By Michael Farrell - Vancouver
The local 180 million square foot industrial market is defined by restricted supply, which can be attributed to physical (mountains, oceans, and USA/Canada Border) and legislative (Agricultural Land Reserve) restrictions. This has always frustrated users, developers, and investors from within and outside the region. However, during the recent downturn, investors were delighted with the relatively quick recovery to low vacancy rates and capital preservation observed within this market and this has only fueled further interest and cap rate compression.
Historically these same barriers have provided local developers with some protection from outside competition; however locally competition is fierce. Lately we have seen more large scale (300,000 sf plus) buildings completed on a speculative and build-to-suit basis and this has caught the eye of larger developers from outside the region. The main issue is how to gain scale efficiently in the local market place. Ultimately, large scale users will have to depend heavily upon developers to source and deliver the right product at the right price (Vancouver premium included). If developers are unable to do so users will have to consider doing it on their own (as Loblaw's recently did with a 400,000 sf distribution center) or rely upon existing product released to the market due to churn, limited build-to-suit opportunities, or the more traditional style of local development (100,000 to 200,000 sf at a time).
