Metro Vancouver's Ridiculous Industrial Development Costs Skyhigh

Now other commercial real estate experts in the Lower Mainland are warning that the rising cost of erecting industrial buildings, coupled with a shortage of industrial land, is threatening to slow economic growth in the region and the province.

Between 2012 and 2014, the overall cost to buy and build on industrial land jumped by between 18 and 26 per cent across the region, according to a report released Tuesday by Colliers International.

To come up with those numbers, Colliers looked at the last 10 years of comparable facility sales around the region and held discussions with “the most active builders and contractors across the Lower Mainland” to create a benchmark facility to compare past and current development costs. (The benchmark facility is a typical 32,800-square-foot building on an industrial-zoned lot of 0.64 hectares with utilities at the lot’s edge).

While land costs remained flat in about half of the cities surveyed (climbing by only 3 to 8 per cent in two years), the development and construction costs alone for the benchmark facility in 2014 came in at $4,281,200 — a 33-per-cent jump over the 2012 benchmark building.

The benchmark building, if built in Vancouver, would have cost a total of $7,642,026 (including land, construction, levies and development and consulting costs). That marked a 20-per-cent jump over 2012.

Vancouver was the most costly location for the benchmark property, followed by Richmond ($6,976,652), Coquitlam ($6,637,376), Port Coquitlam ($6,478,758) and Burnaby ($6,533,801). Delta was the least costly city in Metro Vancouver, coming in at $6,320,116, while Abbotsford ($5,626,388) and Chilliwack ($5,178,723) were the cheapest options in the Lower Mainland.

More stringent building codes, a surge in expert consultants and new mandates from cities for more beautiful industrial buildings are pushing up the cost of industrial development, said Malcolm Earle of Colliers International in Vancouver, who worked on the report.

“Some of the biggest increases in cost are related to areas of seismic requirements, and a lot of the push behind making buildings more energy efficient,” Earle said in an interview.

“Just putting insulation in a tilt-up concrete panel now adds a significant cost, and then you start adding in things like building skylights to allow more light in; you put in far more complex building system management,” he said.

“Not only does it cost more to build, but you add a whole new design component onto a facility, and the minute you add a new design component, that means a new consultant. And when you add a new consultant, that means you add a new cost.”

He said costs have gone up “across the board” and he pointed to the requirement of Leadership in Energy and Environmental Design (LEED) and ASHRAE (heating and air conditioning) standards. “It’s all about energy-efficiency management of the facilities, which costs a lot up front, and in some cases the payback takes a long time and you may not even get payback on some of these items.”

Earle said there is also a beautification push by municipalities in industrial parks around the region and it’s not helping industrialists’ bottom line. “They trying to make what used to be more drab facilities … look more pretty.”

Meanwhile, NAIOP Vancouver, the Commercial Real Estate Development Association, says there are only 1,181 hectares of industrial land in Metro Vancouver that has yet to be absorbed, and all of it could be snapped up within the next 11 years, or less.

In a report last week, NAIOP said most of that industrial land, about 80 per cent, is in Maple Ridge and the Campbell Heights Business Park in Surrey. It warned that companies will look to Alberta or Seattle if they are squeezed out of the local industrial market.

This shortage of industrial land is a threat to the provincial economy, said Chris MacCauley, vice-president, industrial properties of CBRE Canada, and an NAIOP board member. “If we bottleneck our growth here for our economy … we’re hindering the growth of the B.C. economy. That’s what we need to look at.”

He said local governments must find ways to convert land into new industrial properties. “I’m not saying we should pave over great farmland, but what we need to do is look at expansion of existing industrial parks, and not just creating new ones in the middle of nowhere.”

More industrialists are heading south of the Fraser River to more affordable locations in Surrey, Abbotsford and Chilliwack, where property taxes are lower and more raw land is available for industry, said Earle.

“You can get an acre of land that is almost ready to build on in the city of Surrey for, in many cases, half almost of the majority of cities on the north side of the river,” he said, adding that the South Fraser Perimeter Road, Highway 1 expansion and new Port Mann Bridge are making it easier to move goods back and forth around the region.

That was the route taken by CB Supplies Ltd., a plumbing and heating supplies distributor and manufacturer based in Burnaby.

The outfitter resides in three leased buildings near North Fraser Way but purchased a 2.5 hectare lot in the Campbell Heights Business Park in Surrey where they plan to erect a new 125,000-sq.-ft. building to bring their operations under one roof.

“We’ve run out of space,” said Mike Martin, the company’s western region vice-president. He said having one building for all of their operations will make them more efficient and should help make up for the building costs.

Lower land costs, property tax and the ease of building at Campbell Heights was the major draw, he said, adding that the commute should be easier on staff as it’s against the flow of traffic.

“We actually ended up getting the last lot that was a suitable size in Phase 2,” he said. “It’s definitely a savings to build a building out there, from the land cost in particular, but the property taxes are the best we’ve seen anywhere.”