BC industrial markets look to home in the face of headwinds
Peter Mitham, (TIMES COLONIST) — Smaller deals to local owner-occupiers are characterizing industrial markets in B.C. and Alberta as demand cools and construction costs remain high.
“Anyone who absolutely had to have that large-bay space, they were having to commit to pre-construction buildings more than two years out, and obviously those were few and far between,” said Susan Thompson, associate director, research with brokerage Colliers International in Vancouver. “But today, because the e-commerce demand for space has backed off a little bit, the big portion of the deals we’re seeing is much smaller deals.”
This has eased the flow of occupiers from Vancouver to Calgary, a year after renewed fears about the flight of companies to Alberta renewed calls for government action to address the Lower Mainland’s perennial shortage of industrial land.
A study Colliers released Jan. 8 on the dynamic between the Vancouver and Calgary markets found that regional and national distribution centres, third-party logistics companies and retailers requiring 100,000 square feet of space or more are the prime candidates for relocating to Calgary.
While any one user might have options in Metro Vancouver, when they’re all competing for space at the same time, none of them do and Calgary becomes the natural alternative.
Moreover, Calgary and Edmonton are able to bring space online faster, which means they’re able to relieve any supply shortages faster – usually within the 12 to 18 months approval processes typically take in Metro Vancouver.
But with the pressure coming off, Thompson said fewer companies are considering making the leap to Alberta. Some that relocated their operations to Calgary have even come back, recognizing the importance of having premises in more than one market.
“There was very rarely anybody who 100-per-cent relocated to Calgary,” she explained. “If they had a client base in Vancouver and they were picking up goods from the Port of Vancouver, they still needed some kind of presence here to manage their client relationships, as a sales office, as a point of contact.”
The shift reflects how local demand has returned to industrial markets.
Beedie Industrial is marketing strata industrial projects in Coquitlam, Kelowna and Langford as well as Alberta, and all are driven by local owner-occupiers.
“They’re locally operating and run businesses that are purchasing these spaces,” said Rowan Hicks, director, industrial sales with Beedie.
Scarcity of product – both lease and ownership opportunities – is a strong factor in B.C., but strata purchasers are also keen to lock in costs after seeing the rapid escalation in lease rates over the past two years, but also in the face of high borrowing costs.
With interest rates starting to stabilize, Hicks said demand has picked up. Fraser Mills Business Centre in Coquitlam, for example, has seen commitments on five of its 16 units since presales began last summer. He anticipates activity picking up this spring.
“We have seen, coming into Q1 of this year, renewed optimism in terms of the small to medium-sized businesses that we typically deal with”.
“We have seen, coming into Q1 of this year, renewed optimism in terms of the small to medium-sized businesses that we typically deal with,” he said. “With the talk of rates stabilizing and potentially starting to come off coming into 2024 we’re starting to see some renewed interest and optimism from those buyers.”
Demand for Beedie’s projects in Alberta didn’t slow down last year, but lower costs likely made interest rates less of a factor.
“We actually saw what we would classify as strong presale interest and sale demand in that market through 2023,” Hicks said. “Although financing costs may have gone up, the total scale of investment in a similar space is lower than it would be in the Lower Mainland.”
While inflation remains a concern, with December data pointing to strong price growth that could prompt the Bank of Canada to delay interest rate cuts, Hicks is cautiously optimistic.
A bigger concern is the volume of projects smaller developers put on hold last year, which could worsen space concerns in the Lower Mainland.
“Through 2023, developers faced higher costs associated with financing and construction on new projects,” Hicks said. “It will be interesting to see what impact these factors will have on new supply over the next year or two.”
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