Vancouver Industrial Report - Avison Young...Spring 2013 Vancouver Industrial Report Page 2 Leasing...
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Spring 2013 Vancouver Industrial Report OUTLOOK INSIDE Transaction Summary p. 2 Viaducts Removal p. 3 Deal Tracker p. 4 D espite a legacy of industrial land base ero- sion through rezoning decisions, Vancouver remained a city of industry in 2012, recording the strongest annual level of industrial sales activity since 2005. Primarily owner/users acquired $110.4 million of industrial real estate assets during the course of 70 transactions last year. Only 2005 recorded more in- dustrial sales activity ($113.2 million/76 deals) since statistics started being tracked by RealNet Canada in 1999. The same strength was also noted in the leasing market with at least three 20,000-sf-plus deals concluded in the back half of 2012. Generational buyers, who are purchasing Vancou- ver industrial real estate with a long-term invest- ment horizon in mind, are also playing a role in the market. Many are seeking leveraged returns by paying 40% to 50% of the purchase price as a down payment for real estate that may only generate a 5% return currently, while financing the outstand- ing balance with capital obtained at only 3.75% or 4%. Low interest rates continue to entice users to pursue ownership options rather than lease. As a result, Industrial sales and leasing demand strengthens in Vancouver demand remains strong for quality industrial space, with upward pressure driving the cost-per- square foot rates for both new and older product to greater heights. Strata units remained the primary source of in- dustrial sales activity in Vancouver with significant volumes noted in Rivershore Business Park (20), Shoreline Business Centre, phase II (6), City Cen- tre Business Park (4) and South Vancouver Busi- ness Centre (4) in 2012. Approximately half of all industrial sales in 2012 occurred in these four de- velopments. The majority of strata sales have been located in South Vancouver, where developers have been able to assemble suitably sized lots necessary to ensure the viablity of new industrial strata devel- opments. The East Vancouver industrial market remains very tight with less than a dozen transac- tions involving existing buildings – and virtually no new product available. Given the limited number of industrial nodes re- maining within the City of Vancouver, pressure ex- ists to introduce service uses that were previously not permitted as conditional uses. Vancouver city Cap Rates Industrial Vacancy Sales Volume Absorption Lease Rates continued on page 4 x x x Number of Transactions $ Million $0 $20 $40 $60 $80 $100 $120 2007 2008 2009 2010 2011 2012 59 48 36 46 50 70 Source: RealNet Canada Inc. > VANCOUVER INDUSTRIAL BUILDING SALE TRANSACTIONS 2007 -2012
Transcript of Vancouver Industrial Report - Avison Young...Spring 2013 Vancouver Industrial Report Page 2 Leasing...
Spring 2013
Vancouver Industrial Report
OUTLOOK
INSIDE
Transaction Summary p. 2Viaducts Removal p. 3Deal Tracker p. 4
Despite a legacy of industrial land base ero-sion through rezoning decisions, Vancouver
remained a city of industry in 2012, recording the strongest annual level of industrial sales activity since 2005.
Primarily owner/users acquired $110.4 million of industrial real estate assets during the course of 70 transactions last year. Only 2005 recorded more in-dustrial sales activity ($113.2 million/76 deals) since statistics started being tracked by RealNet Canada in 1999. The same strength was also noted in the leasing market with at least three 20,000-sf-plus deals concluded in the back half of 2012.
Generational buyers, who are purchasing Vancou-ver industrial real estate with a long-term invest-ment horizon in mind, are also playing a role in the market. Many are seeking leveraged returns by paying 40% to 50% of the purchase price as a down payment for real estate that may only generate a 5% return currently, while financing the outstand-ing balance with capital obtained at only 3.75% or 4%.
Low interest rates continue to entice users to pursue ownership options rather than lease. As a result,
Industrial sales and leasing demand strengthens in Vancouver
demand remains strong for quality industrial space, with upward pressure driving the cost-per-square foot rates for both new and older product to greater heights.
Strata units remained the primary source of in-dustrial sales activity in Vancouver with significant volumes noted in Rivershore Business Park (20), Shoreline Business Centre, phase II (6), City Cen-tre Business Park (4) and South Vancouver Busi-ness Centre (4) in 2012. Approximately half of all industrial sales in 2012 occurred in these four de-velopments.
The majority of strata sales have been located in South Vancouver, where developers have been able to assemble suitably sized lots necessary to ensure the viablity of new industrial strata devel-opments. The East Vancouver industrial market remains very tight with less than a dozen transac-tions involving existing buildings – and virtually no new product available.
Given the limited number of industrial nodes re-maining within the City of Vancouver, pressure ex-ists to introduce service uses that were previously not permitted as conditional uses. Vancouver city
Cap Rates
IndustrialVacancy
Sales Volume
Absorption
Lease Rates
continued on page 4
x
xx
Number of Transactions
$ M
illio
n
$0
$20
$40
$60
$80
$100
$120
2007 2008 2009 2010 2011 2012
59
48
36
46
5070
Source: RealNet Canada Inc.
> VANCOUVER INDUSTRIAL BUILDING SALE TRANSACTIONS 2007 -2012
Spring 2013
Vancouver Industrial Report
Page 2
Leasing activity in the Vancouver industrial mar-ket has increased in recent months. Aritzia LP, a Vancouver-based women’s apparel distributor expanded within 611 Alexander Street to take 26,000 sf of ground floor warehouse space. Black & McDonald, a multi-trade industrial contracting company leased 1331 Clark Drive, a 25,700-sf of-fice/warehouse facility with exposure along Clark Drive. Black & McDonald also leased 1338 Clark Drive, a 9,687-sf vacant site across the street in or-der to store equipment. Lush Manufacturing, a natural cosmetics manufacturer, leased 25,000 sf at 8668 Cambie Street.
Other lease transactions included Vancouver Architectural Antiques leasing 7,400 sf at 5 East 5th Avenue, Leading Brands leasing 6,955 sf at 33 West 8th Avenue and Industrius Nature Technologies leasing 6,230 sf at 121 McLean Drive.
Industrial lease rates remained fairly consistent in Vancouver in 2012, which led to an increase in deal velocity. Overall, industrial lease rates in Van-couver remain higher than rates in the majority of other Metro Vancouver submarkets.
On the sale side, a private investor purchased 2450 Ontario Street for $15,350,000. The 38,194-sf office building is fully leased by Vancouver Coastal Health Authority but zoned industrial (I-1). With recent amendments to the permitted uses in the Mount Pleasant industrial area, further transactions are expected. A private investor also
purchased Boundary Park at 3600 – 3630 East 1st Avenue for $8,850,000. The subject property is a fully leased, 60,500-sf multi-tenant facility on 2.65 acres. Another private investor acquired 900 Parker Street for $8,119,000. The 115,929-sf indus-trial facility is fully leased by General Paint.
Other notable transactions included the acquisi-tion by a value-add investor of 828-868 East Hast-ings Street for $7,250,000. The 39,000-sf industrial facility was leased by Acme Labs (which will be relocating to a consolidated facility in South Van-couver) and the Vancouver Table Tennis Club. Eminence Organic Skin Care purchased 131-153 West 6th Avenue, a 24,799-sf multi-tenant office/industrial facility for $5,950,000. The owners in-tend to utilize approximately half of the building for their own use, while the remaining portion is leased to several tenants.
Rebe Holdings Inc. (which is associated with the Bensen design and manufacturing group) pur-chased 3440 Bridgeway Street, a 47,419-sf indus-trial facility, for $5,200,000. It is our understanding that the company intends to utilize approximately half of the building for its own distribution/stor-age purposes, while the balance of the building is leased by several tenants. A private investor ac-quired 1455-1475 East Georgia Street, a 22,000-sf office/warehouse facility, for $3,060,000 and in-tends to renovate and lease out the space.
Since March 2012, approximately 67% of indus-trial sale transactions in Vancouver were strata.n
VANCOUVER TEAM Sale velocity increases while industrial leasing activity heats up
TENANT ADDRESS SQUARE FEET
Aritzia LP #8 - 611 Alexander Street 26,000
Black & McDonald Ltd. 1331 Clark Drive 25,700
Lush Manufacturing Ltd. 8668 Cambie Street 25,000
Vancouver Architectural Antiques Ltd. 5 East 5th Avenue 7,400
Leading Brands Inc. 33 West 8th Avenue 6,955
Industrius Nature Technologies Inc. 121 McLean Drive 6,230
2450 Ontario Street, an office building in the Mount Pleasant industrial area, sold for $15.35 million.
> NOTABLE VANCOUVER INDUSTRIAL LEASE DEALS
Struan Saddler (604) 647-5077
Struan Saddler is a valuable contributor to both the industrial and investment divisions of Avison Young Vancouver. For the past four years, Struan has expanded his presence in Vancouver’s industrial areas, transacting numerous sale and lease transactions for investors, tenants, landlords and vendors.
John Lecky (604) 647-5061
John Lecky specializes in industrial sales and leasing transactions within Vancouver’s city limits, providing corporate real estate advisory services that focus on asset disposition, tenant mandate and design-build assignments. For the past decade, he has enjoyed sustained success while acting for clients invested in the BC marketplace.
Kevin Kassautzki (604) 646-8393
Kevin Kassautzki began his career in real estate with Avison Young and specializes in industrial leasing, sales and investment transactions primarily in the Vancouver market. Kevin utilizes in-depth market knowledge to best serve his clients’ needs, while providing creative solutions to overcome deal-specific obstacles.
Spring 2013
Vancouver Industrial Report
The impact on industrial users in East Van-couver arising from the potential removal
of the Georgia and Dunsmuir viaducts re-mains uncertain as city council prepares to vote on a staff report due in early 2013 that will recommend what should be done with the elevated roadways.
The City of Vancouver is aware of business concerns regarding goods movement, as indi-cated in appendix D of the City’s Transporta-tion 2040 plan (which was approved by coun-cil October 31, 2012), which revealed during phase 2 outreach consultations held in June/July 2012 that the “more common themes and ideas” that emerged from stakeholder and community groups on this topic were includ-ed under the heading “Local Goods and Servic-es Movement: 2.1. Maintain an efficient network of designated truck routes.”
Those “themes and ideas” included: “Is there consideration for secondary truck routes to ease other routes i.e. King Edward and 49th Avenue? Many of Vancouver (sic) streets don’t work for goods movement,” reads the report. “There is a weak articulation of how the city is supporting goods movement par-ticularly in collaboration with the Port and TransLink.”
For its part, Port Metro Vancouver (PMV) declined to comment on the impact the removal of the viaducts and related infra-structure could have on its industrial ten-ants along the south shore of Burrard Inlet or industrial operators off the water in East Vancouver.
According to a port spokesperson, “PMV has
decided to respectfully decline the opportu-nity to respond at this time since a revised proposal has yet to be considered by coun-cil.”
Philip Wong, president and general man-ager of The Produce Terminal, a 75,000-sf computer-controlled refrigerated ware-house located at 788 Malkin Avenue, was unconcerned about the removal of the via-ducts; however, he was concerned about the proposed Malkin Avenue connector.
“The proposed Malkin Avenue connector would directly affect all the business opera-tions located on the street,” Wong said in an email. “The vast majority of the businesses on the street do not have adequate lot area to accommodate the turning radius of a typ-ical 70’ semi- trailer.”
He said it is common for five-ton trucks and semi-trailers to cross the roadway and back up to the building’s receiving bays.
“The city planners presented us a proposal to widen the street, but they have not re-solved the concerns we have with the cur-rent practice of hundreds of trucks crossing the roadway on a daily basis, impeding traf-fic, and backing up into the receiving bays of the produce warehouses along Malkin Avenue.”
Staples Canada, which operates a distri-bution centre, sales office and furniture showroom in East Vancouver at 1125 Vernon Drive, declined to comment on the impact of the viaducts proposal on its operations.
Brent Toderian, principal of Toderian
UrbanWORKS and the former director of planning for the City of Vancouver, believes the city raised the “correct questions” about the impact the removal of the viaducts would have on industrial operators and on businesses downtown. Goods movement was prioritized ahead of single-occupancy vehicles in the city’s transportation plans, he added.
“There was a particular interest around im-pacts on goods movement, industry and economic development,” said Toderian. “The engineers and I took that very serious-ly. It was my biggest concern in the context of the transportation analysis.”
He added that the city considered truck-on-ly lanes and other techniques to make sure goods movement was not impacted, but that transportation engineers determined they were not needed. While unaware of any specific concerns around the Malkin Avenue connector, Toderian emphasized the big picture approach he advocated as part of the city’s Eastern Core strategy and suggested thinking foremost about the city building implications and opportunities the proposed removal of the viaducts makes possible.
“Good planning and good city building is the basis for a strong economy. We con-nected the dots between mobility and eco-nomic activity and great city planning and that’s why I’m confident that a great vision is developing.”
While current city staff and council have gen-erally been optimistic about the proposed outcome resulting from the removal of the viaducts, some in the business community question the city’s positive prognosis.
According to the city’s transportation anal-ysis, no net increase in vehicle volumes on alternate east-west routes is expected, said the City of Vancouver’s director of transpor-tation Jerry Dobrovolny, when taking into consideration other infrastructure invest-ments occurring before or at the same time as earliest implementation of the viaducts plan, such as the Evergreen Line.
Dobrovolny wrote in an email that given the transportation analysis, the city expects business as usual for the industrial users in the affected area.
“The revised road network retains the criti-cal connection in the area for goods move-ment and commuter vehicles, advances our Transportation 2040 objectives in terms of supporting active modes of transportation and transit use and retains significant capac-ity for commuter vehicles.“
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Impacts of the removal of viaducts on East Van industrial users remains uncertain
A rendering of the City of Vancouver’s proposal to remove the Georgia and Dunsmuir Street viaducts.
Illustration: City of Vancouver
Spring 2013
Vancouver Industrial Report
E & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guar-anteed by Avison Young Commercial Real Estate (B.C.) Inc. All mea-surements quoted herein are approximate.
AVISON YOUNG COMMERCIAL REAL ESTATE (B.C.) INC. Suite 2100, 1055 West Georgia St. PO Box 11109 Royal Centre, Vancouver, BC, Canada V6E 3P3
continued from page 1
council recently approved a wider range of uses in the Mount Pleas-ant light industrial areas (I-1) in an effort to “increase job space potential” in the designated neighbourhoods. New permitted uses include general office, hair salons as well as restaurants and bars, among others. In a separate amendment, council also agreed to modify the existing zoning and development by-law to “expand opportunities for artist studios by increasing the number of indus-trial zones in which ‘work-only’ artist studios are allowed and to ease the approval process by al-lowing artist studios as outright uses.”
Most industrial product in East Vancouver is antiquated and no longer meets the needs of most distribution or logis-tics users. Historically, indus-trial users in East Vancouver started with approximately 50% site coverage, but as business
subsequently grew and premises expanded, that grew to virtually 100% site coverage. Eventually, there was no longer any room for trucks and no additional land available for expansion. A com-bination of increasingly prohibi-tive land costs and renewed city efforts to preserve what remains of Vancouver’s industrial base has restricted redevelopment efforts and limited investor activity.
Strata industrial units (includ-ing flex office/warehousing) will likely remain the primary source of new product and the mainstay of industrial sales activity in Van-couver for the foreseeable future.
Leasing activity remained strong with multiple 20,000-sf-plus deals concluded in the second half of 2012. Rates remained stable with slight upward pressure noted in some pockets as overall interest increased substantially. Industrial vacancy was exceptionally tight
at 2% in the 23.3-million-square-foot market, a drop of more than 50% from the 12 months previous when vacancy was 4.2%. Capitalization rates continued to compress as the cost of capital remained low, and pent-up de-mand (resulting from a limited supply of product) forced owner/users and investors to reach in order to conclude a deal. Strata pricing remained generally stable with slight increases in prices in subsequent phases of many de-velopments as supply dwindled.
While small-bay units in the 1,000-sf to 2,500-sf range proved exceedingly popular, mid-sized bays in South Vancouver (approx-imately 15,000 sf) also sold well. With select cap rates reaching sub 5% and the overall average price per square foot greater than $200 in 2012, Vancouver remained a hub of industrial development and activity despite the city’s rep-utation to the contrary. n
> VANCOUVER INDUSTRIAL BUILDING SALE TRANSACTIONS MARCH 1, 2012 TO DECEMBER 31, 2012 (GREATER THAN $1 MILLION)
Source: RealNet Canada Inc.
Industrial TeamKyle [email protected]
Jeron [email protected]
John [email protected]
Michael Farrell [email protected]
Kevin [email protected]
Ryan [email protected]
John [email protected]
Bennett [email protected]
Douglas [email protected]
Gord [email protected]
Struan [email protected]
Terry Thies 604.646.8398 [email protected]
Matt [email protected]
Ian Whitchelo604.647.5095 [email protected]
Michael KeenanPrincipal & Managing Director, [email protected]
Andrew PetrozziVice-President, Research (BC)[email protected]
Caitlin CrambResearch Manager, Industrial [email protected]
PROPERTY MUNICIPALITY PURCHASE PRICE
SQUARE FOOTAGE (SF)
PRICE/SQUARE FOOT (PSF)
TRANSACTION DATE
8399 Ontario Street Vancouver $5,200,000 44,046 $118 December 2012
730 Alexander Street Vancouver $3,050,000 13,428 $227 November 2012
Shoreline Business Centre - Phase II Vancouver $5,513,310 33,412 $165 November 2012
1455-1475 East Georgia Street Vancouver $3,060,000 22,000 $139 November 2012
118 West 8th Avenue Vancouver $1,449,000 2,600 $557 November 2012
Shoreline Business Centre - Phase II Vancouver $2,902,375 16,584 $175 October 2012
Shoreline Business Centre - Phase II Vancouver $2,945,075 16,828 $175 October 2012
Shoreline Business Centre - Phase II Vancouver $2,736,360 16,584 $165 October 2012
Shoreline Business Centre - Phase II Vancouver $2,684,062 14,261 $188 October 2012
Shoreline Business Centre - Phase II Vancouver $2,749,750 16,173 $170 October 2012
900 Parker Street Vancouver $8,119,000 115,929 $70 September 2012
Boundary Park Vancouver $8,850,000 60,500 $146 August 2012
704 Alexander Street Vancouver $2,550,000 16,695 $153 July 2012
131-153 West 6th Avenue Vancouver $5,950,000 24,799 $240 April 2012
3440 Bridgeway Street Vancouver $5,200,000 47,419 $110 April 2012
828-868 East Hastings Street Vancouver $7,250,000 39,000 $186 April 2012
8739 Heather Street Vancouver $2,100,000 15,885 $132 April 2012
