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| ↓ | Office | ↑ | ||
| ←→ | Industrial | ↑ | ||
| ←→ | Retail | ↓ | ||
| Overall Cap Rates ↑ |
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| Source: DTZ Barnicke | ||||
Market overview
The Regional District of Nanaimo’s economy experienced benchmark growth in the first three quarters of 2008 compared to previous years. Despite a slowdown in the fourth quarter, the overall year was very positive.
The growth of Nanaimo’s economy is still largely due to interprovincial and international migration, thanks to the allure of Nanaimo’s unique landscape and lifestyle. Population growth, as well as expansion in the tourism, education, and health care sectors drove investment in infrastructure, residential, and non-residential construction in 2008.
Migration is expected to continue to stimulate Nanaimo’s economy moving forward. Investment in education, such as the upgraded status of the Malaspina University College to the Vancouver Island University (VIU), is attracting more enrollments, which will drive future multi-tenant residential developments. VIU has also announced the idea of a $100 million investment in the University’s surrounding area.
Similar to Victoria’s economy, Nanaimo is displaying a level of resilience to the economic downturn due to its geographic location and the nature of two of its primary industries, education and health care, which are impacted less than other sectors by the slowing of the Canadian and global economy. Not entirely immune, Nanaimo is likely to experience reduced growth in 2009.
..one of the most desirable, livable small cities in North America
Office
Overall office vacancy continued its downward trend, ending 2008 at roughly 12%. The increase in occupied space came primarily from the expansion of the Federal and Provincial governments, and the expansion of local professional firms. New supply additions in 2008 came in the form of a 27,300 square foot build to suit office project occupied mainly by the provincial government, and a mixed used development with 8,000 square feet of office space.
Despite the two new office development completions in 2008, the market conditions continued to favour the landlord with rental rates trending slightly upwards. With no new developments scheduled for completion in 2009, the market should remain a landlord market with rental rates and market activity expected to remain at current levels.
The discrepancy between current construction costs and market rents, as well as high land costs, will keep new supply in balance with demand. As such, any new office developments in the near future will likely be build to suit projects.
| Office Inventory | 840,000 |
| Office Vacancy | 12.0% |
| Industrial Inventory | 1.9 million |
| Industrial Vacancy | 2.0% |
| Source: DTZ Barnicke and Conference Board Canada | |
Industrial
Little change occurred in the industrial market over 2008. Inventory remained unchanged and vacancy held tight at roughly 2.0%. Although good space in all size ranges is difficult to find in this market, development activity remains quiet due to a combination of a shortage of zoned and serviced industrial land, land costs and construction cost that cannot be justified by existing rental rates. Rental rates did increase marginally in 2008, and are expected to continue this upward trend in 2009, but not enough to justify any new major industrial developments in 2009 and possibly 2010.
Investment
Like much of Canada the investment story in Nanaimo up until September 2008 was strong demand for all asset types met by a limited supply of quality product for sale. Activity slowed dramatically for the balance of the year due to a reduction in the availability of financing and a general lack of investor confidence in the economic climate.
In 2009, investors will remain cautious with most activity on the buy-side coming from cash rich local groups that can act quickly when opportunities present themselves. Most of the activity on the sell-side will come from pressured vendors who must sell to meet debt covenants, as vendors not under pressure will ‘wait and see’ until a clearer picture of Canada’s medium term economic condition is known. Expect cap rates to trend higher in 2009.
In 2008, the product most in demand was quality multi-tenant retail, followed closely by office and industrial product. In 2009, this trend is expected to continue. In addition, expect significant growth in the interest of multi-residential developments as Vancouver Island University continues to expand.
Retail
The retail market experienced positive expansion in 2008, driven by steady population growth and low vacancy rates. New product came to market in the Woodgrove, Southgate, and Downtown nodes, but strong demand absorbed the new inventory quickly, placing further upward pressure on rental rates during the year.
Most of the growth came from the expansion of existing local and international retailers. One of the few new entrants to the Nanaimo market was Best Buy. Looking ahead to 2009, completion of Georgiaview Village will bring 25,200 square feet of new retail to the Woodgrove node and a new 45,000 square feet Rona store will be complete in the Southgate node. No new large brand names are expected to arrive in 2009; however, new retail announcements midway through 2009 may appear as the economic picture becomes clearer.
Overall vacancy and rental rates are forecast to remain fairly constant during 2009. The retail sales growth rate should rise as a weakened Canadian dollar encourages more foreign tourism to return to Nanaimo.