Transcript of "Vancouver industrial market report q3 2012 email"
Q3 2012 | INDUSTRIAL REPORTCOLLIERS INTERNATIONAL | MARKET REPORTMETRO VANCOUVERBRITISH COLUMBIA Canadian Market Overview BRITISH COLUMBIA Canadian economic performance remains in growth mode, albeit moderate in the East and stronger in the West. The divide between East and West can be attributed to strong commodity prices driving the West and the lack of a similar catalyst in the East. Manufacturing in the East is weighed down by slow growth in the U.S.; however, more positively is the return of the auto sector to near pre-recession levels. The outlook for commercial real estate is stable, with the exception of a few higher-growth centers in the West. Employment growth will sustain the office market and growth in Vancouver retail sales, which combined with new U.S. retailers, will underpin demand for retail and distribution facilities. Manageable new supply of both office and industrial property should avert supply-driven vacancy challenges. Overall, commercial property looks well-positionedNanaimo Kelowna to close out a solid year in 2012 and continue on the same path through 2013. Victoria Metro Vancouver Market Overview Surrey Leasing velocity was moderate in the third quarter of 2012, and while the summer months are characteristically slow, interest from companies looking to expand their operations allowed some larger spaces to be absorbed. As a result of 407,030 square feet of positive net absorption, Metro Vancouver’s vacancy rate declined to 3.8 percent, relatively unchanged from 4.0 percent in the third quarter of 2011 and down from 3.9 percent inBC MARKET: Colliers has five offices in BritishColumbia: Vancouver, Kelowna, Surrey, Nanaimo the second quarter of 2012. Investor demand for quality buildings continues to exceedand Victoria. the level of supply, placing downward pressure on cap rates and creating an opportunistic time to sell non-core assets. According to RealNet Canada’s most recent quarterly report, industrial cap rates averaged 5.7 percent this quarter.MARKET INDICATORS 0HWUR 9DQFRXYHU +LVWRULFDO 3HUIRUPDQFH Q3 Q4* 2012 2012 VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4* Forecast 1HZ 6XSSO 6)
MARKET REPORT | Q3 2012 | INDUSTRIAL | METRO VANCOUVERRichmond/DeltaThe vacancy rates declined in the Richmond and Delta markets from 3.4 and 8.4 percent in the third quarter of 2011 to 3.0 and 6.5 percentin the third quarter of 2012.While interest in the region continues to be active, tenants remain cautious as uncertainty in the provincial, national and global economypersists. Demand in the Richmond and Delta industrial markets continues to be most prevalent with medium- and large-distribution users.Significant lease transactions this quarter included Amazon Canada’s Fulfillment Services’ lease of 193,494 square feet at 450 DerwentPlace, as well as L.V. Lomas Limited’s extension of its 92,212 square foot lease at 1587 Derwent Way, both on Annacis Island. Richmondand Delta’s vacancy rates are anticipated to improve modestly heading into the end of 2012. While a number of buildings are underconstruction in Richmond, roughly 85 percent of that supply has already been leased.Demand for quality investment product continues to outstrip supply. Investment-driven sales have garnered multiple bids and placeddownward pressure on cap rates. An example of this is the Staples building at 14260 Knox Way in Richmond, regarded as an AAA building,that sold for $13.8 million and a cap rate below 5.5 percent, with the tenant having only a few years left on its lease. Another notableinvestment transaction included 1611 Patrick Street, 1600 Savage Road and 15100 River Road, Richmond, purchased for $11 million by aprivate investor.The Crestwood Commerce Centre at 5580-5600 Parkwood Way and 13240 Worster Court, in Richmond, were sold for $23 million dollarseach, to Sun Life Assurance Company of Canada and Cowell Motors Ltd respectively. It is believed the sale is to make room for theexpansion of the auto mall and the future multi-tenant development of the area adjacent to 13240 Worster Court.In Delta, lots at the Buckingham Industrial Estates are nearly sold out and all that remains out of 35.5 acres is a combined 9.7 acres,at lots seven and eight. On average, lots were sold for roughly $1.0 million per acre. Construction on a number of the sold lots shouldbegin shortly.Tri Cities/ Burnaby/ Vancouver/ North VancouverVacancy rates in this region averaged 4.45 percent in third quarter of 2012, relatively unchanged since the same period in 2011. Thegreatest activity occurred in Vancouver and Burnaby, experiencing 92,646 and 107,743 square feet of positive net absorption, respectively.Absorption in Vancouver is attributed to Beedie Development Group’s completion of the Angel Seafoods design build and the second phaseof the Shoreline Business Park in South Vancouver.With the exception of a few notable transactions, leasing activity in these regions was somewhat limited across medium- and large-bay product this summer. Significant lease commitments this quarter include Arc’teryx Equipment Inc.’s expansion into 58,900 squarefeet at 2200 Dollarton Highway, North Vancouver, Aritzia’s 37,700 square foot lease at 109 Braid Street, New Westminster and BeedieDevelopment Group’s 101,000 square foot build-to-suit at 8138 North Fraser Way for Loblaws Inc. in South Burnaby.Despite strong demand, investment sales for the region were stagnant due to lack of supply. The most notable investment transaction thisquarter was the sale of 3600-3630 1st Avenue, Vancouver for $8.85 million to a private investor. A private investor also purchased 16,695square feet at 704 Alexander Street, Vancouver for $2.6 million.With little in the way of new supply being built in most of the region’s near future, vacancy rates are expected to remain flat, as willrental rates, which appear to have bottomed out. However, South Burnaby’s new supply will consist of Canada Lands allowing more lightindustrial uses in the remaining 69 acres at Glenlyon Business Park, and 64 acres at Oxford Properties’ redevelopment of the Norampacsite. Together, they will be adding up to two million square feet of new supply to the region over the next three to five years.P. 2 | COLLIERS INTERNATIONAL
MARKET REPORT | Q3 2012 | INDUSTRIAL | METRO VANCOUVERFraser ValleyWith little new speculative development and limited existing supply, vacancy rates in theFraser Valley markets continue to be among the lowest in the Greater Vancouver area.Surrey’s vacancy rate remained stable at 2.3 percent for the third straight quarter, whileLangley’s vacancy dropped to 3.0 percent from 4.8 percent in the third quarter of 2011.With the combination of strong tenant demand and low vacancy rates in the region, findingsuitable premises is becoming increasingly difficult. Notable lease transactions this quarterinclude Concert Properties lease to Advanced Integration Technology Canada Inc.’s for64,112 square feet at 5690 268th Street, Langley and Scholastic Books’ lease of 32,621square feet at Blackthorn III, 2468 192nd Street in Campbell Heights, Surrey.While interest rates remain low, industrial users continue to capitalize on the opportunity to 19680 94A Avenue, Langleyown their own buildings. Stand out industrial sale transactions in the Fraser Valley includedthe user purchase of 140,000 square feet at 19680 94A Avenue, Langley, for $14.9 millionand the purchase of 17858 66th Avenue, Surrey, from Bentall Kennedy by Andrew Sheret “…vacancy rates areHoldings Limited for $7.5 million. expected to continue toWith limited new supply under construction, vacancy rates are expected to continue to trend downwards.”trend downwards. Inevitably, an increase to lease rates will soon follow, allowing developersto begin to make economic sense of new projects again. Even so, development will stillrequire permits and new supply is likely to be at least 12 months from completion. Demandfor quality investment product is expected to remain strong continuing to drive values andcompress cap rates. TOP LEASE TRANSACTIONS Property Address Municipality Lease Size (SF) Tenant 450 Derwent Place Delta 193,494 Amazon Canada Fulfillment Services 8138 North Fraser Way Burnaby 101,000 Loblaws Inc. 7763 Progress Way Delta 72,471 Monte Cristo Bakery 5690 268th Street Langley 64,112 Advanced Integration Technology Canada Inc. 2200 Dollarton Highway North Vancouver 58,900 Arcteryx Equipment Inc. TOP SALE TRANSACTIONS Property Address Municipality Purchaser Profile Sale Price Site Size (Acres) Building Size (SF) 5580-5600 Parkwood Way Richmond Private Investor $23,000,000 11.72 117,215 13240 Worster Court Richmond Institution $23,000,000 15 144,419 14260 Knox Way Richmond Private Investor $13,825,000 5.42 113,645 4606 Canada Way Burnaby Private Investor $11,067,433 2.19 59,089 1611 Patrick Street, 1600 Savage Richmond Private Investor $11,000,000 7 82,404 Road 15100 River Road 3600-3630 1st Avenue Burnaby Private Investor $8,850,000 2.65 65,000 COLLIERS INTERNATIONAL | P. 3