Metro Vancouver Industrial Report Third Quarter Highlights 2008
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Metro Vancouver Industrial Report Third Quarter Highlights 2008 Market Overview Vacancy rose slightly over the third quarter from 2.30% to 2.33%. Regions experiencing the highest vacancy are also those experiencing the most sales and leasing activity, namely: Langley, Burnaby, Surrey, Richmond, and Delta. Contributing to the rising vacancy rate are factors including newer speculative developments not leasing up, as well as slowdown of transaction activity and growth due to economic conditions. Completion of new industrial developments added 744,684 square feet (sq ft) to Metro Vancouver’s inventory this quarter, this figure is down from second quarter’s 1.5 million sq ft. Year to date new industrial supply totals 4,755,897 sq ft. This quarter achieved negative absorption of 491,984 sq ft due to a massive 2.2 million sq ft completing in Richmond over the past 9 months (primarily build to suit developments inculding Hopewell Distribution Centre). Year to date absorption sits at a relatively strong 2.9 million sq ft. The value of all building permits in BC dropped 19% in July and 13.5% in August, while annually permits were down only 0.7% compared with last year. After double-digit increases in April and May, non-residential permit values have now declined for the second time in three months. The shrinking value of permits directly reflects the slowing of the economy and increased caution being exercised. While building permit Top industrial leases of Q3 2008 Address
Municipality
Size (sq ft) Tenant
13333 Vulcan Way
Richmond
93,060 Coca Cola Bottling Co.
2103 Dollarton Highway
North Vancouver
67,900 ALS Canada Ltd.
12611 Vulcan Way
Richmond
37,400 Orange Distributions Inc.
2023 Kingsway Avenue - Units 1-2 Port Coquitlam
31,543 Standard Products Ltd.
1551 Quebec Street
Vancouver
30,000 Clarkdale Motors Ltd.
5560 Trapp Avenue
Burnaby
22,034 Panavision (Canada) Corp.
10097 201 Street - Building B
Langley
21,168 Hammer Mechanical Inc.
13466 Verdun Place
Richmond
20,797 Mercedes-Benz Canada Inc.
8997 Fraserton Court
Burnaby
19,777 Creation Technologies Inc.
11191 Coppersmith Way
Richmond
17,000 ALS Canada Ltd.
Q3 2008 Sales volume by municipality and dollar volume*
values have dropped, the construction industry remains busy in the industrial sector for the time being due to low vacancy rates, and a shrinking land supply putting upward pressure on pricing. Lease rates have remained steady throughout the third quarter. Increases have been slight in some outlying areas. Tenants have continued to move anywhere they can find affordable space to suit their needs. Buyers in the marketplace are those with cash in hand, and the majority of property prices have continued to increase. Nearly 70% of all industrial sales in the third quarter were strata unit sales and we expect this trend to continue as an increase in demand has spurred several new developments of this type. Build to Suit developments have remained strong and again outpaced speculative developments over the third quarter. Suitable options for purchasers and tenants looking for land are becoming more difficult to locate. The only areas with notable supply include Richmond, Campbell Heights, Pitt Meadows, Mission, and Chilliwack. Land sale and lease rates continued on a steady increase across the board over the third quarter chiefly due to the overall shrinking land supply as well as the lack of land being re-zoned to industrial use. This situation is compounded by large infrastructure developments including new roads and bridges removing land as they cross through industrial areas. Economy At the time of publication, the US economy is clearly deep in recession, while the European Union and Japan are quickly approaching recession. The Canadian economy however, is expected to fare far better due to wealth in natural resources, its stronger banking sector and reduced national debt. With manufacturing based areas such as Ontario currently in or near recession as a result of ties with the faltering US economy, a Canada-wide recession is not anticipated. Western provinces continue to hold wealth in oil, natural gas and other natural resources, and should continue to push sufficient revenue into the Canadian economy as a whole. The Conference Board of Canada has predicted that Metro Vancouver’s economic growth rate will decrease for a third year in 2008, dropping from 3.0% in 2007 to 2.7%. Heavy building activity and strong gains in the service sector continue to be offset by declines in manufacturing and goods-producing industries. Employment and personal income are set to record healthy gains this year due to the massive ongoing government spending on the Olympics and major infrastructure. Retail sales are expected to grow 4.5% this year, only slightly lower than 2007’s 5.2% growth.
Metro Vancouver Industrial Report Third Quarter 2008
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Metro Vancouver Industrial Report Third Quarter Highlights 2008 The Canadian forestry industry lost a total of $1.2 billion over the first six months of 2008, nearly $500 million of that figure was made up by BC based companies. The US housing market annually consumes more than 80% of the output of BC’s interior lumber industry, and with US housing starts down in excess of 50% compared with two years ago, lumber demand and pricing is falling, putting many producers in trouble.
Absorption, new supply, and historical vacancy comparison
Rising food and energy costs boosted Canadian manufacturing sales figures to over $52.5 billion over the third quarter 2008 to reach levels not seen since March 2007’s $53.1 billion. Quick Facts - Canada’s Prime Business Rate has Municipality vacancy rates dropped from 6.25% one year ago to 4.5% currently. - BC’s GDP has grown 5.5% over the past year. - Canada’s GDP has grown 3.1% over the past year. - BC’s population has grown 1.7% over the past year, Canada’s grew 1.2%. - BC’s Unemployment rate fell from 4.4% in July to 4.3% in August. Canada’s unemployment rate is currently 6.1%. Looking Ahead Economic growth in Metro Vancouver is expected to improve over the long term, coming in at 3.2% per year from 20092012. The Canadian economy as a whole is anticipated to have a difficult six to nine months, with recovery beginning third or fourth quarter 2009, and 2010 being much improved. Most Canadian lenders adopted stricter lending policies last year, and the current turmoil will only accentuate the trend. Expect banks to be even stricter when it comes to mortgages, more meticulous in their underwriting, and take longer to approve mortgage products. Also, elimination of discount variable-rate mortgages is likely.
Metro Vancouver industrial statistics Q3 2008 Municipality Burnaby Coquitlam Delta Langley Maple Ridge New Westminster North Vancouver Port Coquitlam Richmond Surrey Vancouver Total
Metro Vancouver Industrial Report Third Quarter 2008
Inventory (sq ft)
New supply
Sept. 2008
July - Sept. 2008
sq ft
%
25,710,193 8,564,142 20,774,012 14,782,762 2,072,572 3,923,000 4,664,978 7,670,773 31,974,899 26,716,104 23,505,490 170,358,925
130,840 0 0 0 0 0 0 20,000 82,550 330,074 181,220 744,684
658,705 161,646 312,853 910,080 45,175 87,146 50,981 66,496 665,087 713,792 304,745 3,976,706
2.56% 1.89% 1.51% 6.16% 2.18% 2.22% 1.09% 0.87% 2.08% 2.67% 1.30% 2.33%
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Vacancy rates September 2008
3 month net absorption July - Sept. 2008 -137,332 -86,931 57,058 -432,634 29,134 -76,447 29,630 32,219 -146,268 -109,428 349,015 -491,984
With financing becoming increasingly difficult to obtain, we may start to see more owner/users having difficulty with refinancing as more stringent lending practices begin to take hold. As a result, we expect more properties coming soon to market. In addition we may start to see more vendor carried financing in order to complete sales. Leasing is becoming an attractive option for many consumers due to current financing conditions, as a result, tenants will want shorter term space, and will pay for it. Expect vacancy rates to decrease again in the future as a result. Popular product in the industrial marketplace will continue to be strata units, build to suit developments (both sale and lease), and older buildings undergoing renovations for re-sale or releasing. Metro Vancouver is beginning to experience the affects of a constrained supply of industrial land and municipalities are slow to react with re-zoning and servicing.
Top industrial sales of Q3 2008* Address
Municipality Size (sq ft)
5440 Hollybridge Way
Richmond
110,000 $26,000,000
Price Price/ sq ft Purchaser(s) $236
8335 Meadow Avenue
Burnaby
279,900 $16,650,000
$59
Type
0815024 B.C. Ltd.
Canadian Investor
York Realty Inc.
Canadian Investor
3153 Thunderbird Crescent Burnaby 8063-8067 North Fraser Way Burnaby
49,657 52,869
$7,300,000 $6,829,712
$147 $129
NMC Holdings Ltd. Canadian Investor Time Bomb Trading Inc. User
580 Ebury Place
Delta
36,500
$5,300,000
$145
Ebury Place Holdings
7623 & 7663 Progress Way
Delta
48,075
$4,575,000
$95
13408 Comber Way
Surrey
32,275
$4,550,000
$141
531546 B.C. Ltd.
Canadian Investor
5258 Lougheed Highway
Burnaby
11,302
$4,165,000
$369
Boffo Developments
Developer
12000 Jacobson Way
Richmond
22,005
$3,800,000
$173
0811840 B.C. Ltd.
Canadian Investor
12720 Bathgate Way
Richmond
23,750
$3,800,000
$160
Royal Stone
User
User
Arpac Storage Solutions User
Top industrial land sales of Q3 2008* Address
Municipality
9037 & 9060 River Road
Delta
Size (acres) Purchaser
Price
3311 Mount Lehman Road
Abbotsford
11.00 Cyril Development Ltd.
11251 Twigg Place
Richmond
4.32 AML Investmnets Ltd.
$6,250,000 Canadian Investor
8028 North Fraser Way
Burnaby
4.45 Refrigerative Supply Ltd.
$5,782,400 User
15332 & 15360 32nd Avenue
Surrey
4.60 Berezan Management Ltd.
$5,000,000 Canadian Investor
Quarter
Inventory (sq ft)
New supply (sq ft)
Q3 2008
170,358,925
744,684
3,976,706
2.33%
-491,984
$989 - $1,623
$7.91 - $12.66
Q2 2008
169,480,216
1,549,400
3,895,108
2.30%
382,413
$978 - $1,573
$7.76 - $12.30
Q1 2008
168,120,706
2,460,207
2,918,011
1.74%
3,048,240
$925 - $1,407
$7.60 - $11.93
Q4 2007
165,603,028
1,359,510
3,448,573
2.08%
274,859
$912 - $1,391
$7.44 - $11.35
Q3 2007
164,341,644
2,517,678
2,462,048
1.50%
603,438
$890 - $1,345
$7.25 - $11.00
Q2 2007
163,396,800
1,261,384
2,120,642
1.30%
1,030,505
$885 - $1,330
$7.20 - $10.65
Q1 2007
162,325,206
944,844
2,079,533
1.28%
2,233,421
$875 - $1,325
$7.00 - $10.50
9.05 Foder Land Corporation
Type
$7,660,000 User $6,520,000 Developer
Metro Vancouver historical industrial statistics
Expect a reduction in construction labour costs as several notable large-scale infrastructure projects begin to near completion. At the same time, obtaining financing for future infrastructure projects will be increasingly difficult due to stringent lending practices.
Vacancy rates Absorption Price of land Net rental rate range sq ft % (sq ft) per acre (thousands) $/sq ft/yr
www.realnet.ca *Data sourced from RealNet Canada Inc.
Strong emphasis will continue to be on environmentally efficient buildings, and while the green building code will increase initial costs, long-term savings on energy bills will become apparent.
DTZ Barnicke Vancouver Limited. 800 - 475 West Georgia Street, Vancouver, B.C. V6B 4M9 Tel: (604) 684 7117 Fax: (604) 684 1017 Caroline Ungless Director of Research (604) 630 3405 caroline.ungless@dtzbarnicke.com
Mike Meakin Industrial Research Analyst (604) 630 3391 mike.meakin@dtzbarnicke.com
5440 Hollybridge Way, Richmond. - 110,000 sq ft Sold as a residential redeveopment site DTZ Barnicke is an environmentally conscious organization. If you would like to receive this report via email, please contact us.
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