What asset class has the lowest vacancy rate in North America, surging demand from tenants, and seems to be annually increasing lease rates?
This week, Cory welcomes Connor Braid, Managing Broker from William Wright Commercial’s Victoria office, to discuss the industrial asset class in Greater Victoria. Boasting a vacancy rate of less than 1% and continued increasing demand post-pandemic, the industrial market in Greater Victoria could be the hottest commercial opportunity in North America and one of the best investments out there…that is, if you can even find property to purchase.
Connor breaks down why absorption of this asset class is so high versus its counterparts and why an unprecedented amount of new supply coming to the forefront in the coming years is nothing to worry about. You don’t want to miss this episode, as this could be the amazing investment everyone is looking for!
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Please tell us about yourself.
I was born and raised in Victoria, BC. I spent a few years in the UK in my twenties playing rugby and now am a Managing Broker at William Wright Commercial. I got my real estate licence at 20 years old, jumped into commercial appraisals in 2016 but always knew I wanted to be on the brokerage side. When I found out William Wright was going to open an office in Victoria, I jumped on board with them and helped to open the office a few years earlier than planned.
So we hear the industrial space in Victoria is on fire.
It really is. Supply of land is constrained on the island; we’re surrounded by water so can’t keep expanding. For years, industrial land has been sacrificed for condos, which has pushed people to the West Shore where it’s more development friendly. There’s a critical under-supply of industrial land and we’re trying to get out of that.
Is there an industrial hub on the island?
That would be the West Shore. There’s also some areas around Sidney and North Saanich. But for the most part, the West Shore is where we’re seeing the big push from developers.
Is zoning becoming more flexible? And are you seeing end-users buy these products or is it more investors?
The zoning is becoming more flexible and that is allowing owner-occupiers to get in there with more attractive financing. There are quite a few owner-occupiers but we are seeing a big push from investors who are looking to capitalize on better cap rates than you’d find in Metro Vancouver.
We’re seeing a 5% cap rate but that will be pushing downward. For larger industrial footprints, we’re seeing things in the mid 4%. We have some of the highest lease rates in Canada, between $18-20/squarefoot over a five year term for 1600-2100 square foot units. That lease price has been pushed up a lot in recent years.
Are you seeing major developers coming into Greater Victoria?
Definitely. Beedie just purchased 13 acres in Langford. We have Strand and Bastion Developments purchasing approximately 80 acres. We’re seeing large scale developers trying to capitalize on the critical supply here.
Here in Vancouver, the industrial tenant pool has opened up dramatically because zoning has become more flexible. Connor, are you seeing that in Victoria?
Absolutely. The new zoning covers a lot of uses so that opens up the tenant pool and allows for many different types of owner-occupiers. We’re seeing big demand and long lists of tenants looking for space. We’re expecting about 400,000 square feet of light industrial strata to come to the West Shore in 2022/2023 and I don’t think that’s too much. It’s well diversified and I think we’ll see the absorption.
With recent projects that have launched, how has the absorption rate been?
I’m seeing very fast absorption. A local developer of a Langford-based, small bay, light industrial space sold out both phases before completion. For the 30% purchased by investors, those were all leased before completion as well.
We’ve only seen about 32,000 square feet this year but it’s going quick. We have about 120,000 square feet we’re starting presales on soon. People are chomping at the bit to purchase.
Can you tell us about that 120,000 square foot development? What are you expecting?
It’s called the West Shore Business Park in Langford. It’s built by 945 Developments and Eagle Builders, who also put up a self-storage space in Langford. The West Shore Business Park will be 120,000 square feet comprising 33 light industrial strata units. It’s a tiered, mountain-side business park with a cool look to it. As soon as we release it, I’m confident we’ll have some really good absorption.
We went with a competitive approach to pricing. We’re going with $325/square foot with bays between 3200-4200 square feet. We’re looking at lease rates between $16-18/square foot. We want investors to break even in year one and increase that rate over time. We’re set up for up to 100% loan-to-value financing for end users. We are well poised in this red hot market to be first to market and be lower priced than the competition.
Is the vacancy rate lower in the Langford area compared to the Victoria area?
Yes. Greater Victoria is at 0.7% and the West Shore is at 0.2%. So being first to completion is a major goal of ours to capitalize on that pent up demand.
What is your prediction for the Greater Victoria commercial real estate market?
I think Victoria is now on the map. I was born and raised here and it’s always been a sleepy university and retirement town. But now it’s on the map with tech and hospitality. It’s a growing town. The pandemic showed us that people want to enjoy where they live. The Greater Victoria commercial real estate market is poised to continue growing. There’s a few years where there’s a lot of opportunity for all facets of the market.
Cory: Victoria has the government, tech companies coming in, a booming education industry, major developments and a growing hospital. There’s also tourism and real estate. Lots of the market is growing at a rapid pace which creates a lot of support for commercial. It seems Victoria weathered the storm of covid a lot better than Vancouver. And with the growing tech industry thriving coming out of covid, Victoria doesn’t seem to be slowing down anytime soon.
What advice do you have for someone entering the commercial real estate world?
Be coachable. There are so many nuances in commercial and there are so many people out there with expertise to pass on. You don’t have to take everyone’s advice but you can hear them out. Even if you’re a savvy investor, be coachable.
Find out more about West Shore Business Park: https://westshorebusinesspark.com/
Contact Connor at email@example.com