Tightening industrial vacancy rates reach Victoria, Kelowna

It is becoming just as tough for companies in Victoria and Kelowna to find industrial space as it is in Metro Vancouver, according to a new report from Colliers International.

The industrial vacancy rate in the Greater Victoria region fell from 4.9 per cent to 2.2 per cent by the end of 2017, according to the firm’s national assessment of urban centres with populations of less than one million.

In the Thompson- Okanagan region, the industrial vacancy rate also fell to 2.2 per cent at the end of 2017, down 120 basis percentage points last year. In the City of Kelowna, the industrial vacancy at the end of the year was 1.8 per cent.

Metro Vancouver’s regional industrial vacancy rate was recently marked at 2.1 per cent by Cushman and Wakefield — a level stakeholders are claiming has become critical, and an impediment to businesses that want to expand or relocate to the region.

In Victoria, strong sales and leasing activity due to the effects of the booming residential construction industry, technology and busy dockyards is fuelling demand for the city ’s elbow-grease workspace, said Ty Whittaker, a senior vicepresident at Colliers International in the capital.

“We are benefiting as Vancouver has for many years from a really strong residential market. A lot of Vancouver developers are into our market now and participating in a very big way,” he said. “The overall economy is just kind of popping along.”

But it’s not all good news, Whittaker said.

“Now (the industrial squeeze) is really turning into a barrier,” he said. “I get calls from people needing 2,000 square feet to 40,000 square feet and there are just no options for them to consider. Period,” he said.

Victoria’s overall industrial market inventory is about 10 million square feet (msf ), Whittaker said. “I’d say right now there is probably over 200,000 square feet of demand on a build-to-suit basis,” he said.

“That’s distribution, that’s manufacturing, that’s technology. All sorts of companies are needing to expand and grow.”

He said the city has virtually no speculative industrial construction and likely won’t be able to keep up with demand.

Victoria and the Okanagan had the lowest vacancy rates and the highest average net rents on the list of sub-one million population markets compiled by Colliers, which included Saskatoon, Regina, Winnipeg, Waterloo, Ont., and Halifax.

In Kelowna, developers and owners have started to respond to a lack of available space, but have been able to add only about 120,000 square feet of new inventory in the last six months.

Nearly half of those buildings were built for owner-users and were fully occupied the moment they were completed, the report said.

The shortage of space has pushed average lease rates up by about seven per cent over the last year in the Okanagan, reaching $11.14 per square foot in the fourth quarter of 2017.

“We’re definitely seeing businesses thriving here, and ... a lot of businesses in the industrial space, are expanding,” said Gillian Satherstrom, Colliers’ market intelligence co-ordinator for the B.C. Interior.

“We’re also seeing a lot of new tenants entering our market,” she said, noting that many are attracted by the lower cost of living when compared to the Lower Mainland.

One of the few remaining places to buy and develop industrial space in Kelowna is at the Airport Business Park at the north end of the city near the University of British Columbia Okanagan on Highway 97.

Land in that park is selling for up to $1.4 million an acre, said Colliers senior associate in Kelowna, Jason Wills.

Under development by Pier Mac Petroleum Installation Ltd., the 125-acre park will eventually include 1.5 msf of space and is zoned to permit office, technology, manufacturing, sales, fleet, distribution and industrial warehousing.

“We’re in a valley, so we don’t have the luxury of huge tracts of land,” he said.

Wills said the film industry is also starting to make some noise in the market.