April 2, 2024

Western Investor: Relief on the Way for South Okanagan’s Tight Industrial Market

With virtually no industrial space for lease, industrial users in the South Okanagan have had few options. Most developers have focused on Kelowna, Lake Country and points north, which enjoy proximity to Kelowna International Airport and the Trans-Canada Hwy though Kamloops.

“When Kelowna went through the boom during and after COVID, there was an expectation of that demand tending to naturally spill throughout the valley,” said Lee Levering, a partner focused on commercial sales and leasing with Penticton real estate brokerage Venture Realty Corp. “What was a bit surprising was that it was almost exclusively to the North.”

Levering said Vernon saw a “ton of demand” as companies looked beyond Kelowna while Penticton saw virtually none.

And with many of local industrial properties held by owner-occupiers, there have been few options for developers to add to the stock.

“There’s not a lot of bare, raw land outside of the First Nations land,” he said.

However, development at Satikw, a venture of the Penticton Indian Band, has been limited. With few other options, attention has focused on the recent sale of 2324 Government Street in Penticton to SNFLWR Investment Corp.

The deal, announced in late March, is a first for SNFLWR, a venture founder and CEO Jeremy Dawn launched after stepping down as vice-president, real estate with Kelowna-based developer Mission Group. Prior to joining Mission Group, Dawn was vice-president of financial advisory, real estate at international accounting firm Deloitte.

“This is a good first and low-risk but also pretty accretive acquisition,” he said.

SNFLWR plans a facelift to the building, a former box-making facility for Norampac which sat vacant for three years prior to SNFLWR’s acquisition. The existing building will be split into two 13,000-square-foot units, and an additional 16,000 square feet will be built at either end of the building. The north end will see the addition of 5,000 square feet and the other end will see 12,000 square feet built in two buildings.

“Those will be the modern, 22-foot-clear light industrial style that you see today,” Dawn said. “There seems to be demand for things that have more than 16-feet clear height. There’s not a whole lot of modern warehousing or industrial property in Penticton, period. So when … you build a more modern facility, there seems to be absolute demand and the rates are only two to four dollars off what Kelowna is achieving on new product.”

Colliers International reported an average industrial lease rate in Kelowna last year ranging $16 to $18 per square foot, with a market average at mid-year of $16.91.

The existing building at 2324 Government is already 50 per cent leased to Granite Rocks Ltd. a high-end granite and stone countertop manufacturer based in Lethbridge that will open its doors in Penticton in May. Penticton will be its first B.C. location.

“They’ve been doing a lot of work in B.C. for quite a few years and they see a lot of opportunity,” Dawn said. “We have user groups at the table under negotiation from the Lower Mainland, things as diverse as a fish hatchery to electrical companies.”

The inquiries have been steady since the deal went firm, according to Levering, whose firm represented SNFLWR.

“I got so many calls from other agents in the Penticton market just by virtue of them seeing it sold, and my name as the buyer’s agent. They were calling me to see what the plans were for building, if it was going to be available for lease,” he said. “I don’t think that’s happened before. They were desperate for any large space available.”

Levering said the previous owner of 2324 Government Street did not actively invest in or market the building to potential users, of which there are plenty. During the sale process for 1704 Government Street last year, lease offers were entertained for the yard space. But most of the inquiries were for the 110,000 square feet of existing industrial space – all of which was fully leased.

“We probably had a list of 30-plus inquiries of groups that were interested in leasing the buildings,” Levering said. “[With] an active landlord that’s prepared to invest in deals, there’s deals to be had.”

The three or four calls Dawn receives each day underscores the demand, which is coming not only from outside B.C. but tenants looking for alternatives to the Lower Mainland.

“We get three, four calls a day,” he said. “Either they’re getting pushed out of the Lower Mainland from a cost perspective or lack of availability, or you have Alberta companies. … You have it coming in from both sides.”

View the original article in the Western Investor.