Last week, CBRE’s Metro Vancouver industrial team released its yearend market report, which includes projections for the year ahead.
The brokerage predicts the city’s industrial market will be healthy in the coming year but foresees a bull market in 2026.
Green Street News spoke with Chris MacCauley, executive vice president of industrial properties and report co-author, about how that bull market could come to be.
What stuck out in the yearend report was the prediction that 2026 would be a bull market. What led to this analysis?
I’ll start off with why I don’t think 2025 will be one, which is why I predicted 2026. So, we’re looking at just over 4.5m sq ft of construction completions for 2025, and there is no preleasing activity with 2.3m sq ft of spec lease construction currently. If that trend continues, that will increase our overall vacancy by about another 0.6%, putting us into the mid-4% range.
With that being said, I look at what we have in the construction pipeline for 2026, and there is only roughly 600,000 sq ft scheduled to be completed [or] under construction. So, the developers — they’re quite intelligent, and they saw this coming for some time. They’ve slowed down or delayed starts of construction projects. Some of the projects just didn’t make sense from a financial point of view as well, and they were shelved.
So, we’re going to have a lack of product in 2026. This will give us 2025 and 2026 to work through the current inventory and put us back into a supply issue late in 2026.
Is there any particular kind of property that we’re going to see a shortage of, such as cold storage or data centres?
Data centres are always a struggle in our market, purely from a power point of view, from a floodplain point of view, from all of these different aspects. So, data centres are a different, separate challenge from traditional industrial product. Our industrial market is typically historically driven by distribution and 3PL warehousing. We’re a major port market, so that’s really what drives our industrial market and the jobs associated with it.
How does the distribution end look now? Is that going to be something that we see a lot of completions for in the next few years?
Well, we have a lot of distribution space on the market right now. It’s even mentioned in the report. If we look at our top 10 deals by size last year, there were no real large distribution deals done, where we typically see deals that are 200,000 sq ft and above. We see a couple of those large distributions, whether it’s in consumer retail goods or food distribution. But the largest new lease deal this year was 200,000 sq ft for a bakery in Mission [B.C.]. Hopefully, we’ll see those users come back to the market in 2025.
And when this 2026 market gets started to really roll, where do you predict the big players are going to be coming from?
There’s a ton of capital on the sidelines right now. So, industrial is still a preferred asset class from all institutional and private sectors from an investment point of view, so that’s where one of the good points for the bull run of 2026 hopefully starts. And [we] also haven’t seen vacancy stop rising.
“There’s no urgency from buyers to get into our market right now because we haven’t hit the bottom of the down cycle”
We haven’t seen lease rates stop declining, so there’s no urgency from occupiers or tenants to get into the market right now. There’s no urgency from buyers to get into our market right now because we haven’t hit the bottom of the down cycle. Now, there might be some optimism for 2025, which is the fact that smart investors out there realize you can’t time the bottom of a down cycle, and they may agree that we are seeing the bottom of that down cycle in 2025 and get more active in the market now before everybody else gets back into the market.
And a lot of the capital that’s on the sidelines, is that Canadian capital or is it foreign capital?
Both — a lot of U.S. capital looking to come into our market, which is not a surprise, given their purchasing power right now. But there’s also, just in general, the two major asset classes that are preferred and have been for many years: multifamily and industrial. Those seem to be the two safest asset classes. Retail has been doing well and office is seeing a minor resurgence, but it’s not still the preferred asset class for most of that capital that’s looking to deploy.
Given the instability that’s going on in our country politically, a lot of that capital is going to the U.S. side, even Canadian capital. But we’re hopeful that with some stabilization in 2025, that Canadian capital that’s sitting there will then be placed into our Canadian markets.
Switching to the rest of the industrial market report, was there anything in there that struck you as a surprise or stood out to you?
A few things. I think we have shifted from a constrained market to a healthy market, and I think what happens when you have year over year of these constant increases in vacancy and decline in lease rates, you lose sight of that fact that Vancouver still has strong market fundamentals.
One area of concern, and to be watched, is that if you go back five years from now, that was our peak. We had the lowest historical vacancy, and that was just before lease rates really started skyrocketing. So, for occupiers that have lease expiries coming up in 2026, it’s going to be interesting to see because they’re going to be facing a 30% to 35% increase in the lease rates from what they’re paying now, and how is that going to affect the occupiers? So that, to me, is something that I’m watching as a possible headwind.
Okay, terrific. Any closing thoughts on that?
The last thing I would say is that, despite all of this, we are one of two West Coast North American industrial markets that still has a sub-5% vacancy. The fundamentals in Vancouver are still very strong, and we’re going to be okay.
