Industrial space in short supply
Industrial space in Red Deer is growing increasingly tight, says a local appraisal company. And higher rents are the consequence.
Soderquist Appraisals Ltd.’s July 2013 survey of more than a dozen industrial parks in and around Red Deer revealed an average vacancy rate of 3.1 per cent, which was down 0.34 percentage points from the 3.44 per cent figure calculated for the same month in 2012. The year before that, the vacancy rate was 3.7 per cent.
“The economy, on the industrial side, is very, very strong,” said Mike Garcelon, CEO and senior appraiser with Soderquist. “So I can see the vacancy rate potentially going even lower than this. It might be sub-three next year.”
The decline in the local industrial vacancy rate is occuring despite an increase in building space. From 2012 to 2013, the inventory grew by 386,322 square feet, to 12,544,269 from 12,157,947 square feet. Yet the amount of vacant space fell by 29,573 square feet, to 389,174 from 418,747 square feet.
In July 2011, there was 11,778,672 square feet of industrial space in the Red Deer area, of which 435,650 was vacant.
“When you look at the absorption rates, 415,000 square feet over a year; and if we combine the two years, that’s over 800,000 square feet of space absorbed into this market in two years,” said Garcelon. “That’s enormous.”
But when supply can’t keep pace with demand, he continued, the results are predictable: higher rents and higher selling prices — both of which have been the case.
“At some point it will balance out,” said Garcelon. “Prices can only go so fast for so long before things start slowing down.”
He added that the temptation for renters and buyers to build their own facilities will also grow, especially with financing rates as low as they currently are.
The Soderquist report also pointed out that a hot industrial market is better than the alternative, with the sector providing an indication of the strength of the broader local economy.
In the 14 industrial parks that considered in the survey, vacancy rates ranged from zero in the case of Riverside Heavy Industrial Park to 30.1 per cent for Piper Creek Business Park. Among parks with more than a million square feet of building space, Northlands Industrial Park had the highest vacancy rate, at 4.79 per cent; followed by Burnt Lake Industrial Park, at 4.54 per cent; Golden West/Johnstone Industrial Park, at 4.42 per cent; Edgar Industrial Park, at 0.66 per cent; and Riverside Heavy Industrial Park, at zero.
The Soderquist survey excluded government-owned property, such as the City of Red Deer’s public works yards. Also passed over was Queens Business Park, where no buildings had been completed as of July.
“There are about a half a dozen buildings under construction,” said Garcelon, pointing out that these will likely show up in next year’s survey.
In addition to the 14 industrial parks, the survey included stand-along industrial buildings.
The full report can be found on Soderquist’s website at www.soderquist.ca, under “Studies.”