This Canadian City is one of the World’s Hottest Industrial Markets
Vancouver’s industrial market is white hot, even despite a slightly slower second quarter in 2018. Since the beginning of 2017, the industrial market in Vancouver has been progressing successfully and has deemed itself as one of the top industrial markets in the world according to research from CBRE.
Why is Vancouver’s Industrial Market Doing So Well?
The simple answer is Amazon. E-commerce giants like Amazon are increasing the demand for more logistics and storage space in urban centers. Consumers are demanding fast online deliveries, forcing companies to carry more inventory in the city where all of the last-mile deliveries happen. These dynamics are playing out well in Vancouver. In Q1 2018, the industrial market in Vancouver has boasted lease rates up 20 percent year-over-year versus the world average of 3 percent. According to CBRE, BMW AG and IKEA are securing some of the biggest industrial and logistics spaces in the city.
High demand along with the lack of existing Tier 1 product is leading to a lot of activity on space that is currently under construction according to the Q2 CBRE research report.
Metro Vancouver Could Run Out of Land
Landlords are reveling in the ideal industrial marketing in Vancouver, but the city is running out of the type of land that supports the industrial sector’s growth. Mountains and water becoming geographical constraints that are slowing the development of land. Industry experts believe that the region will run out of industrial land within a decade, maybe even 2020. If and when this happens, it could hit Vancouver’s economy in a big way. In order for an industrial business to be able to utilize a site, it must be at least 100,000 square feet. According to CBRE, Vancouver currently only has five sites fitting this criterion.
Vancouver’s lack of space has been exacerbated by changing industrial zoning laws and community plans that have spurred the acquisition of industrial properties by both developers and investors seeking redevelopment opportunities.
The Research Behind Vancouver’s Industrial Market
Industrial property rent growth averaged 3.2% from Q1 2017 to Q1 2018 worldwide, according to CBRE. The rent growth in the Americas was a tad higher at 3.8% during the same time period. But what is most impressive was Vancouver’s rental growth during the same period which hit 29.1%. During Q2, the industrial rents were up 6.3% quarter over quarter and increased 33.5% since the beginning of 2017. On top of increasing rental rates, Vancouver’s industrial vacancy has remained low at just 1.6% in Q1 and then dropped to an all-time record low at 1.5% in Q2.
Vancouver’s Industrial Sector is Hot, But Is it About to Cool Down?
With rising rental rates and low vacancy, the industrial sector is certainly doing well in Vancouver. As mentioned above, along with this incredible progression of this sector, there is also the fear that there will not be enough land to support extensive growth after the next decade. The combination of the two will be interesting to watch unfold in the future.