What Happened

Vancouver’s industrial real estate market recorded its highest vacancy levels in nearly a decade during the second quarter of 2025, with available space exceeding 10 million square feet. Despite this broad oversupply, leasing activity was driven by a specific segment: large-format users seeking spaces over 100,000 square feet. Grosvenor Canada executed its largest-ever lease transaction on Annacis Island, securing S&S Activewear Canada Inc. as the sole tenant for the Millennium 6 property. This deal highlights a sharp divergence in market dynamics, where large-bay units are seeing strong demand while smaller units under 10,000 square feet also experience robust interest. Consequently, vacancy rates declined quarter-over-quarter in both the large-bay segment, which saw a notable 40 basis points drop, and the smaller unit category. However, overall leasing activity remained subdued compared to the previous two quarters, and rents edged slightly lower as rising vacancy for eight straight quarters continues to give occupiers significant negotiating leverage.

Why It Matters

The divergence between high overall vacancy and strong demand for large-format space indicates a structural shift in Vancouver’s industrial market. While the region grapples with an oversupply cycle that has suppressed rents and given tenants the upper hand, the specific appetite for spaces exceeding 100,000 square feet suggests that large-scale logistics and distribution operators are still actively expanding or consolidating their footprints. This trend is critical for understanding future development feasibility, as it signals that not all industrial assets are equally vulnerable to the current downturn. The fact that tenants are renewing at rates significantly above their current rents, even as new lease rates trend downward, underscores the complexity of the market where legacy leases may still outperform new market pricing.

Local Vancouver / Burnaby Context

Vancouver’s industrial landscape has been characterized by a prolonged period of rising vacancy, which has now persisted for eight consecutive quarters. This extended cycle has created a tenant-friendly environment where occupiers can negotiate favorable terms, contributing to the slight decline in rents observed in Q2 2025. The market is currently working through an oversupply of leased industrial space that was built in response to previous extreme shortages. However, the resurgence in large-format leasing, particularly for spaces over 100,000 square feet, points to a specific demand driver that is insulated from the broader vacancy pressures affecting smaller units. This dynamic is particularly relevant for areas like Annacis Island, which serves as a key hub for large-scale industrial operations within Metro Vancouver. The market's sensitivity to external factors, such as tariffs and trade tensions, remains a primary concern for warehouse users, influencing their leasing strategies and expansion timelines.

Market Impact

For the broader industrial market, the high vacancy rate exceeding 10 million square feet exerts downward pressure on new lease rates, making it a challenging environment for landlords seeking to maintain or increase income. However, the strong demand for large-format space offers a counterbalance, suggesting that assets meeting the specific needs of large distributors and logistics firms may retain value better than smaller, fragmented inventory. The decline in vacancy for units over 100,000 square feet indicates that this segment is absorbing supply more effectively, potentially stabilizing rents in that specific category. Conversely, the subdued overall leasing activity and lower rents highlight the liquidity challenges facing the market, where transaction volumes may not match the scale of available inventory.

Investor / Buyer Takeaway

- Large-format industrial assets (>100,000 sq ft) are showing relative strength with declining vacancy, making them a focal point for strategic investment despite the broader market oversupply.

- Tenants currently hold significant leverage due to eight consecutive quarters of rising vacancy, allowing for favorable lease terms and rent negotiations.

- Investors should monitor the impact of tariffs and trade tensions on warehouse user demand, as these external factors remain top concerns for leasing activity.

- Be cautious of average rent metrics, as many tenants are renewing at rates significantly above current market trends, which may mask the true depth of the rent decline in new leases.

- Smaller units under 10,000 square feet are also experiencing strong demand and declining vacancy, indicating a bifurcated market where specific size classes are outperforming others.

Builder / Developer Perspective

Developers and builders face a complex environment where the oversupply of industrial space continues to work through the market, yet demand for large-format facilities remains robust. The success of Grosvenor Canada’s lease on Annacis Island demonstrates that well-located, large-scale projects can still attract anchor tenants like S&S Activewear Canada Inc. However, the eight-quarter rise in vacancy and downward-trending rents suggest that new developments must be carefully sized and located to meet the specific needs of large-format users. The market’s sensitivity to trade tensions means that builders must consider the potential impact of tariffs on the demand for domestic warehousing and distribution space. Financing and pre-leasing strategies for large industrial projects will need to account for the current tenant-favorable climate, where occupiers have the upper hand in negotiations.

Risk Factors

- Continued rising vacancy for eight straight quarters may further depress rents and reduce absorption rates for new developments.

- Tariffs and trade tensions remain a top concern for warehouse users, potentially delaying expansion or leasing decisions.

- The oversupply of leased industrial space may take time to work through, prolonging the period of weak leasing activity.

- Downward-trending lease rates could impact the valuation and income potential of existing industrial portfolios.

- Subdued overall leasing activity compared to previous quarters indicates potential liquidity challenges in the market.

BurnabyHouse Insight

The Vancouver industrial market is currently defined by a stark contrast: a sea of vacancy exceeding 10 million square feet against a specific, intense demand for large-format space. The Grosvenor Canada and S&S Activewear deal on Annacis Island is not just a transaction; it is a signal that the market is bifurcating. While the broader oversupply gives tenants leverage and pushes rents down, the large-bay segment is finding its footing. For local observers, this means the 'industrial market' is no longer a monolith. Success in this environment depends on understanding that large-format users are driving the current leasing uptick, while the rest of the market works through its excess inventory. This divergence will likely continue to shape development feasibility and investment strategies in Metro Vancouver for the foreseeable future.