Vancouver’s industrial lease rates surged by 29.1 per cent over the last year. Beijing ranked second overall with a year-over-year increase of 19.8 per cent.

The price to lease industrial and logistics space in Metro Vancouver increased more than in any other market in the world during the past year, a new report says.

Vancouver’s industrial lease rates surged by 29.1 per cent over the last year (ending in the first quarter of 2018), according to CBRE’s annual Global Industrial and Logistics Prime Rents report. Beijing ranked second overall with a year-over-year increase of 19.8 per cent.

Vancouver’s prime logistics rents reached $9.93 per square foot, per year. Prime logistics rents are the highest achievable rates for top-quality warehouse and distribution space.

However, the single-year spike in lease rates was not enough to push Vancouver onto the list of most expensive industrial markets in the world.

Hong Kong topped the list of highest prime rents at $40.73 Cdn. London ranked second at $29.38, and Tokyo had the third-highest rents at $26.23. Vancouver was 25th on the list.

The report shows that strong economic fundamentals are driving demand for industrial space in the region, while a shortage of developable space has kept availability constrained, said Jason Kiselbach, a vice-president and sales manager with CBRE Vancouver.

He said Metro Vancouver has the second-lowest industrial vacancy in North America. “We’re at an all-time low supply right now (and) our vacancy is at 1.5 per cent,” he said.

“Demand for industrial space has more than doubled in the last three years, if you compare (demand) to the previous 10 years,” he told Postmedia. “That’s really a result of the growth in GDP, population and consumer spending.”

He said the biggest demand driver is port-related business.

“The Port of Vancouver … is the sixth largest port in North America and the closest in North America to the Asian markets,” Kiselbach said. “We’re really that gateway city for distribution, and demand is also coming from changes in retail and consumer habits.”

He said more consumers are buying products online, which are then shipped directly to their homes from warehouses in the region.

“Vancouver retail spending is at historic growth levels right now,” he said.

The other part of the equation is a persistent and well-documented shortage of industrial supply here, Kiselbach said.

The reported rise in Vancouver lease rates comes as no surprise to Oxford Properties, said Jeff Miller, the Canadian head of industrial properties at the real estate investor, manager and developer.

He said Oxford has about one million square feet of industrial space at two business parks in Burnaby and New Westminster. They also have another 40 acres of developable industrial property and one more building under construction.

Their own rental rates are increasing, he said.

“We are experiencing increases in every subsequent lease that we’re doing,” he said, noting that these increases are taking place in their new inventory as it comes available.

He said a shortage of industrial land, strong local economic growth and rising land and construction prices are contributing to the higher rates in Vancouver amid strong demand.

“We’ve seen interest from service companies, food (companies), and industrial supplies, but it’s clearly being led by e-commerce and logistics, who want to stay close to the population and labour,” Miller said.

“You’re only going to see new development if it’s supported by increased rents to keep up with the rising land costs and the rising construction costs,” he said.

“The market is super tight and it’s giving tenants very few options, particularly if they want to stay close, or if they want a large chunk of space,” Miller said.

Rental prices will likely continue to climb, but probably won’t match last year’s increase, Kiselbach said.

“We haven’t seen growth like that before, and I don’t think it’s going to be sustained,” he said.

The world’s most expensive markets all have very dense populations in small areas, he said.

“Because distributors can get access to a much larger population in a much smaller geographic location, they’re able to pay significantly higher rates,” he said. “I also think those markets reached a supply and demand imbalance much earlier than we did, so that’s why we lag them.”

Occupiers must start preparing for higher costs, he said.

“Their operating costs as a business are increasing significantly and there are other costs that are also increasing (such as) property taxes, wages, fuel costs,” he said. “The message for occupiers is really pay attention to these trends and plan accordingly.”