The industrial space vacancy in Metro Vancouver continues to lead North America’s major urban centres, according to a new market update by commercial real estate firm Avison Young.
The vacancy rate as of the first quarter of 2022 is 0.5% — a continuation of the same rate from the fourth quarter of 2021. The region’s industrial vacancy rate has been hovering at or below 1% vacancy for the last six consecutive quarters (since late 2020) and at below 2% over the past six years.
Analysts anticipate the region’s long-running structural issues of continued high industrial space demand and land price escalation will have a much greater influence on the industrial vacancy rate than rising interest rates.
A significant amount of new industrial supply is under construction, but the opportunities to add much-needed further supply are highly constrained from the region’s industrial land shortage.
Although 2.8 million sq ft of new industrial space will reach completion over the next six months, 85% of that space is already either pre-leased or pre-sold.
With very high demand and extremely low supply, industrial rents continue to see strong growth, which has led some businesses to turn to acquiring strata industrial space as a “potential hedge against lease rates that continue to escalate rapidly.”
“Albeit unsustainable, this low vacancy is not expected to change in the near term. As tenants continue to display strong appetite for small and mid-sized spaces, several market entrants are also leasing large-format warehousing and distribution space,” reads the report.
“Strata prices may appreciate less rapidly and eventually level off – but they are unlikely to face downward pressure. Accordingly, rental-rate growth will be significant well into the future. Tenants will continue to line up for limited new and existing availabilities, due to years-long supply constraints brought on by rapidly increasing demand and an impending industrial land shortage that local and provincial governments continue to sidestep.”
The region is expected to eventually see some industrial space relief from Metro Vancouver Regional District’s recent approval of the City of Surrey’s request to allow for a major southward extension of the Campbell Heights industrial park, but the full benefits of this decision will likely not be felt for a number of years.
Escalating industrial space costs coupled with higher transportation costs for warehouses and logistics hubs located further out in the region will ultimately add to costs for consumers. Avison Young notes some businesses that struggled with suitable industrial space in Metro Vancouver have instead moved to Vancouver Island, the Okanagan Valley, and elsewhere in the province.
Following Metro Vancouver, the Toronto area’s industrial vacancy rate of 0.9% was the second lowest in the country.