Frank O’Brien/Western Investor

When B.C. forestry giant Tolko Industries Ltd. decided to build a new state-of-the-industry I-joist plant, the Vernon-based company spent months trying to find a suitable location in Metro Vancouver. Industrial acreage with rail links to the Vancouver ports was considered ideal, because the bulk of the company’s products would be shipped overseas.

Instead, frustrated by “prohibitive” industrial land costs in the Lower Mainland, Tolko has set up the $35 million, 30-acre plant – and its 300 employees – in Sturgeon County near Edmonton, from where it will transport its products back to the Vancouver docks.

“We are losing a ton of business here in the Lower Mainland,” said Colliers International Ltd. vice-president Randy Heed, who was close to the Tolko land search.

Heed said the only acreage suitable for Tolko was near the CN Rail line in Chilliwack, “but the land and development costs were simply prohibitive.”

That’s an understatement.

Serviced industrial land in Chilliwack is nudging $500,000 an acre – up 20% from two years ago – and prices are already at $1.6 million an acre in Fraser Valley pockets like Surrey’s Port Kells.

In Burnaby, one investor paid $2.8 million an acre for 14 acres on Boundary Road this year, and another anted up $3 million for an acre on East Kent Avenue in South Vancouver.

“Our industrial land prices are probably the highest in North America and certainly the highest in Canada,” Heed said.

The high prices reflect both soaring demand and the fact that Metro Vancouver has virtually run out of industrial land. The vacancy rate has plunged to 1.3%, while industrial land rezoning has virtually stalled.

“Companies, big employers, have options in Alberta,” Heed warned a National Association of Industrial and Office Properties (NAIOP) meeting in Vancouver last month.

He said that in Calgary, 3,000 acres of serviced industrial land will come to market this year and, by 2009, the city will have 5,000 acres of industrial land ready to develop.

“That’s where the business will be heading unless something is done,” he said. “In 10 years, we will be in serous trouble.”

However, others on the NAIOP industrial outlook panel noted that some international companies are willing to pay the freight.

It took Dallas, Texas-based Frito Lay well over a year to find acreage large enough to build a new distribution plant in Metro Vancouver. But Cushman & Wakefield LePage Inc. industrial specialist Stu Morrison said that “even with astronomical prices relative to land and construction costs elsewhere in North America,” the company went ahead with the deal and paid $8.25 million for an 11-acre site in North Surrey.

“Frito Lay sees Greater Vancouver as growing into a population of four million people,” Morrison said. “They want to be here.”

Morrison is skeptical that many companies will decamp to Calgary, rather than Vancouver, noting that land prices are close to the same in the Alberta city, and construction costs are even higher.

“The real danger,” he said, “is that companies will do nothing.”

Still, even a land shortage and out-of-control prices have failed to cool action in the Metro Vancouver industrial market.

In the last year, more than 5.1 million square feet of new industrial space has been added to the inventory – most of it in Surrey and Langley – and net absorption of space is running at close to 200,000 square feet a month, reports Shawna Rogowski, director of research for Colliers in Vancouver.

More than 3.5 million square feet of industrial space is under construction.

Speculators are also apparently still interested in the Metro industrial sector.

According to Colliers, all five of the major industrial sales during the second quarter of this year were to investors. •

Western Investor is a division of Business In Vancouver Media Group. Published monthly, it focuses on commercial real estate in Western Canada.

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