Pricing of industrial properties in Vancouver is at new heights as available industrial land and buildings decline, while strong demand from both owner-occupiers and investors increases.
According to a report from Avison Young that examines the first half of 2016, these factors, supported by inexpensive debt and the heightened value of the industrial properties held in the portfolios of owner-occupiers and investors active in the market, has led developers to explore innovative forms of industrial development to capitalize on demand and maximize available density,
While dollar volume and deal velocity for industrial sales in Vancouver slipped to 55 transactions valued at $135.6 million from 65 deals worth $164.5 million in 2014, market activity has remained strong in 2016. More than $96 million was spent on 30 properties in the first half of 2016 as a lack of new supply and very limited opportunities to purchase industrial land or buildings has restrained further investment activity. This has caused the price-per-square-foot being achieved on a building and/or land basis in 2016 to accelerate.
“Many owner-occupiers in the city of Vancouver own multiple industrial buildings – and continue to acquire buildings in order to facilitate growth,” says Avison Young Principal Russ Bougie, who specializes in industrial sales and leasing in Vancouver. “And with the increased level of demand from developers and investors over the past year, owner-occupiers are increasingly competing for acquisitions, resulting in prices being bid up even further.”
Industrial vacancy in Vancouver is at 1.7 per cent as of June 30, 2016, while upward pressure on rental rates has continued to manifest throughout all segments of the submarket.
“Sale comparables are generally no longer applicable when it comes to establishing industrial property values for land or buildings, and capitalization rates are largely irrelevant due to the rapid escalation in prices,” notes Kevin Kassautzki, a senior associate in Avison Young’s Vancouver office who also specializes in industrial sales and leasing transactions. “While heightened prices have encouraged more people to sell, the enormous appetite for industrial assets has largely negated any improvement in terms of an increase in supply.”