The squeeze on industrial land continues to plague Metro Vancouver, with the region’s low vacancy rate and dwindling supply holding strong in the second quarter of 2023.
The region’s industrial vacancy rate inched up marginally to one per cent in the second quarter, according to a July 19 report from commercial real estate firm Avison Young (Canada) Inc. Sublease space accounted for 0.08 per cent of the region's industrial inventory. The overall availability rate was 2.7 per cent, unchanged from the first quarter.
“Despite the volatility in the market and changes in financing, we still have no new industrial lands that are likely to transact, and long-term supply remains a serious concern for the overall Metro Vancouver industrial landscape,” said Ryan Kerr, principal at Avison Young, in an email to Glacier Media.
A healthy industrial market typically sits somewhere in the 4.5 to seven per cent vacancy range, he said.
A July 20 report from Jones Lang LaSalle Real Estate Services Inc. (JLL) pegged the region’s vacancy rate for industrial space at 1.3 per cent, the highest it's been in two years. JLL attributed the increase to economic uncertainties and the downsizing of third-party logistics firms and manufacturers even as large blocks of space continued to become available.
A lack of available land and rising values have been top issues for the industrial market so far this year. Industrial land prices surged between August 2020 and June 2022 amid ultra-low interest rates and increased demand tied to the sector.
The average rent per square foot increased eight per cent to $21.95 in the second quarter of 2023 compared with the same period a year ago, according to Avison Young’s report.
When it comes to new supply, Metro Vancouver currently has 7.1 million square feet under construction across 42 projects. Roughly 80 per cent of the space under construction has been pre-leased or pre-sold, according to Kerr.
The region would need 7.7 million square feet of new or existing vacant inventory to achieve a “healthy market.” However, three to five million square feet is typically built within a year. Over the last decade, sales have outpaced new supply, Kerr said.