Industrial matters...matter...even more now!
Ben Taddei
Partner and Chief Operating Officer at Conwest Developments Industrial Matters...Matter!
As we all know, with the election of Donald Trump, Canada's economy is at risk of being impaired by new trade restrictions. I'm not going to dwell on this mainly because, unless you've been living under a rock, you've already been inundated with a billion articles about the topic. However, it points out that we need to look abroad, not to China for known reasons, and diversify and grow our trade to lessen the impact of said Trumpian trade measures. This will likely put more pressure on our port and associated infrastructure due to BC being the port of entry for a vast amount of continental goods movement. In addition, the BC NDP's new stated focus of growing shared prosperity by growing the economy together with anticipated growth in population will put even more pressure on our industrial complex. The questions are many. How are we going to accommodate this growth? What policies will we put in place to achieve mutual success? Who will inform these policies? Have we learned from our mistakes of the past?
In case you missed it, at last Friday's Metro Vancouver Regional District Planning Committee meeting two important reports were brought forward by Staff:
Let's look at the Industrial Lands Study first.
A great advocate for industrial lands in our region, Eric Aderneck , Senior Planner, Regional Planning and Housing Services at Metro Vancouver Regional District, published the report. (here's the link)
Here are the key messages taken directly from the report...
EXECUTIVE SUMMARY:
Metro Vancouver has updated the Economic Impact of Industrial Lands Study (Attachment 1) to document the economic value and employment contribution of the region’s industrial lands using the latest available data, including employment counts from the 2021 Census and land uses from the 2020 Regional Industrial Lands Inventory. The previous study was completed in 2019. The updated study illustrates that:
The updated and enhanced 2024 Economic Impact of Industrial Lands Study reiterates for Metro Vancouver, member jurisdictions, and stakeholders, that industrial lands are the foundation for a significant amount of the region’s total economic activity, with a disproportionately large amount of employment and wages above the regional average. The study also informs the ongoing implementation of the Regional Industrial Lands Strategy (RILS) (Reference 1) and Metro 2050
BACKGROUND
Industrial lands are an important part of the region’s land base and economy. The Metro Vancouver region has a limited supply of industrial lands and a strong demand for industrial space, which has resulted in extremely low vacancy rates, with high rents and land prices. To support the development of the Regional Industrial Lands Strategy (approved in 2020) Metro Vancouver commissioned InterVistas Consultants to complete the 2019 Industrial Lands: Economic Impact and Future Importance Study (Reference 2). In 2024, Metro Vancouver commissioned InterVISTAS to update the study. This report conveys the results to the Committee and Board.
Industrial activities accounted for 59% of employment located on industrial lands but 68% of the direct GDP generated on industrial lands. This emphasizes the role that industrial activity plays in supporting productivity throughout the region’s economy, because the industrial sectors have higher economic multipliers (greater linkages and spending with other sectors), higher average wages, and a greater contribution to GDP and economic output. The study notes that there is a sizeable amount of non-industrial activities taking place on industrial lands. These non-industrial activities directly represent 41% of the jobs on industrial lands. This alludes to a notable amount of industrial lands being used for purposes other than their intended use.
The potential effects of an insufficient supply of industrial land on the regional economy, while difficult to precisely ascertain, would vary by sector and likely be negative for the region as a whole. The extent to which industrial activities could be moved elsewhere, such as the Fraser Valley or Alberta, vary by sector. According to another study by InterVISTAS , over the 4.5-year period from January 2019 to June 2023, an estimated 5.1 million sq. ft. (or average of over 1 million sq. ft. per annum) of space was taken up by firms in Calgary rather than Metro Vancouver. The economic impact of these lost opportunities to Calgary is estimated to be over 6,300 direct jobs, paying $477 million wages, generating $494 million in GDP and $828 million in economic output. The jobs lost to Alberta represent a lost opportunity for the local economy in Metro Vancouver and for BC residents to be employed in high salary sectors of the economy
Through enhanced industrial lands protection and intensification / densification policies and initiatives in Metro Vancouver, the supply of industrial space can be enhanced to better meet the demand. These policies are outlined in Metro 2050, as well as the Regional Industrial Lands Strategy, which Metro Vancouver continues to advance and implement.
NEXT STEPS
The scope of work for the study was presented to the Regional Planning Advisory Committee at its meeting on March 15, 2024, and to the Regional Planning Committee on April 5, 2024, for information. The completed study was advanced to the Regional Planning Advisory Committee at its meeting on October 11, 2024. The study will be advanced to the MVRD Board in November 2024, and subsequently published on the Metro Vancouver website. The results will help communicate the importance of industrial land uses and be used to inform industrial lands initiatives and related employment and economic matters, as well as the ongoing implementation of RILS.
BOTTOM LINE? INDUSTRIAL LANDS MATTER AND THE POLICIES INFORMING GOALS AROUND HOW WE DEVELOP THESE LANDS ARE CRITICAL.
Ok, now let's look at some of the details from the underlying InterVISTAS report...
InterVISTAS report
The Regional Industrial Lands Strategy was created with a purpose to “ensure sufficient industrial lands to meet the needs of a growing and evolving regional economy to the year 2050.”18 The Strategy proposes a number of recommendations organized around “4 big moves” which are to protect the region’s remaining industrial lands, intensify and optimize industrial lands, bring the existing land supply to market and address site issues, and ensure a coordinated approach.19 Protecting industrial lands is of critical importance in this land-constrained region given that long-term demand continues to increase while lands face increased speculation and pressures to convert to commercial and residential uses.20 As noted in the Strategy, it is also critical that the utility of industrial lands be maximized by ensuring that barriers to intensification / densification are reduced and industrial lands are optimized. Locations of industrial parcels have significant implications for their utility as there are often site-specific challenges for industrial lands such as limited infrastructure and environmental concerns.21
Overall, the guidance established for member jurisdictions in the Implementation Guidelines is to achieve specific actions or deliverables to meet the policy directions in Metro 2050. These deliverables vary based on each policy. Notable deliverables include parcel-based designations for Industrial and Employment lands, ensuring the alignment of zoning bylaws with the industrial lands protection policy, supporting related and appropriate accessory uses on industrial lands, removing restrictions to intensification and densification, enabling co-location spaces, and connecting industrial lands with the region’s transportation network.
Up until 2023, a decreasing vacancy rate and upward pressure on rental rates have been the consequence of this challenging interaction of supply and demand trends. However, as of Q2 2024, the vacancy rate has risen to 3% (which is still considered very low) as demand has moderately softened for industrial space in a high-interest rate environment with significant economic uncertainty and high building costs. Rental rates also declined 5.2% year over year in line with this moderation, reaching $20.91 per square foot in Q2 2024. 25 This slowdown in activity has created additional time for the market to absorb available space. The five year quarterly average net absorption rate was 897,000 sq ft.26
Despite the slowdown of demand in the immediate term, demand for industrial space will continue to be driven by long-term population, trade, and employment growth in the Metro Vancouver region. The demand for industrial lands is expected to continue growing in the years ahead, outpacing supply. It is projected that the total supply of industrial lands will be absorbed between 2035 and 2047 (effective supply reached in approximately 2025),28 posing a significant challenge for the Metro Vancouver region’s existing and prospective industrial businesses. Businesses will be faced with fewer options for their accommodations, and higher rent levels. Some businesses may be required to relocate outside of the region, negatively impacting economic development and leading to supply chain impacts and affordability issues. This threatens to exacerbate the existing challenges posed for businesses by a lack of available industrial land, including growth limitations, and constraints on production and employment.
Several barriers exist to industrial development in the Metro Vancouver region in addition to the lack of available industrial lands.29 These barriers or challenges include: ? Land Use Priorities and Allocations: Shortages of land across the region are challenged by several competing priorities including the need for more residential space. Some industrial lands are currently being used for non-industrial purposes. ? Re-Zoning Processes: The re-zoning process from one type of industrial uses to another type of industrial use can be complex and time-consuming for developers. 30 ? Protection of Industrial Lands: Some industrial lands in the inventory could be re-developed for non-industrial use as they are not fully protected by policy and/or zoning, thus at risk of loss. ? Location of Available Lands: Some lands that could be used for industrial purposes lack access to key transportation corridors and infrastructure services which makes development challenging and operations less efficient. ? Size of Land Parcels: Many land parcels are too small for trade-oriented purposes or are subject to strata tenure, which compounds the existing barrier of access to transportation infrastructure. Larger sites are needed for operational scale and optimal efficiency.
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Many industrial activities themselves are also undergoing a transformation that will change how and when industrial lands are used. The Regional Industrial Lands Strategy highlights several new forms of industrial activity that are emerging, including the following:31 ? Clustering or co-location of related operations to support eco-industrial networks and circular economy systems where companies can share resources and use each other’s by-products. ? High-tech and new industry forms including e-commerce, direct-to-consumer delivery, and on demand manufacturing. ? Mega-distribution and e-commerce logistics facilities. ? Automation and robotics. ? Integrated spaces where design, manufacturing, distribution and retail can occur together.
BOTTOM LINE? LOOKS LIKE WE'LL RUN OUT OF INDUSTRIAL LAND BY 2040ish. Also, the composition of existing lands don't lend themselves to reindustrialization trends.
Now let's go back and look at the report that preceded the economic one above. Let's look at the 2023 Annual Performance Monitoring report, specifically focusing on the Industrial commentary. Here are some important notes...
See where we're going folks...it looks like we'll be having a discussion about priorities in 2025. Where does Industrial land and employment land rank among all of the other land uses in the Region? Will it come down to "Industrial Land reserve vs. Agricultural Land Reserve or vs. Conservation Areas?"
Now, this is just me hypothesizing. I haven't confirmed anything. I'm just reading the tea leaves. Nor am I taking a position one way or the other on anything. I see all sides of the debate. But what I can tell you is that in my opinion delivering intensified industrial projects is presently difficult and uneconomic. And this will continue for some time. I just hope, that those NEXT STEPS that government will start talking about will include some industry people like me; the kind of people that will actually be expected to deliver these future industrial projects; be they trade enabling, intensified, clustered, TOD, manufacturing or knowledge based. Policies have consequences and if you don't have people at the table that know the challenges of delivering buildings in a globally competitive market, you get unintended consequences like an ecosystem that is stuck and delivers nothing...sound familiar?
ben
p.s. below are some charts to geek out on.