It’s time to deal with the Lower Mainland’s industrial reckoning
British Columbia’s Lower Mainland is approaching a critical reckoning when it comes to our industrial property market.
Watchers and stakeholders already know that the persistent issue associated with our industrial sector has been unchanging: there is significant and rising demand from businesses for port-related job space; life sciences labs; e-commerce distribution buildings; storage for tradespeople and contractors; light manufacturing and food processing and other logistics-oriented businesses.
There just isn’t enough space to go around and the problem is getting worse.
Industrial vacancy in the Greater Vancouver area is at a new all-time low while leasing rates hit an all-time high for the second consecutive quarter this year, according to recent data from Colliers.
Industrial lease rates are expected to increase over the next three years due to constrained land supply in the area coupled with strong demand. As the market across the country continues to experience strong growth, CBRE recently showed that Canadian commercial real estate is pointing to the post-pandemic economic upswing.
According to a recent survey also by Colliers, e-commerce is expected to account for up to 10 per cent of all Canadian retail sales by 2024, yet 53 per cent of retail/e-commerce tenants are dissatisfied with the functionality of their current space. But it is unlikely that developers and builders will be able to keep pace with demand, resulting in a shortfall of e-commerce-related industrial space in the coming years. We can also expect Vancouver’s film industry to experience strong growth as the pandemic wanes and making films simplifies again.
Coming out of the pandemic, supply chains will loosen and improve and it’s highly likely that many local, regional, national and international businesses could be ready for a rocket ship ride of growth and prosperity.
For Vancouver, that means we’ll need more (and larger) innovative, well-designed and conveniently located industrial spaces that meet the needs of companies in film production, distribution, e-commerce and retail, food, design, brewing, tech and other high-skilled and craft-forward enterprises.
With 62 per cent of tenants considering moving locations in response to increasing lease rates, now is the time for industrial builders like Orion Construction and our development partners to be investing in large format buildings that will meet the needs of our changing economy.
So where do we go from here?
It’s time for governments, developers, builders and investors to start prioritizing higher density industrial projects that are folded into urban centres and transit hubs, while also prioritizing protecting and expanding access to industrial lands. Neighbours need not worry about smokestacks and pollutants as the industrial businesses today are more likely to involve digital screens, 3-D printing, craft-forward businesses and technological advancement, compared to the businesses of decades past.
We’re seeing examples of this sort of planning emerging in our region, but access to affordable, well-located land remains a major challenge that needs synergy among partners.
Another part of the solution would be to prioritize the development of large format industrial centres. There are only a handful of remaining projects in the region that are larger than 400,000 square feet, and that size of building is what the leading e-commerce companies of the world are searching for.
Meanwhile, our market would benefit from industrial specialists who are completely focused on taking on the challenge of increasing our industrial inventory. That means providing streamlined service that can navigate clients or investors through the government permissions process, while developing innovative and intelligent buildings and handling the construction of these buildings — especially as it pertains to the film industry, e-commerce and the burgeoning life sciences sector.
Lastly, municipalities and the development community need to keep having important conversations around protecting our dwindling industrial lands.
Industrial lands in the region continue to be increasingly used for non-industrial purposes, which poses a major threat to our overall industrial land base and our economy, according to the Metro Vancouver 2020 Regional Industrial Lands Inventory, which assesses land usage in the region every five years.
The report says there few remaining available large sites for ‘trade-oriented’ logistics uses, which can hurt businesses already located in the region and chase away businesses that want to expand or become established here. Overall, due to the rate of development activity, the amount of vacant industrial land continues to decline, while facing competing priorities for use.
We need to hold our ground on our existing inventory of industrial land while accelerating the development process and creating innovative design-build solutions to keep our economy moving forward.
Josh Gaglardi is a principal with Orion Construction in Surrey, B.C., a local full-service industrial builder that is prioritizing massive projects and is now developing two industrial complexes sized greater than 400,000 square feet.