Metro Vancouver’s industrial land shortage – time to build up?

Panel ponders whether region’s industrial real estate supply challenges mean developers should build multi-storey industrial buildings

A curious question quietly emerged from a panel discussion about industrial property recently hosted by commercial real estate association NAIOP.

While a shortage of well-located and readily developable industrial land has plagued municipalities from Vancouver to Chilliwack, panellists also noted that there wasn’t yet enough pressure to force developers to build multi-storey industrial buildings. In short, so long as it’s still cheaper to build out, industrial space won’t be growing up.

Despite having a dozen multi-storey industrial projects on the go, Taylor Kurtz Architecture + Design Inc. president Craig Taylor said he doesn’t think the market as a whole is ready to embrace the form. The land-constrained industrial markets of Vancouver and Burnaby are showing potential but the costs are rising. This is true for developers and occupants alike.

“Our clients are generally telling us that the pro formas just don’t quite stack up – pardon the pun – when you compare the costs to large tracts of land that you’ve got in Campbell Heights and the [Fraser] Valley,” he said.

Taylor dismissed the much-cited example of Goodman Interlink, a 22-storey industrial tower with 2.4 million square feet in Hong Kong, as a function of a lack of land rather than cost. (It’s not the only example of a 22-storey industrial tower, either. An older example is the Grandtech Centre, a 509,200-square-foot facility in Hong Kong’s Sha Tin neighbourhood.)

Ben Taddei, COO of the Conwest Group of Cos., shared Taylor’s view.

With land costing $2.5 million to $4.5 million an acre, and construction costs running $300 a square foot, Taddei said total project costs could end up being upwards of $500 per square foot.

“I think it will be a while before you see that built form,” he said. “Until the market runs out of industrial land for large-bay [facilities] and those prices become so horrendous that the alternative is to pay more for stacked product, I don’t think you’re going to see it.”

How high?

Colliers International is more bullish on the future of the form, however.

Colliers associate vice-president Roy Pat moderated the NAIOP panel, making mention of his firm’s recently published report happily titled Is It Time to Go Vertical in Metro Vancouver?.

“While the 22-storey industrial facilities of Asia are unlikely to be seen springing up across Vancouver any time soon, densification of industrial sites is a trend that shows no signs of abating,” the report states. “There are simply too many factors driving the push to go vertical.”

NAIOP panellist Eric Aderneck, an independent planning consultant formerly with Metro Vancouver, said references to industrial towers confuse the issue.

A report he wrote six years ago for Metro Vancouver pointed instead to the four-storey Asia Airfreight Terminal in Hong Kong, which has 1.8 million square feet, as a better example.

Closer to home, it’s matched by the three-storey Georgetown Crossroads facility in Seattle, which Colliers expects will set the pace for future multi-storey industrial projects in Vancouver. 

Peter Mitham | Business in Vancouver | June 27, 2019 | www.westerninvestor.com

Will 2018’s big B.C. commercial real estate deals be topped this year?

Transaction volume predicted to slow as investors and lenders reassess property yields, but Bentall office portfolio deal could push dollar volume up

The sale of the Bentall office portfolio in downtown Vancouver, announced March 27, could drive commercial real estate velocity in B.C. to near or above the record level of 2018. The sale price of the four-tower landmark office complex in downtown has Vancouver has not been released but is expected to be near the $1.06 billion paid for the site three years ago.

Business in Vancouver’s Biggest Real Estate Deals of 2018 chronicles a year that rang in $6.5 billion in 202 commercial and industrial sector transactions across the province, according to commercial agency Avison Young. This was down from the unprecedented volume of $7.5 billion in 2017, when 232 properties sold.

Avison Young noted that a widening bid-ask gap was already becoming apparent in the last half of 2018 as both investors and lenders began to “recalibrate investment objectives.” 

This could be related to rising interest rates and a near collapse of Metro residential sales, since many large land deals last year hinged on the potential for lucrative, high-density residential development. “A substantial decline in the number of deals completed is forecast for the first half of 2019,” according to Avison Young's Year-End 2018 BC Real Estate Investment Review. 

The report suggest prices will remain high for prime office, retail and industrial assets, but buyers and lenders will be costing out the yields “with less emphasis on the speculative aspects” of redevelopment.

At least seven of 2018’s biggest deals were based on residential development speculation. These include:

  • U.K.-based Harlow Holdings Ltd.’s $164.7 million purchase of a one-third-acre multi-family site in Vancouver’s West End;

  • two “strata windups” in Vancouver with a total value of $324 million; and

  • the sale of a parking lot on Seymour Street in downtown Vancouver to mixed-use residential developer Reliance Properties Ltd. for $131.3 million.

Industrial transactions, which accounted for 40 per cent of 2018’s big deals, were worth almost $1.2 billion, just down from the peak of 2017.

In 2018, Metro Vancouver residential land sales hit $627 million, which would be an all-time high were it not for the spike during 2016 and 2017 when sales crested the $1.1 billon mark for the first time.

The downward shift began in 2018’s last half, as an avalanche of government policies, interest rate hikes and a subsequent 40 per cent plunge in housing sales hammered developer and consumer confidence, said Casey Weeks, senior vice-president of investment at Colliers International.

Weeks added that the mortgage stress test and other regulations have also slashed the pre-sales that condo developers depend on for financing.

He forecasts that some planned condo projects from smaller developers won’t proceed, which in turn could affect speculative sales of potential development sites this year.

The average cost for every buildable square foot for a residential development in Vancouver is now between $450 and $550. Vancouver has by far the highest combined per-buildable-square-foot costs and construction costs in Canada, according to Altus Group’s 2019 Construction Cost Guide.

Sales of all types of land, including commercial holding property and residential land assemblies, started slowing late in 2018, reported the Real Estate Board of Greater Vancouver. Tracking transactions through B.C.’s land titles, the board found that land sales in the third quarter of 2018 had fallen 34.8 per cent from the same period a year earlier and the value of total land sales had dropped by nearly 15 per cent, to $2 billion.

BIV lists the $248.7 billion transaction of an industrial portfolio by the Vancouver Fraser Port Authority as the biggest industrial deal last year.

Much of the industrial action, however, is in speculative warehouse and distribution tied to the retail sector, including the 1.1-million-square-foot Xchange business park in Abbotsford by Hungerford Group and QuadReal Property Group, developed on speculation and proposed for completion late next year.

But a “major deceleration of retail sales growth” from nine per cent in 2017 to two per cent last year is among the reasons the B.C. Real Estate Association (BCREA) cites for an expected “flattening” of commercial and industrial real estate investments in 2019.

The BCREA also points to a fourth-quarter drop in manufacturing shipments and employment as red flags for industrial real estate. The association’s much-watched Commercial Leading Indicator index saw its first drop in nine years as 2018 ended, down one point from a year earlier.

The Bentall Centre office and retail portfolio has been purchased by Hudson Pacific Properties Inc. in a joint venture with an affiliate of Blackstone Property Partners. Hudson Pacific will own 20 per cent of the joint venture and serve as the operating partner responsible for day-to-day operations and development. Blackstone will own 80 per cent and serve as the managing partner.

The 1.45-million-square-foot transaction is expected to close in the second quarter of this year. CBRE in Vancouver was the broker agent on the transaction, which is rumoured to have topped $1 billion.

Frank O'Brien Western Investor | March 27, 2019

Multi-family starts predominant in the hottest markets

In recent months, more multi-family buildings were constructed than any other housing type in Canada’s hottest markets, according to a new report by the Canada Mortgage and Housing Corporation.

“The national trend in housing starts resumed its downward trajectory in February while still remaining above historical average,” CMHC chief economist Bob Dugan said.

The Crown corporation said that despite the nationwide housing starts trend falling to 203,554 units in February 2019 (from the 207,742 units exactly a year before), multi-family complexes represented much of recent home construction activity.

“Both single-detached and multi-unit dwellings starts trended lower. Higher mortgage rates combined with still-favourable, but less stimulative economic conditions have contributed to softer demand on new home markets in urban centres.”

Vancouver, in particular, saw the predominance of multi-unit buildings in new projects. Condo starts significantly increased in the 12 months ending February 2019, accounting for 77% of the city’s new housing units last month. In contrast, single-detached starts fell by 24% annually.

Meanwhile, Toronto’s lower February numbers mainly stemmed from low condo apartment starts, although demand for the asset class is not stopping any time soon as “sales of new condominium apartment starts have been strong in 2017 and 2018 and these units will continue to break ground throughout this year at a varying pace.”

“Row and semi-detached home starts trended higher underlining their popularity among buyers looking for lower priced ground-oriented homes,” the CMHC noted

On the other hand, Montreal’s total housing starts decreased by 47% year-over-year in February, but “rental apartment construction has continued to show strong growth. The low vacancy rates, the aging of the population and the greater proportion of young households now opting for the rental market have continued to stimulate rental housing starts,” the CMHC stated.

by Ephraim Vecina | 12 Mar 2019 | www.canadianrealestatemagazine.ca

Commercial real estate remains hot commodity in Greater Victoria

Commercial real estate remains hot commodity in Greater Victoria

Victoria city hall is reflected in the glass of the mixed-use development at 1515 Douglas St. | Adrian Lam, Times Colonist

Canadian commercial investment to intensify this year

A report from Avison Young Canada Inc. earlier this month indicated that as of 2018, commercial property investment nationwide exceeded the previous high of $36 billion in the year before that to reach a new record – and this momentum is expected to last for much of 2019.

This is due to a 40-year low in unemployment rates along with sustained commercial scarcity in markets nationwide.

“We continue to feel very positive about opportunities in the real estate environment for the year ahead,” Avison Young Canada CEO Mark Rose said earlier this week, as quoted by Bloomberg.

“More capital is available to move into real estate debt and equity than at any other time. The next wave of investment is not a matter of if or when -- it’s just a matter of price.”

Office vacancy rates declined in nearly every market nationwide, bringing the overall average down to 11% by the end of 2018.

Office construction nearly doubled last year to more than 22 million square feet. A large portion of this new supply is predicted to be in the suburbs, taking into account rate hikes and extreme space constraints in downtown areas.

Industrial vacancies fell to a historic low of 2.9% near the end of 2018, with vacancy levels in Toronto (1.3%) and Vancouver (1.5%) among the lowest in the continent. Construction was also at more than 20 million sq. ft. in 2018, far outstripping 2017’s 14 million sq. ft.

by Ephraim Vecina | 23 Jan 2019 | canadianrealestatemagazine.ca

Foreign investors flocking to Vancouver's industrial segment

Amid intensified construction activity, Vancouver’s industrial real estate market is steadily magnetizing foreign investors, a trend that might pose a major challenge for the domestic buyer segment.

Numbers from Colliers International indicated that nearly 4.9 million square feet of industrial space was under development across Metro Vancouver as of the end of 2018. Almost half (45%) of this activity is in Surrey, Richmond, and Delta.

According to Avison Young, Burnaby and Coquitlam were the region’s stand-outs, with transactions involving industrial property in these locales being rapidly snapped up in a frenzy of “insatiable” demand.

“While Burnaby and Coquitlam remain highly sought after by owner-occupiers, tenants and investors, sales and leasing activity will likely slow in 2019 due to a lack of such opportunities in those markets,” Avison Young stated, as quoted by Business in Vancouver.

“With very limited new supply in the development pipeline and ongoing strong demand, vacancy in both markets – already at or near record lows – is expected to remain extraordinarily tight for the next 18 months,” the brokerage added.

This is also expected to feed into a virtuous cycle of rising rates and strong cash flow for owners, with net lease rates in Burnaby and Coquitlam hovering between $7.95 and $18 per square foot, Avison Young reported.

“We’re seeing offshore money, for the first time, coming into industrial because they understand and can see the quality of the investment,” Todd Yuen of the Beedie Development Group said. “The rents have finally caught up to the point where we can start to push the development cycle a little bit.”

by Ephraim Vecina19 Feb 2019  | CanadianRealestatemagazine.ca