Industrial Insight Report Metro Vancouver Q1 2016
Table of Contents Metro Vancouver Overview 1 Metro Vancouver Area Map 2 Submarkets Burnaby 3 Delta 4 Richmond 5 Surrey 6 Statistics 7 Contacts 8
Pricing Demand Supply Market Update Metro Vancouver Q1 2016 Will vacancy rates continue to decline as demand outweighs supply? Lease activity In the first quarter of 2016, the Metro Vancouver industrial market experienced demand from various tenant types. The tenants ranged from distribution, food product, and consumer product, related companies; also, with the low Canadian dollar, film related companies. Strong lease activity occurred in the markets of Burnaby and Richmond. There was also strong demand for space in the Tilbury industrial area, in Delta. One of the largest spaces leased in the Tilbury industrial area was a 79,174 square foot warehouse building located at 7979 Vantage Way; it was leased by Leon s Furniture. Two of the largest lease transactions in the quarter were by tenants in the film industry. Key market indicators Total inventory 184,352,884 (%) 2.1% Total availability (%) 5.9% Q1 net absorption 1,047,699 2015 net absorption 3,328,561 Average rental rate (nnn) $8.76 6-month dollar change $0.20 Arrows represent change from prior quarter Rents The average rental rate for Metro Vancouver increased from the previous quarter to $8.76 per square foot, a level similar to the second and third quarter of 2015. There is the expectation that the rate will increase in the next quarter as available space continues to diminish. Sales and Construction The total sales activity went down from the previous quarter, however, due to several large transactions, the total sales volume went up. The largest sale occurred in the Vancouver market when Concord Pacific purchased 1550 N Burrard Street for $185 million. This purchase price is almost a $100 million over the assessed value; however, this was not a typical industrial transaction as the developer is hoping for higher mixed-use in the future. Net absorption, vacancy 2,000,000 Net absorption 1,500,000 1,000,000 500,000 sf 0 Average rental rate 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Economic outlook The 2016 federal budget will impact British Columbia. The province will see funds spent on transit and researching foreign buyers of real estate, two things that affect the Metro Vancouver commercial real estate market. With transit, there will be an investment of $460 million over three years. For researching foreign buyers, $500,000 will be spent by Statistics Canada to track activity. Other projects in Metro Vancouver include the port s planned expansion of two of their container terminals. $8.90 $8.80 $8.70 $8.60 $8.50 $8.40 2,257 RECENT SALES COMPARABLES (sorted by square feet) Buyer Seller Location Intersection Size Date Price / sf Concord Pacific Molson Inc. 1550 N Burrard St, Vancouver Burrard St/W 1 st Ave 500,000 03/31/2016 $370 Bentall Kennedy Darrahdi Holdings Ltd. 8400/8500 River Road, Delta Alexander Rd/River Rd 293,487 03/10/2016 $167 Rolls Right Industries Limited Synergen Georgia Property 7708 80th Street 80 St/River Way 91,322 02/12/2016 $140 RECENT LEASE COMPARABLES (sorted by square feet) Tenant Landlord Location Intersection Size Legion Can TV Productions Southgate Village Homes Limited Partnership 7105-7205 11 th Ave, Burnaby Griffiths Dr/Southridge Dr 208,000 Confidential Film Group Pacific Press Properties Inc. 12091 88 th Ave, Surrey 120 St/88 Ave 195,960 Leon s Furniture - 7979 Vantage Way 72 St/Progress Way 79,117 JLL Market Update Greater Vancouver Area Q1 2016 Page 1
MARKET CHARACTERISTICS Richmond has the highest of amount industrial inventory 1 Over 80 percent of the industrial building types are distribution based 2 At 2,293 acres, Surrey has the highest amount of vacant industrial land* 3 GVA is expected to add 1.2 million more residents by 2041** 4 SUBMARKET STATISTICS Property type Total inventory (%) Total availability (%) Q1 total net absorption Average direct asking rent ($ psf) Under construction YTD completions Warehouse / Distribution 128,256,864 4.7% 6.4% 864,477 $8.97 3,797,209 319,797 Manufacturing 24,184,417 1.6% 2.7% 27,943 $10.50 0 0 Total Industrial 157,881,515 4.2% 5.9% 896,696 $9.10 4,196,553 319,797 Flex / R&D 5,440,234 4.8% 7.1% 4,276 $10.91 200,000 0 * METRO VANCOUVER 2010 INDUSTRIAL LANDS INVENTORY ** Metro Vancouver 2040 Growth Projections, Metro Vancouver JLL Market Update Greater Vancouver Area Q1 2016 Page 2
Pricing Demand Supply Burnaby Lease activity Burnaby experienced strong leasing activity over the first quarter of 2016. One of the largest lease transactions for Metro Vancouver industrial market occurred in the city; Legion Can TV Productions leased 208,000 square feet of warehouse space. The lease transaction illustrates the demand that is coming from the film industry, that is being pushed into the area from the U.S., due to a low Canadian dollar. Rents Although the average rental rate was down from last quarter, rental rates have remained relatively stable over the past three quarters. Meanwhile, the vacancy rate decreased over the past two quarters. With limited new supply coming to the market, rental rates will likely start to trend upward and vacancy rates should continue to decline. Sales and Construction Burnaby experienced limited sales activity in the first quarter of 2016. However, a notable sale was for a warehouse and distribution building at 8125 North Fraser Way, in the Big Bend Industrial area. This was sold by Megison Investments Ltd. to a numbered company for $7.9 million; and, the average price per square foot for the building was $186, much lower than the previous quarter s average of $255. New construction was completed at 5895 Trapp Avenue, for a warehouse and distribution space of 48,942 square feet. Two out of the four units are already leased, leaving 11,008 square feet of available space remaining. Key market indicators 6-month dollar change $0.06 Arrows represent change from prior quarter Net absorption, vacancy 400,000 300,000 200,000 100,000 sf 0-100,000 Average rental rate Total inventory 26,610,685 (%) 1.5% Total availability (%) 4.8% Total net absorption 194,210 2015 net absorption 519,338 Average rental rate (nnn) $8.58 Net absorption 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Economic outlook $8.70 The City of Burnaby is set to start construction on 30 projects as part of their $8.65 2016 Infrastructure Capital Plan; of the 30, six have already been tendered to contractors. The majority of the projects are related to water main work and $8.60 infrastructure, with the remaining amount focusing on road upgrades. Each $8.55 project indirectly or directly impacts the flow of goods and services in the city. $8.50 2,257 RECENT SALES COMPARABLES (sorted by square feet) Buyer Seller Location Intersection Size Date Price / sf 1057285 B.C. Ltd. Megison Investments Ltd. 8125 North Fraser Way Wiggins St/N Fraser Way 42,463 01/04/2016 $186 Choi s Genesis Holdings Inc. 78 Southeast Financing Ltd. 3901 2 nd Avenue Boundary Rd/Lougheed Hwy 7,450 01/15/2016 $181 RECENT LEASE COMPARABLES (sorted by square feet) Type Landlord Location Intersection Size New Southgate Village Homes Limited Partnership 7105-7205 11 th Avenue Griffiths Dr/Southridge Dr 208,000 New Robco Enterprises Ltd. 8130-8190 Winston St Piper Ave/Winston St 41,385 New Sugaroak Vancouver Moving and Storage ULC 5300-5350 Byrne Rd Byrne Rd/Marine Way 40,250 JLL Market Update Greater Vancouver Area Q1 2016 Page 3
Pricing Demand Supply Delta Lease activity Leasing activity was particularly strong in the Tilbury industrial area, with one of the larger lease transactions in the market occurring here; a warehouse space of 79,174 square feet located at 7979 Vantage Way was leased to Leon s Furniture. With one of Port of Vancouver s container terminals located in the Delta submarket, distribution and warehouse space is likely to remain in demand. Rents The average rental rate has trended upwards over the past three quarters. The vacancy rate is down from the previous quarter, although it has been relatively stagnant over the past two quarters. Since there is limited new supply coming to the market immediately, rental rates will likely remain stable along with the vacancy rate. Sales and Construction Delta had a total of 10 sales in the quarter, six of which were for buildings of less than 10,000 square feet. The biggest sale of the quarter was for 8400 and 8500 River Road, with the buildings totaling 293,487 square feet of space. Bentall Kennedy acquired the buildings, which are presently occupied by Damco and Maersk Group. One of the largest developments in Delta remains GWL Realty Advisors and their 1.2 million square feet of warehouse and distribution space, located near Deltaport, called Delta Iport; it is set for completion in mid-2017. Economic outlook Delta will be impacted by Port of Vancouver s proposed Roberts Bank Terminal Project 2. The project would enable up to 2.4 million TEUs* in container traffic to be added to the Port s capacity**. The project is set to be completed post-2020. With greater traffic of containerized goods, a greater demand will be placed on warehouse and distribution space. The George Massey Tunnel replacement project is another major project that will impact the city. The 10-lane toll bridge is set to start construction in 2017 and is expected to be completed in 2022. If completed, it would greatly help the flow of traffic and goods into and out of the Delta market. Key market indicators 6-month dollar change $0.13 Arrows represent change from prior quarter Net absorption, vacancy 400,000 300,000 200,000 100,000 sf 0 Average rental rate $7.60 $7.50 $7.40 $7.30 Total inventory 30,228,754 (%) 2.7% Total availability (%) 5.3% Total net absorption 311,792 2015 net absorption 169,133 Average rental rate (nnn) $7.50 Net absorption $7.20 $7.10 2,257 6.0% 4.0% 2.0% 0.0% RECENT SALES COMPARABLES (sorted by square feet) Buyer Seller Location Intersection Size Date Price / sf Bentall Kennedy Darrahdi Holdings Ltd. 8400/8500 River Road Alexander Rd/River Rd 293,487 03/10/2016 $167 Rolls Right Industries Limited Synergen Georgia Property 7708 80 th Street 80 St/River Way 91,322 02/12/2016 $140 Marcon Metalfab Inc. Tariff Developments Inc. 7156 Brown Street Hwy 403/Burloak 29,200 01/22/2016 $140 RECENT LEASE COMPARABLES (sorted by square feet) Type Landlord Location Intersection Size New - 7979 Vantage Way 80 St/Vantage Way 79,117 New - 7350 Wilson Ave 72 St/SFPR 47,754 New - 7107 Venture Street 72 St/Progress Way 24,253 *Twenty Foot Equivalent Unit **Port Metro Vancouver, Roberts Bank Terminal 2 Project JLL Market Update Greater Vancouver Area Q1 2016 Page 4
Pricing Demand Supply Richmond Lease activity Richmond had a strong quarter of leasing activity. One of the larger lease transactions in the Crestwood industrial area, in Richmond, occurred at 12759 Vulcan Way; the space leased was a 17,394 square foot warehouse building. Richmond remains a desirable place for businesses to lease space. The city has both Highway 99 and Highway 91 running through it to help facilitate the flow of goods, it is in close proximity to large labour supplies, and it also has Vancouver International Airport immediately to the northwest. Rents The average rental rate went down from the previous quarter to $8.59 per square foot, similar to the rate that was in the third quarter of 2015, which was $8.58 per square foot. However, it is expected that rental rates could trend upward as the market remains active. Sales and Construction There were eight sales in the Richmond industrial market in the first quarter of 2016, the majority of which were for buildings of less than 5,000 square feet. Both total sales activity and volume were down from the previous quarter, while the average price-per-square-foot remained similar. Beedie completed their build to suit development at 1115 Silversmith Place this quarter. The total amount of warehouse space built at this development was 147,378 square feet. Economic outlook The City of Richmond is set to complete seven of its 2015 Construction Projects this spring, and the remaining seven in the summer. These projects range from road expansion and improvement, to sewer line replacement; the projects will allow for the expanded transport of goods and people. The city and the Province of British Columbia announced they will spend approximately 25 million dollars in flood prevention infrastructure (pump stations, dyke enhancements)*. Richmond- Steveston MLA John stated that these measures will protect over 13,000 businesses and will create 297 one-time jobs *. Due to the city s high water table, flood prevention is of key importance. Key market indicators 6-month dollar change $0.16 Arrows represent change from prior quarter Net new supply, vacancy 300,000 200,000 100,000 sf 0-100,000-200,000 Average rental rate $8.80 $8.60 $8.40 $8.20 Total inventory 42,507,188 (%) 2.4% Total availability (%) 5.7% Total net absorption (40,156) 2015 net absorption 828,316 Average rental rate (nnn) $8.59 Net absorption $8.00 2,257 4.0% 3.0% 2.0% 1.0% 0.0% RECENT SALES COMPARABLES (sorted by square feet) Buyer Seller Location Intersection Size Date Price / sf ANL Industrial Ltd. 601862 B.C. Ltd. 14551 Burrows Road No 6 Rd/Burrows Rd 57,050 02/03/2016 $142 Sleeping Beauty BC Mattress Horseshoe 0717844 B.C. Ltd. 12371 Horseshoe Way Ltd. Pl/Horseshoe Way 2,066 01/18/2016 $248 1060500 B.C. Ltd. n/a 13988 Maycrest Way No 6 Rd/North-West 2,462 01/18/2016 $197 RECENT LEASE COMPARABLES (sorted by square feet) Type Landlord Location Intersection Size New - 12759 Vulcan Way Knight St/Vulcan Way 17,394 New - 1751 1771 Savage Rd Savage Rd/River Rd 12,650 New Bosa Properties 2700 Olafsen Dr Olafsen Ave/Bridgeport Rd 12,074 *Vancouver Sun, Province to spend $16.6 million on flood mitigation in Richmond, Tracy Sherlock **Statistics Canada, National Household Survey (NHS) Profile, 2011 National Household Survey, Statistics Canada Catalogue no. 99-004-XWE JLL Market Update Greater Vancouver Area Q1 2016 Page 5
Pricing Demand Supply Surrey Lease activity The Surrey market experienced strong leasing activity in the first quarter of 2016. One of the larger lease transactions in Metro Vancouver occurred in Surrey. A film group leased 195,960 square feet of space at 12091 88 th Avenue, in the Newton industrial area. Rents The rental rates increased from the previous two quarters. With strong leasing activity expected to continue, vacancy rates should go down moving into the second quarter of 2016. Subsequently, the average lease rates are expected to go up. Key market indicators Total inventory 22,660,018 (%) 3.0% Total availability (%) 5.5% Total net absorption 211,063 2015 net absorption 302,502 Average rental rate (nnn) $8.50 6-month dollar change $0.99 Arrows represent change from prior quarter Sales and Construction Surrey had the highest amount of sales activity in the Metro Vancouver industrial market in the first quarter of 2016; the city had a total of 21 sales. Similar to Richmond, the majority of Surrey s sales were for buildings that were under 5,000 square feet. The largest building in the market sold was at 13478 78 th Avenue. The building was strata and it consisted of three units, for a total of 9,375 square feet. There was limited new construction that came to market in the quarter. However, the majority of Surrey s new construction, approximately 840,805 square feet, is set to be completed in the third quarter of 2016. Since most of the remaining undeveloped and vacant industrial land in Metro Vancouver is in Surrey, continued development and new construction is expected. Economic outlook The Liberal government introduced their 2016 budget in late March; the budget specified investing an initial 370 million on infrastructure in Metro Vancouver. Along with the budget, there was also a promise from the federal government to match costs on any major project. This is a positive sign for Surrey if it wants to get its new light rail line funded. Facilitating growth, with things such as new transit lines, is important for Surrey. Surrey is estimated to have the highest level of population growth over the next five years in Metro Vancouver, with an increase of 13 percent*. Net new supply, Net absorption, vacancy 600,000 Net absorption 400,000 200,000 sf 0-200,000 Average rental rate $8.60 $8.40 $8.20 $8.00 $7.80 $7.60 2,257 6.0% 4.0% 2.0% 0.0% RECENT SALES COMPARABLES (sorted by square feet) Buyer Seller Location Intersection Size Date Price / sf 0796691 B.C. Ltd. 1058003 B.C. Ltd. 17828 65A Avenue 176 St/64 Ave 8,034 01/26/2016 $182 Georgian Properties Ltd. Landmark Way Holdings Ltd. 5652 Landmark Way Langley Bypass/56 Ave 8,841 01/11/2016 $164 Ferronato Enterprises Ltd. 531676 BC Ltd. 13375 115th Avenue Bridgeview Dr/SFPR 3,289 01/29/2016 $195 RECENT LEASE COMPARABLES (sorted by square feet) Type Landlord Location Intersection Size New Pacific Press Properties Inc. 12091 88 th Ave 120 St/88 Ave 195,960 New H.Y. Louie 13557 77 th Ave King George Blvd/77 Ave 18,481 New - 5433 152 nd St 200 St/Trans-Canada Hwy 8,198 *BC Stats Population Projections JLL Market Update Greater Vancouver Area Q1 2016 Page 6
Metro Vancouver statistics Property type Total inventory (%) Total availability (%) Q1 total net absorption Average direct asking rent ($ psf) Under construction YTD completions Surrey Warehouse / Distribution 12,319,527 2.9% 5.3% 150,943 $9.42 886,925 0 Manufacturing 4,947,465 2.0% 2.4% 42,750 $8.49 0 0 Total Industrial 17,675,159 3.9% 5.7% 184,712 $9.51 886,925 0 Flex / R&D 408,167 6.2% 6.2% (8,981) $12.77 0 0 Richmond Warehouse / Distribution 33,456,688 2.9% 3.9% (60,145) $8.18 448,686 147,378 Manufacturing 1,865,505 1.8% 2.2% 2,305 $8.81 0 0 Total Industrial 36,440,328 3.0% 5.6% (57,482) $8.58 448,686 147,378 Flex / R&D 1,118,135 9.7% 15.5% 358 $13.00 0 0 Delta Warehouse / Distribution 19,018,996 2.8% 5.3% 301,076 $7.68 1,692,081 0 Manufacturing 9,088,812 1.7% 2.6% 2,357 $8.06 0 0 Total Industrial 28,218,010 2.9% 5.4% 308,433 $7.71 1,692,081 0 Flex / R&D 110,202 0.0% 0.0% 0 $0.00 0 0 Burnaby Warehouse / Distribution 18,898,417 1.8% 2.9% 86,543 $8.45 585,149 48,942 1 2 3 4 Manufacturing 1,443,755 1.4% 5.4% (8,100) $9.36 0 0 Total Industrial 21,495,328 2.1% 5.2% 93,592 $8.50 585,149 48,942 Flex / R&D 1,153,156 3.0% 6.6% 15,149 $8.87 0 0 Metro Vancouver Overview Warehouse / Distribution 128,256,864 2.3% 5.8% 864,477 $8.97 4,997,209 319,797 Manufacturing 24,184,417 1.6% 2.7% 27,943 $10.50 0 0 Total Industrial 157,881,515 3.1% 6.0% 896,696 $9.10 5,197,209 319,797 Flex / R&D 5,440,234 4.8% 7.1% 4,276 $10.91 200,000 0 JLL Market Update Greater Vancouver Area Q1 2016 Page 7
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