This industrial complex in downtown Kelowna is now built and pretty much sold out.

Image Credit: Packersjunction.ca

Just as the housing market has taken off in Kelowna, the demand for industrial space has remained strong despite the COVID-19 pandemic.

Out of 11.4 million square feet of industrial building space in the city, only two per cent is currently vacant, according to a newly-released Re/Max Commercial Real Estate Report for Western Canada.

“It looks like, especially the institutional, industrial and multifamily classes, stayed strong,” Kris McLaughlin, commercial real estate specialist with the MCL Real Estate Group in Kelowna, told iNFOnews.ca. “Due to COVID and different types of restrictions for different industries, I’m a little ‘wait and see’ on the office and retail classes.”

Another 735,000 square feet of industrial space is under construction and there’s lots of demand for it.

Spaces in the “Powerhouse District” along Clement Avenue near Richter Street in downtown Kelowna are pretty much sold out for top of market prices.

The last time McLaughlin checked, a couple of weeks ago, the PC Urban complex just east of Richter Street that had been selling for $400 per square foot had the last couple of spaces listed at $450 per square foot.

At the nearby Clement Business Park, also almost full, base lease prices are about $20 per square foot. That compares to other industrial space in the $11 to $18 range.

One difference in the Powerhouse District is that it’s new industrial space that allows for uses like brew pubs and is near a number of high rise housing developments with more either under construction or planned.

With a shift to e-commerce, there is more demand for warehouse space and McLaughlin is dealing with a number of customers who, for example, may be in the construction business, need warehouse space but also want a showroom for their products

There are 6.6 million square feet of retail space with 4.25 per cent of that being vacant. Another 85,000 square feet is under construction.

“Kelowna’s retail environment continues to evolve in the wake of the pandemic, with most retailers adapting to imposed guidelines on distancing, capacity and contact tracing,” McLaughlin wrote in the report. “This is especially true of the city’s restaurants, some of which have installed isolation bubbles to enhance customer safety and experience.

“In a move to secure tenants, landlords are offering incentives such as longer free rent periods or offering longer leases front-loaded with lower rates to allow for retail survival during this difficult period.”

There is also a growing number of companies subleasing their premises.

Lease rates range from $12 to $40 per square foot in the downtown Kelowna and Pandosy Street areas but reach up to as much as $50 per square foot along Harvey Avenue, reflecting the higher value of drive thrus, the report states.

“Looking forward, demand for smaller retail units is expected to climb as retailers pivot to address new realities, while big box locations in power centres such as Central Park languish as inventory levels climb," the report states.

The vacancy rate for the city’s four million square feet of office space is similar to retail at 4.5 per cent.

There’s another 304,000 square feet under construction in the Landmark 7 tower and the upcoming Bernard Block downtown but that won’t be open for another year or more.

That sector is being affected by the COVID-19 shift to working from home.

“Organizations, as a result, are looking to shed excess office space, a trend that started in late 2020 with an influx of subleases,” the report states. “Vacancy rates will move slightly higher as users of office space start to right-size their space to fit their needed use.”

With strong interest from investors and developers from across Canada, land prices for office space are expected to rise. Builders will be more inclined to sell rather than lease their spaces, the report predicts.

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