Green shoots for industrial strata as normality returns to market

There are signs of stabilisation in industrial space across strata, after two years of weak demand.

New construction and a slower economy have expanded lease options for tenants, with CBRE Ltd. reporting a 2.5 percent vacancy rate in Metro Vancouver at the end of the second quarter. Meanwhile, high interest rates have dampened sales of strata units, with the latest statistics indicating soft times in the market.

CBRE noted that Vancouver led the country in declining asking prices, down 8.7 percent from a year ago to $525 per square foot in the second quarter. However, it remained the highest in the country by a wide margin, with Toronto a distant second with an asking price of $376 per square foot.

“Since the 2022 rate hike, industrial sales activity has been subdued,” Cushman & Wakefield reported in its own second-quarter industrial market report. “Owner-occupiers dominated sales transactions, while investors struggled due to low yields and financing constraints.”

But demand for industrial sectors is increasing again, the report said.

“Prices have adjusted, particularly for existing stock, with occupiers dominating the buyer profile,” it said. “Another factor in the decision to buy versus lease (for those with the cash available) is the fact that strata sales prices for new stock have fallen by around 10 to 15 per cent from their 2021 peak.”

The dynamic was at the center of a panel discussion at the Urban Land Institute’s Women’s Leadership Initiative in Vancouver on June 18.

The market used to think that $1 million for a 1,500-square-foot industrial unit was extreme, said Craig Taylor, principal of TKA+D Architecture + Design Inc. in Vancouver. Now the new extreme is $1 million for 750 square feet.

Still, there appears to be demand, although as fellow panelist Michelle Sotomayor, development manager at Conwest Group, noted, “the market has changed.”

According to CBRE, 37,000 square meters returned to the industrial market in the second quarter. This is the first quarter of negative absorption in years, which is lower than the 1.3 million square meters absorption in the previous quarter.

“That translates into lower rates. Anecdotally, we’re hearing 10 to 15 percent reductions,” Sotomayor said. “It’s cooled down.”

While the early June rate cut was a positive development, Sotomayor does not expect commercial markets to improve immediately.

But as Eric Aderneck, senior regional planner at Metro Vancouver, noted, companies that need to be located in Metro Vancouver or a specific submarket to attract workers will pay to do so.

PC Urban notices this in various projects in the region.

Foundation, a project at West 8th and Columbia Streets, will bring 47,578 square feet to market in late 2026. The six-story project, developed by PC Urban in partnership with Nicola Wealth Real Estate, earned a floor space ratio (FSR) designation of 4.5 from the city for its commitment to creating more workspace in the Broadway corridor.

“We are one of the first applications approved under the new Broadway Plan initiative for increased density for employment,” said Brent Sawchyn, CEO of PC Urban.

PC Urban has filed two letters of intent stating that half of the property must be sold if the parties come forward.

“We’re seeing more confidence from owners and businesses feeling more like they’re owning their own space,” Sawchyn said of the current situation.

While office vacancy rates remain high across the city, averaging 9.7 percent (still the lowest in Canada), sub-areas like Mount Pleasant are home to a diverse population attracted by housing and amenities. Businesses follow, facilitated by higher-density employment zoning.

PC Urban is seeing similarly positive demand elsewhere, with groundbreaking for its Eagle Ridge project in Coquitlam in May and groundbreaking for a site in Vancouver’s Southlands in June. Both are about 35 per cent pre-sold, with prices in Coquitlam averaging $751 per square foot and those in Southlands at $832 per square foot.

The group of buyers consists mainly of homeowners looking to expand, but less of investors looking for elusive cash flow.

This is good news for Sawchyn, who says the current market has put the heady days of 2021 and 2022 behind it, a period he described as “not normal.”

“It represents a more stabilized market,” he said. “We’re very encouraged about the market. We think everything is going to work out fine.”