BCBusiness

58 BCBUSINESS NOVEMBER 2017 P eter Spotzl runs a small metal fabricating business in Vancouver's Mount Pleasant neighbourhood. Since 2016, he's watched the tax bill for his leased prop- erty surge by a whopping $20,000. Spotzl says he now pays $83,000 in taxes annually, thanks to the escalating assessed value of the 8,000-square-foot shop—from $5.4 million to $7.6 million in the past year alone. Metal & Wood Products Ltd., a Šxture on East Third Avenue since the 1930s, is one of Vancouver's few remaining metal fabricators. Others have moved to the sub- urbs or cashed out, and Spotzl fears he may have to head east, too. Being centrally located is a selling feature for his operation, which focuses on the high-end housing market. The 18-employee company makes staircases, gates, fences and railings for custom- ers on Vancouver's west side and in West Vancouver. Since Spotzl bought into the business in 2009, after the owner sold the building, land prices have climbed with the develop- ment of nearby Olympic Village, where condominiums and nail salons have replaced leather tanneries and auto repair shops. "Over the past 10 years, things have rapidly started to change," Spotzl says. "Around our shop, we are seeing companies disappear." Not that most people will notice. As Vancouverites obsess over hous- ing prices, industrial real estate has quietly outpaced residential. That's bad news for businesses like Spotzl's. Rising land values mean rising taxes and higher operating costs. If small and midsize compa- nies get shut out of the market, job losses will follow. Dwindling parcels of vacant industrial land means local ports can't expand—and Metro Vancouver can't compete. If or when land runs out, the economic implications would be dire. Lonnie Neufeld, an industrial land expert at Vancouver-based tax consulting Šrm Burgess, Cawley, Sullivan & Associates Ltd., says the region has already lost major distri- bution centres to Calgary because space couldn't be found. The goods are shipped to Vancouver by container, sent by rail to Calgary and trucked back to Vancouver—hardly sustainable, but cheaper than trying to set up distribution from B.C. Andy Yan, director of the City Program and an instructor in community data science at SFU, tried to create a map of indus- trial land throughout the region, but the results were so sparse that they looked like a constellation. "It's really surprising how scarce industrial land is in the region," he says. In the city of Vancouver, the average price of industrial land of all types has climbed 131 per cent in the past Šve years, according to an analysis by Yan (see opposite page). By com- parison, residential property prices rose 70 per cent on average. "Industrial has absolutely soared in terms of values in Metro Vancouver," says Yan, who used BC Assessment data. "That's the clear story—that you can make more money dollar-for-dollar in industrial than you can in residential real estate." This isn't just a Vancouver phenomenon. For example, the value of Richmond industrial land has risen 65 per cent on aver- age since 2012, while residential climbed 53 per cent. Only in Delta did residential signiŠcantly outpace industrial, 69 per cent to 40 per cent. Overall, Metro Vancouver industrial real estate saw a 71 per cent hike in average values, while residential gained 66 per cent. For an investor, industrial is the better buy. In Vancouver's Railtown, a single-storey, 8,300-square-foot building at 505 Alexander Street recently went on the market. As part of the city's new I£4 zone, it allows for much more den- sity, up to 52,500 square feet, with a 100-foot maximum build- ing height, according to the Colliers International listing. Digital technolo¤y occupants are permitted, under the city's new "cre- ative products manufacturing" zone, along with general o¥ce use. This January the property was assessed at $5,497,700, a 120 per cent spike over the previous year. Annual taxes are more than $30,000. In Richmond, a 25,086-square-foot warehouse on .964 acres at 12951 Bathgate Way, across from Ikea, sold for $7.1 million in June 2015. This summer it was listed for $10.7 million. Don't blame foreign investors. This is old- fashioned supply and demand, and it's locally driven, Neufeld explains. "Our local industrial sector is a power- house," he says. "A lot of people are buying. We have foreign investment as well, but we have a lot of local developers and investors in the industrial area. They are my clients, and I can't talk about them. But it's local players driving this market." Industrial land was always the slow and steady asset class in Metro Vancouver, says Tony Letvinchuk, man- aging director of Macdonald Commercial Real Estate Services Ltd. "But in recent years that has all changed, with big value increases and soaring rents on a percentage basis," Vancouver-based Letvinchuk notes. "What makes such value appreciation so surprising is that, unlike almost every other asset class in the region, this growth has occurred without the in§uence of capital from o¨shore investors." Letvinchuk says those investors may be less interested in industrial real estate because redevelopment potential is more often limited. He thinks the foreign buyer tax on residences could result in more foreigners purchasing commercial strata properties, which are also soaring in price. Bruno Fiorvento, Vancouver-based executive vice-president with Jones Lang LaSalle Real Estate Services Inc., which focuses on commercial real estate investment, agrees that local demand fuels the industrial market. That appetite sold out phase one of presales for Mitchell Island's 260,000-square-foot Intra Urban Rivershore industrial strata development, on the site of an old steel plant that was vacant for several years. The PC Urban Properties Corp. project, which Fiorvento is marketing, is Richmond's Šrst industrial strata development in seven years, he says. PC Urban's Šrst such project, on Laurel Street near Marine Drive in Vancouver, sold out within four months. The Much of the demand for industrial land is from big companies looking to put down roots or to further expand into Metro Vancouver. A prime example is Amazon.com Inc., which recently moved into the Vancouver area

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