Acquiring industrial real estate in Metro Vancouver requires disciplined financial analysis. The region's constrained land supply, regulatory complexity, and tenant mix create underwriting variables that differ meaningfully from other Canadian markets. Investors who apply generic assumptions—or rely solely on trailing income—often misprice assets or miss structural risks embedded in lease terms, building specifications, or municipal constraints.
This framework outlines a systematic approach to underwriting industrial investments in Metro Vancouver, covering income projection, expense modeling, capital reserves, and risk adjustment. Whether evaluating a single-tenant warehouse in Delta or a multi-tenant flex property in Burnaby, these principles provide a foundation for rigorous analysis.
Gross Potential Income and Rent Roll Analysis
Underwriting begins with a detailed examination of the rent roll. In Metro Vancouver's industrial market, where mid-2026 asking rates range from $18 to $24 per square foot triple-net depending on submarket and building class, the gap between in-place rents and market rates is often significant. Many tenancies signed in 2021 or 2022 carry rates between $12 and $16 per square foot—well below current market levels.
For each tenancy, investors should document:
- Current base rent and escalation structure: Fixed annual increases (typically 2-3%) versus CPI-linked adjustments
- Lease expiry and renewal options: Tenants with below-market rents and renewal options at defined rates represent embedded risk
- Additional rent recovery: Operating costs, property taxes, and insurance passed through to tenants
- Free rent, tenant improvement allowances, or other concessions: These reduce effective rent and must be amortized across the lease term
Gross potential income should reflect market rent for all leasable space, with separate line items for contractual rent from existing tenancies. The difference—often called the mark-to-market opportunity or risk—is a critical variable in Metro Vancouver, where lease rollovers can increase income by 30-50% or expose landlords to tenant departure.
Vacancy and Credit Loss Assumptions
Metro Vancouver's industrial vacancy rate has fluctuated between 1.5% and 3.5% over the past three years, with mid-2026 figures settling near 2.8% region-wide. However, vacancy varies substantially by submarket:
- Vancouver proper: Sub-1.5% vacancy, driven by irreplaceable locations and zoning constraints
- Richmond: 2.0-2.5%, with cold storage and distribution commanding premiums
- Surrey and Delta: 2.5-3.5%, with newer inventory in Campbell Heights and Tilbury absorbing more slowly
- Langley and Abbotsford: 3.0-4.0%, reflecting recent supply additions
Stabilized underwriting typically applies a 3-5% vacancy and credit loss factor, but this should reflect asset-specific realities. A single-tenant building leased to a creditworthy logistics operator for eight more years warrants a lower vacancy assumption than a multi-tenant flex property with three tenancies expiring within 24 months.
Credit loss—rent not collected due to tenant default—is historically minimal in Metro Vancouver industrial, but prudent underwriting includes 0.5-1.0% for collection risk, particularly with smaller tenants or those in cyclical industries.
Operating Expense and Recovery Modeling
Most Metro Vancouver industrial leases are structured as triple-net (NNN), with tenants responsible for property taxes, insurance, and common area maintenance. However, recovery structures vary, and investors must verify:
- Base year stops: Some leases cap tenant responsibility at a base year amount, with landlords absorbing increases
- Management fee recovery: Whether the 3-5% property management fee is recoverable or a landlord expense
- Capital expenditure treatment: Leases may exclude roof, structure, or HVAC replacement from recoverable expenses
Operating expenses for Metro Vancouver industrial properties typically range from $2.50 to $4.50 per square foot, excluding property taxes. Property taxes vary significantly by municipality—Richmond and Delta generally carry lower mill rates than Vancouver or Burnaby—and should be verified with current assessment notices.
Underwriting should model gross operating expenses and then subtract tenant recoveries to arrive at net operating expenses. For fully-leased NNN assets with comprehensive recovery provisions, net expenses may approach zero. For older multi-tenant properties with partial recoveries, landlord-borne expenses can materially impact NOI.
Capital Reserves and Tenant Improvement Costs
Industrial buildings require ongoing capital investment. Investors should establish reserve assumptions based on building age, construction quality, and remaining useful life of major systems:
- Roof replacement: $8-15 per square foot for conventional flat roofs, with 20-25 year useful lives
- HVAC systems: $3-6 per square foot for warehouse heating, higher for climate-controlled facilities
- Parking and yard areas: $3-5 per square foot for asphalt resurfacing every 15-20 years
- Structural and envelope: Concrete tilt-up buildings require minimal structural reserves; older masonry or steel-frame buildings may need seismic upgrades
Standard underwriting applies $0.25-0.50 per square foot annually for capital reserves, but this varies with building condition. Pre-acquisition building condition assessments identify near-term capital requirements that should be deducted from value or funded at closing.
Tenant improvement (TI) and leasing commission reserves are equally important. Current market TI allowances for second-generation industrial space range from $5 to $15 per square foot, depending on condition and tenant requirements. Leasing commissions typically total 4-6% of aggregate lease value. For assets with near-term lease expirations, these costs must be underwritten explicitly rather than averaged into a generic reserve.
Risk Adjustment and Discount Rate Selection
Cap rates for Metro Vancouver industrial assets currently range from 4.75% to 6.25%, depending on location, building quality, lease term, and tenant credit. Selecting an appropriate cap rate—or building a discount rate for DCF analysis—requires explicit consideration of risk factors:
- Lease duration and tenant credit: Long-term leases to investment-grade tenants support lower cap rates; short-term or month-to-month tenancies require higher yields
- Building functionality: Clear heights below 24 feet, limited truck courts, or inadequate power capacity reduce tenant demand and increase re-leasing risk
- Environmental considerations: Properties with historical industrial uses may carry contamination risk requiring Phase I or Phase II assessments
- Zoning and highest-and-best-use: Assets zoned for industrial but located in areas facing residential or mixed-use pressure may face long-term uncertainty
NAI Commercial Vancouver's access to the NAI Global network provides transaction comparables from industrial markets across North America, enabling calibrated cap rate selection based on asset-specific characteristics rather than headline figures.
Structuring the Pro Forma and Sensitivity Analysis
A complete underwriting model projects cash flows over a typical five to ten-year hold period, incorporating:
- Year-one NOI based on in-place rents and current expenses
- Lease rollover assumptions with market rent adjustments, downtime, and re-leasing costs
- Expense growth projections, typically 2-3% annually for operating costs and based on assessment trends for property taxes
- Capital expenditure timing based on building condition
- Reversion value at exit, applying a terminal cap rate 25-50 basis points higher than entry to reflect building age
Sensitivity analysis should test key variables: market rent growth, vacancy duration at lease expiry, cap rate movement, and capital cost overruns. In Metro Vancouver's supply-constrained market, rent growth has historically outpaced inflation, but investors should model downside scenarios reflecting economic slowdown or tenant-specific risk.
Rigorous underwriting does not guarantee investment success, but it ensures that acquisition decisions reflect genuine asset economics rather than optimistic assumptions. In a market where industrial properties trade at historically compressed yields, the margin for error is narrow. Investors who systematically analyze income, expenses, capital requirements, and risk position themselves to acquire assets that perform through market cycles.