Greater Vancouver's commercial and industrial real estate market is enjoying robust growth, a trend industry experts predict will continue.

Rob Beedie, director of The Beedie Group, B.C.'s largest landlord of industrial space, says there is a very limited supply of quality product available in the industrial sector.

"Anyone selling gets multiple offers," says Beedie. "And there is a lot of demand by offshore investors and institutions," particularly from Germany, Asia and Israel.

The office-space market in Greater Vancouver has recovered from two years ago, when the vacancy rate was 16.9 per cent, adds Chris Clibbon, a senior research analyst for CB Richard Ellis Ltd. in Vancouver.

File photo by Bayne Stanley, Business Edge
Chris Clibbon, a senior CB Richard Ellis research analyst, says the Greater Vancouver office space market has rebounded from a low point two years ago.

In the first quarter last year the vacancy rate for Greater Vancouver totalled 17.4 per cent and this year it is 12.2 per cent.

In Vancouver proper it is 9.6 per cent compared to 12.7 per cent in 2004.

"Anything below 10 per cent is considered good and landlords can control the rents within reason," notes Clibbon, adding Vancouver now has the lowest office vacancy rate in Canada.

"When you look at top office space, where companies want to take two to three floors, there is really nothing left," his adds. "Vancouver has a total of about 30 of these top office buildings and the vacancy rate stands at 6.5 per cent. For the lower-quality buildings it's 12.1 per cent."

In several cases, the remaining blocks of top office space are attracting multiple offers from tenants - especially those buildings with a view.

Tony Astles a senior vice-president at Bentall Capital, the developer of a $45 million addition to one of the Bentall Tower complexes in the downtown core, notes the market for commercial real estate has improved in the last 14 months.

An additional 11 towers are being added to the 21-storey Bentall V office complex.

"We have pre-leased 83 per cent of the 246,000-sq.-ft. space and it will be ready for occupancy in 2007," says Astles. "Two of the floors we kept vacant from when the Bentall V tower was completed in the fall of 2002."

Kevin Carpenter, vice-president of acquisition for Vancouver-based The Omni Group of Companies, says both commercial and industrial sectors are doing well.

"There is a lack of land, an increase in tenants and high demand for industrial land, so prices for industrial land have increased 25 per cent over last year and the same holds true for commercial office space," Carpenter says. "The main reason is that the B.C. economy is doing very well."

Clibbon notes there is a shortage of land for industrial use because Vancouver is landlocked, while there is still plenty of land in the agricultural land reserve (ALR). The ALR, which is managed by the Provincial Agricultural Land Commission, covers about 4.7 million hectares, including private and public lands that may be forested, vacant or farmed.

"We have a depleting supply of industrial land available for development," he adds. "Municipalities are all for trying to get agricultural land out of the reserve because it produces jobs. If anything comes up for sale there is a large demand for it."

German investors have become major buyers, analysts say, because Canada is considered a safe investment. A German company, House Invest Global, recently spent $221 million acquiring a number of shopping centres in Canada, including a couple in B.C., Clibbon notes.

On the industrial side, tenants are looking for space with parking, proper lighting, loading and ceiling heights. "Accessibility to major road networks is critical for distribution users," Clibbon adds.

"Tenants that employ large numbers of people need rapid transit and/or bus service nearby. On the office side, tenants are looking for improved class space. And due to an increasing shortage of top-quality space, they are looking for improved lower-class space."

In the industrial sector, demand has significantly diminished inventories of space for sale.

"At the outset of last year, for example, there were 75 buildings for sale, while today there are only 25 comparable buildings for sale - thereby lowering the overall inventory of sale product by 1.2 million square feet," says Clibbon.

Peter Padalec, Vancouver research manager for real estate research firm RealNet Canada Inc., says sales of buildings valued over $1 million last year totalled $3.16 billion, compared with $1.49 billion in 2000.

"A record amount of buildings sold last year, the highest ever - and I expect this year will be the same if not better," says Padalec.

Vancouver is on the radar of major global investors because real estate assets are seen as undervalued. Last year, foreign buyers made up 20 per cent of Canadian investment volume. Analysts say rising non-residential investment is the main driver of this upturn in permit activity. Investment in industrial building construction rose for the sixth straight quarter to $1.3 billion for all of Canada, with Vancouver showing the largest increase in industrial construction for a value of $89 million, says Clibbon.

The B.C. Business Council (BCBC) is also predicting the province is headed for a multi-year construction boom.

"The recent data on non-residential permit values confirms that non-residential building activity is poised to climb over the next couple of years," the council said in a recent economic report.

The BCBC says for the first five months of 2005 the cumulative value of building permits was 92 per cent higher than in the same period in 2004. Additional increases in commercial building activity will be necessary, the BCBC adds, to meet retail and other service demands stemming from a rising population and continued economic growth.

Padalec says industrial land is selling at a swift pace, fuelled in part by rising trade volume with Asia, particularly China. Further proof of the health of Vancouver's industrial sector is indicated by the vacancy rate, the lowest in North America.

He predicts the demand for industrial land will remain strong. "The handling of increasing amounts of Western Canadian resources through Vancouver is strengthening Vancouver's role as the gateway to the Pacific Rim," he says.

(George Froehlich can be reached at george@businessedge.ca)