 50 per cent since 2016, totaling $1 billion. Industrial vacancy lowered to 5 per cent during the second quarter of 2018. Retail and office sales in the region have also began to pick up as legalization nears, with more than $500 million worth of completed transactions slated for the third quarter of 2018.

[Western Investor]


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