Vancouver Industrial Market Report
As 2024 ends, Vancouver’s industrial market has seen a significant increase in vacancy over the year. It now sits at 3.0%, climbing from 2% over the year. The market is seven years removed from the last time the market saw 3.0%. Leasing activity has improved through the middle quarters of the year and is expected to close out the fourth quarter at, or near, the same level of activity, between 1.5 and 2 million SF leased. Discussions with market participants indicate that the improved level of leasing activity is anticipated to continue as space enquiries and touring have improved since the post- peak lull. Sustained leasing will help keep a lid on climbing vacancy rates, projected to be close to topping out, leaving the market firmly in the landlord’s favour.
n the past year, space absorption is 180,000 SF, and is forecast to close out the year at approximately -600,000 SF, a significant change of pace from 2021’s peak demand formation of 6 million SF. Meanwhile, sublet space availabilities have reached a four-year high of 1.9 million SF, a 12% contribution to overall availability. The upward movement in the fourth quarter is the result of 307,000 SF of distribution space coming to market in Campbell Heights, Surrey, currently occupied by Amazon and DSV Canada, a transport and logistics firm.
However, most of the new sublet space that has come to market in the fourth quarter has been in smaller bays, between 2,000 and 12,000 SF, indicating a more prevalent defensive posture amongst occupiers in the smaller bay market.
A lack of industrial land transactions, due to a widening bid/ask spread, is expected to reduce new developments in the next 18 to 24 months, increasing rental growth pressure from the current annual rate of 0.6%.
Vancouver’s geographic constraints will ensure it remains one of the country’s tightest and most expensive industrial markets. Current rents are averaging $21.00 net. A bifurcation of rents is emerging, with lower-tier assets softening while top-tier assets are more resilient. Significant rent decreases aren’t expected due to the tight market conditions and the anticipated improvement in leasing activity.
The 6.8 million SF of space that is currently under construction will take upwards of two years to absorb and will likely delay any marked improvement in rents until that point. Construction starts slowed in 2023 and carried through to 2024. The activity level is on par with 2019 and 2020, with approximately 4.0 million SF of new projects, including speculative condo and logistics projects. It’s understood that distribution firms, despite the recent uptick in sublet space in the segment, continue to shop for space but less urgently than in past years, led by distributors of essential goods. Currently, six developments that are under construction offer over 100,000 SF of space. The number of options far exceeds what has been present in the market for years.
Vancouverites are especially affected by higher interest rates and the effect on purchasing power due to the lack of affordability present in the housing market. Small to medium-sized industrial tenants, a large component of Vancouver’s industrial market, face similar challenges. As interest rates trend downward, consumer spending and business investment will likely begin recovering, putting further pressure on the local industrial real estate market. Population growth will slow, returning to its average growth rate, but it will still pressure the small to medium-sized bay market, which services the population
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