METRO VANCOUVER Assessing Demand for Industrial Space September 26, 2018
TEAM Pat Phillips Vice President Personal Real Estate Corporation Vancouver, BC Geoffrey Charters Associate Vancouver, BC
AGENDA 1. How is industrial demand quantified? - Consultant methods - Industrial broker methods 2. Campbell Heights - Recent significant transactions - Remaining development opportunities 3. Future demand Campbell Heights and beyond
1. Consultant Methods to Quantify Industrial Demand > 2 data sets are used - Trend based historical data sets - Transactions and absorption data sets > Industrial land in the area > Historical construction trends > Future employment linked to industrial demand based on political and economic trends > Report from 2016 showed GVA land supply to last until 2041. What changed? - E-commerce - Stronger than expected demand - Removing and not replacing industrial lands
1. Industrial Broker Methods to Quantify Industrial Demand > Weekly meetings > Volume of transactions > Research tracks known demand > Years of experience
2. Campbell Heights Recent Significant Transactions > Sobey s > DSV Logistics > Wal-mart > Pival > Bailey Metals > Samuel Steel > Bentall > Rumours Veritiv, Trim Line
2. Campbell Heights Remaining Opportunities for Development > SCDC > Bentall > Diversified > Hopewell > Loblaws > Individual land owners with small to medium parcels of land
3. Assessing Future Demand Campbell Heights and Beyond > Inventory increased by 35 million square feet since 2008 > Record amount of construction > Vacancy rate down from 2.1% to 1.4% over that time > 2 quarters of negative absorption in the past decade (Q3 2009, Q2 2013) > Colliers tracking over 2.5 million square feet of current demand
THANK YOU
Stratification of Industrial Land in Metro Vancouver Eric Aderneck RPP, MPL, BCOM, DULE Planning Consultant eric@aderneck.ca / 604.721.5528 Industrial Lands Strategy Task Force September 26, 2018
Purpose of the White Paper Explore the extent, trends, drivers, benefits, challenges, and implications of increased stratification of industrial lands in the Metro Vancouver region Interconnected Trends / Reinforcing Cycles Extents Drivers Implications
Research and Interviews Based on review of available information, and 25 interviews with key stakeholders Industrial developers, brokers, business associations, agencies, and other experts
Regional Industrial Lands Context Strong demand and severe supply shortage of industrial Increasing land prices, low vacancy rates, higher lease rates Spurring industrial development associated with: Denser forms of building Increased accessory and office uses Strata tenure, rather than lease Often these trends are associated with each other
Extent of Strata by Geography Throughout the region, with the increasing number of strata projects readily absorbed Surrey, Richmond, Delta, and Burnaby being the largest industrial markets Notable high profile projects in the inner city areas, such as Vancouver
Extent of Strata by Sector Strata units tend to be smaller, thus attract associated types of businesses Notable sectors: local serving businesses, smaller scale manufacturing, contractors, food processing Less interest by larger tenants, including logistics users: require larger spaces need highway-accessible locations where values are lower prefer to lease rather than own their accommodations
Almost too good to be industrial Unit sizes: 1,500-15,000 sq ft Loading at grade or docks, impacts the types of tenants Some multi-level buildings Some strata with more accessory / non-industrial components
Drivers of Strata Demand 1. Low Interest Rates / Capital Financing 2. Business Investment / Tax Considerations 3. Ownership Preference / Security of Accommodations 4. Business Expansion / Few Alternative Space Options 5. Evolving Nature of Industry / Business / Economy 6. Municipal Zoning 7. Accessory and Non-Industrial Uses 8. Growth of Smaller Format Businesses 9. Construction Costs / Building Efficiencies 10. Increasing Property Values 11. Development Profit 12. Real Estate Investors Top Cited Drivers
Driver #1+2 Financing / Investment Strata prices range from $250-500 per sq ft Low loan interest rates (3.5-5.0%) Access to capital (90% ratio loan) Pre-sales down payment (10-20%) Opportunity to build equity Set up a holding company - business / legacy planning No foreign buyer tax on industrial property
Driver #3+4 Ownership / Security / Expansion Prefer to own pay mortgage instead of rent Sense of security of accommodations No risk of landlord lease increases / evictions Mostly owner-occupiers buying strata units Expanding businesses need accommodations Few alternative space options
Implications of Strata Strata provides needed space for new and growing businesses, however re-development of industrial lands can displace some existing industrial tenants New strata industrial units are often a more intensive use of the lands, although in some cases with a larger proportion of accessory and non-industrial uses
Implication #1 Capital Commitment Strong form of commitment to the property Less flexibility than leasing Capital obligation Investing in real estate, rather than the business Potential negative impacts if real estate prices decline / interest rates increase
Implication #2+3 Unit Sizes / Accessory Uses Typically smaller unit sizes and designs Light industrial flex space features (loading bays, etc) Higher proportion of accessory & non-industrial uses Potential impacts on traditional industrial users Monitoring / enforcement of zoning permitted uses Strata bylaws further limiting allowable uses
Implication #4+5 New Businesses / Old Businesses Space for new and growing businesses Evolving nature of industry and work Potential cluster/co-location of related businesses Young businesses cannot afford to buy Older space lower cost than new space Displacement of existing businesses
Implication #6 Intensification and Specialization High prices driving more efficient use of land and space New strata developments often associated with densification / intensification (i.e. multi level buildings) New space typically more efficient than old space Ownership allows for greater investment in specialized building and equipment (due to security of tenure) Lease more conducive for standard generic space
Implication #7 Land Speculation / Property Taxes New landlord-owners increase rents, add demo clauses With higher land prices, need higher building densities and higher value activities for development pro forma Strata is higher value than lease tenure Accessory / non-industrial is a higher value use Increased land assessment values lead to higher property taxes (triple net leases)
Implication #8 Off-Site Impacts Truck traffic Higher density of employees Amenities Parking / Transit Infrastructure / utilities / power
Implication #9 Redevelopment Potential of Land Strata means multiple or fractured ownership Long-term eventual building physical / functional / financial obsolescence Land with multiple owners more difficult to assemble for future redevelopment
Implication #10 Wider Economic Impacts Focus on smaller format development at the detriment of larger distribution / logistics users Logistics out-competed by higher value strata uses Land shortage compromising national trade function Lack of industrial space constraining business and employment growth in the region
Conclusion / Closing Government policy indifferent about tenure? Responding to a changing industrial economy Accommodating new forms of industrial businesses Providing a variety of industrial spaces / types / sizes Encouraging industrial densification / intensification Recognizing more accessory and non-industrial uses Protecting industrial lands for primarily industrial uses
Industrial Edges: Compatibility and Interface Issues in Metro Vancouver Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
Jurisdictions Coquitlam Maple Ridge New Westminster Pitt Meadows Port Coquitlam Township of Langley Milwaukie, Oregon San Francisco Toronto Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
Content Official Community Plans Development Permit Guidelines Zoning Bylaws Interviews Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
Topics... Noise Odour, Vapours, and Dust Light Visual / Design elements CPTED Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
Summary Table Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
Also... Community Interaction Timing Roads Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
Various Interface Conditions Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
1. Macro-level (City Scale) Buffering Highway 1 Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
1. Macro-level (City Scale) Buffering Highway 1 Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
2. Land-Use Buffering Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
2. Land-Use Buffering Transitional Use / Light Industrial / PDR Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
3. On-Site Physical Separation Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
3. On-Site Physical Separation Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
3. On-Site Physical Separation Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
3. On-Site Physical Separation 25m Maple Ridge 10m Township of Langley 6-9m Pitt Meadows 3.3m Milwaukie, Oregon Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
4. On-Site Mitigation Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
4. On-Site Mitigation Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
5. On-Site Amenities / Positive Interface Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
5. On-Site Amenities / Positive Interface Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
Summary and Conclusions 1. Macro- / City Scale Buffering 2. Land-Use Buffering 3. On-Site Physical Separation 4. On-Site Mitigation 5. On-Site Amenities / Positive Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
Summary and Conclusions 1. Macro- / City Scale Buffering 2. Land-Use Buffering 3. On-Site Physical Separation 4. On-Site Mitigation 5. On-Site Amenities / Positive Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
Summary and Conclusions 1. Macro- / City Scale Buffering 2. Land-Use Buffering 3. On-Site Physical Separation 4. On-Site Mitigation 5. On-Site Amenities / Positive 3B. Off-Site Physical Separation (Milwaukie) Industrial Edges: Compatibility and Interface Issues in Metro Vancouver September 2018 bokeh urban design
Regional Industrial Lands Strategy DEFINING INDUSTRY Gord Tycho SENIOR REGIONAL PLANNER, PARKS, PLANNING, AND ENVIRONMENT Industrial Lands Strategy Task Force Meeting, Sept 26, 2018
Benefits of a Working Definition Understanding why (and for what uses) we are protecting industrial lands Scoping of Strategy Scoping of associated consultant studies 2
Criteria 1. Compatibility with adjacent uses (emitter causing nuisance) 2. Access (to site and goods movement network) 3. Space requirements/ Scale of business (specific site criteria) 4. Product produced (manufactures, distributes, or repairs a physical product) 5. Trip generation (generates/ handles large amounts of truck traffic) 6. Client type (geared toward other businesses or public) 7. Ancillary/hybrid use (percent of business that is office) 3
Applying Criteria and Categorizing Uses Four general groups: Traditional Industrial Context Specific Employment Non-Industrial 4
Industrial 1. Light/ heavy industrial production (cement, food, mills) 2. Distribution (warehousing, storage, freight trucking) 3. Repair (autobody, consumer goods) 4. Construction materials & equipment 5. Infrastructure (public utilities, rail/port terminals) 6. Storage activities (outdoor and containers) 7. Wholesale (merchant and logistics) 5
Non-Industrial 1. Residential and supportive housing 2. Artist studios and live/ work space 3. Agriculture (soil based growing) 4. Places of congregation 5. Institutional uses (schools, daycares) 6
Employment 1. Storage activities (self storage) 2. Stand alone office (law, finance, etc.) 3. Stand alone recreation (karate studios, theatres, gyms, tennis) 4. Retail/wholesale big box 5. Retail/wholesale car dealership 6. Retail/wholesale furniture 7. Retail/wholesale automotive parts 8. High tech software development 9. Consulting services 7
Context Specific* 1. Restaurants (local serving v destination) 2. Retail (microbreweries) 3. Services (commercial laundry, bakery) 4. Research and development (high tech, bio-tech) 5. High tech distribution centres 6. Media production studios (movies, recording, TV, radio) * Could locate on Industrial or Employment, depending on criteria 8
Strategy Scope Refinement Traditional Industrial Context Specific Employment Non-Industrial Inside the Scope of the Strategy Outside the Scope of the Strategy 9
Working Definition Generally not compatible with residential or commercial uses Have unique location, site, or space needs that are generally not well served by commercial areas Are typically serving other businesses, not the general public 10