Metro Vancouver's commercial real estate market continues to show resilience in the face of rising borrowing costs and high inflation. The industrial asset class is leading the way, with the retail market also demonstrating steady performance. This blog post will delve into the current trends shaping the industrial and retail spaces in Metro Vancouver and what they mean for businesses and investors.
The industrial asset class is a standout performer in Metro Vancouver's commercial real estate sector. According to a June 2023 report from Re/Max Canada, approximately 7.5 million square feet of industrial space is currently under construction throughout Metro Vancouver1. This surge in construction activity is a response to the strong demand for industrial space, particularly in the Surrey-Burnaby area, where some of the new developments are stratified, allowing businesses to own their space.
Despite the increase in supply, the vacancy rate for the industrial sector remains below one per cent, indicating a tight market. Demand is particularly strong in Richmond, Delta, Burnaby, and Langley, where conditions are the tightest. This high demand, coupled with low vacancy, has led to a significant increase in lease rates. Rates have risen by almost 20 per cent year-over-year to an average of $22 per square foot1.
The recent purchase of two industrial properties by Crestpoint Real Estate Investments, a real estate investment trust (REIT), is a positive sign that REITs are slowly returning to the market. This trend could lead to increased investment activity in the industrial sector, further bolstering its performance.
While the industrial sector is the top performer, the retail market in Metro Vancouver is also holding steady. Foot traffic is increasing in retail nodes, and retail space is in high demand in shopping areas such as West Fourth Avenue, Alberni Street, West Georgia Street, and Robson Avenue, as well as in neighbourhoods like Yaletown, Gastown, and False Creek. Despite this high demand, supply remains low in these areas.
One notable trend in the retail sector is the transition of malls from retail-only to mixed-use sites. An example of this is the redevelopment of Westbank’s Oakridge Mall, which now includes a 574,000-square-foot shopping centre, 28 acres of land, and 6,000 housing units. This mixed-use approach creates a built-in market for retailers and presents exciting opportunities for the retail sector.
While the industrial and retail sectors are thriving, the office market in Metro Vancouver is experiencing increased availability. The availability rate in the office markets has risen to 10.9 per cent. Lease rates in downtown Vancouver are around $40 per square foot, while the suburbs have an average lease rate of $25 per square foot1.
Some corporate offices in downtown Vancouver are choosing to reduce space or move to the suburbs to save costs. Despite this trend, the downtown core remains vibrant, thanks to the residential component and the city's green-oriented development.
The industrial and retail sectors in Metro Vancouver are demonstrating resilience and steady performance amid rising costs and high inflation. The strong demand, low vacancy rates, and rising lease rates in these sectors present opportunities for businesses and investors. However, it's crucial to understand the market dynamics and trends to make informed decisions.
The increased availability in the office market and the shift of offices to the suburbs are also important trends to watch. These trends could have significant implications for businesses and investors in the office space market.
In conclusion, Metro Vancouver's commercial real estate market remains solid, with the industrial and retail sectors leading the way. Despite the challenges, there are also opportunities for growth and success. The key is to understand these changes, adapt to them, and seize the opportunities they present.