Canadian Industrial Real Estate Blog

The development of new industrial buildings on what is known as greenfield land (land that has never had any type of structure erected on it) is relatively straight forward to the extent that provided services and the proper zoning are in place and environmental studies and regulations are dealt with in a manner that is satisfactory to the governing bodies, one is free to construct a building provided that it is built to code and conforms to coverage allowances (the amount of allowable building area on a particular piece of land). 

As the demand for developable land continues to out-pace supply across Canada’s major centres including Vancouver, Calgary, Edmonton, Toronto and Montreal, naturally causing increases in pricing, end-users and developers alike are forced to ask themselves the questions that ultimately lead to creative solutions. These questions are often found in the form of; “How am I going to get control/ownership of developable land at a reasonable price, located within the hubs of activity (namely airports and major cities), satisfy zoning requirements so that I can develop my required warehouse building in a time frame that is not too prohibitive based on the double digit return I expect on my capital”. The answer to what is clearly a complex question is more and more often found in the redevelopment of existing buildings located in urban centres throughout the country.

The redevelopment of existing industrial buildings and/or land sites upon which an industrial building once sat vs. Greenfield development is another undertaking entirely. A multitude of considerations and challenges are required to be examined and solved prior to engaging on redevelopment of these types of properties. Consider the following as examples: 

The City’s Vision For Land 

There is tremendous pressure on local Government within the major cities to rezone former employment lands (land that has been used to house commerce by way of retail, commercial or industrial) to residential in order to accommodate the ever-growing demand for housing within these urban areas. While cities do their best to maintain a palatable balance between the two for reasons varying from people needing a place to work that is within reasonable travel distance utilizing public transit, thereby eliminating the need for automobile reliance, to ensuring that the higher tax base payable by commercial uses and needed to fund infrastructure to keep the city viable, the residential argument often wins. The challenge then for developers and end users begins with actually finding a piece of land and/or building where they can maintain an industrial zoning in order to build.

Raising the Roof – The Clear Height Dilemma  

There are two main ways to redevelop existing land including knocking the existing structures down and starting from scratch and modifying a building to accommodate alternative needs. When redeveloping using the latter approach, we must remain cognizant that many of the urban industrial buildings were constructed to accommodate the true industrial era when manufacturing was king in North America and the generally accepted specifications of an industrial building were vastly different than today’s requirements. One of the most obvious and critical adjustments to these specifications has been the height of a buildings ceiling, otherwise known as the clear height. With manufacturing having experienced a major shift to other hemispheres on the globe, North America has truly become the land of distribution. The distribution/supply chain/logistics model then, relative to industrial buildings, requires the ability to stack product on pallets and in turn racks, as high as 30’ in most cases. Most of the industrial buildings of the industrial era had clear heights varying from 12’ to 18’ high. The question then is, what to do with a roof that is too low. “Raise It” you say…good answer. Although technology does exist throughout North America, the practicality has not yet become commonly acceptable in Canada. This is due to change in the coming years.

Environmental Clean-Up

Industrial buildings that have housed manufacturing concerns in the past often operated with environmental regulations that are not as stringent as today’s standards and while in most cases unintentional, these manufacturing processes often experienced spills and/or leakage of materials used in various processes and in many cases, partial rupturing of underground storage tanks. When these materials are mixed with moving ground water, the results have caused leaching throughout their site and those of neighbors.  Another challenge then for those seeking to acquire redevelopment properties is dealing with the results of environmentally hazardous soil that is discovered upon normal testing when properties are changing the hands of ownership. There are some terrific specialty firms that deal with these issues as part of their core-competency and developers and end users rely heavily on their skills and expertise to overcome these challenges.  

The trend towards redevelopment of urban industrially zoned properties to warehouse uses is here to stay and creates exciting possibilities for those contemplating this route as a solution for stated corporate objectives. With the correct guidance from those with experience navigating these waters, the process is enjoyable and is a great alternative.   

Much has been said about Bruce Flatt and his teams vision of the future. The summary of these comments - listen, observe and do your best to understand his strategy. Like one of our other major Canadian success stories, Wayne Gretzky, Brookfield Asset Management seems to have a good handle on where the puck is going to be versus the far more common case of where it is now or even worse, where it has been. John Greenwood of the National Post wrote an article about some of the latest activity. Click here to understand more.

Pearson International Airport wants to lease prime land to developers to reduce landing fees, which are among the highest in the world. The Greater Toronto Airports Authority, operator of Pearson, is expected to announce today that a 6-hectare site across from Terminal 3 on the east side of Airport Rd. is available for an estimated $300 million development. The site, now a parking lot, could hold a 400-room hotel, conference centre, retail shops and two office buildings. Check out a full article about this recently written in the Globe & Mail newspaper by clicking here.

“Where to next?” – a common question in most industries of which the world of industrial real estate is no exception. Given the age-old saying in the real estate industry of – “They ain’t making any more land!” – developers of warehouse and manufacturing space along with their clients, the end users, always have their sights set on the best next place to develop and or operate from. There are numerous factors that help to mould the eventual answers to this question and they are constantly changing. Among them are transportation routes, access to appropriate labour, applicable tax bases, availability and cost of land, services available for new development lands, individual municipalities eagerness for employment expansion, local economic sustainability, available and/or planned amenities, lifestyle options, etc.  

Prior to 2001, the development that occurred outside of the immediate geographical area known as the Greater Toronto Area (GTA), generally bordered by Oakville, Mississauga, Brampton, Vaughan, Markham, Richmond Hill, Pickering and Ajax, was limited for the most part to one-off operations owned by a mixture of local and multi-national interests while large-scale development was focused within the GTA. Although land prices fluctuated, hitting high points at times due to particular demand in a given cycle, the availability to acquire it was generous enough that one needed not to look far in order to secure appropriate opportunities for new development.  

That story has changed significantly due in large part to what I call, “ The Compression Factor”. Geographically speaking, The compression happens as follows, Lake Ontario provides pressure from the South and the Oak Ridges Morraine, a government protected 160 km swath of land that was formed 12,000 years ago and runs from the Niagara Escarpment to Rice Lake, delivers the pressure from the North. As the population, grows and industry in general expands, the immediate growth opportunities are East or West. The East end of the GTA holds limited promise for rapid industrial development expansion when compared to the West. Part of the reason for this is the West’s generous access to Pearson International Airport  (PIA) as well as direct, unobstructed access via multiple high-volume arterial highways to 2 major US borders points, namely Buffalo, New York and Detroit, Michigan.

The results of this evolution have provided windfalls for towns that have in the past been identified more by their bedroom community charm than their critical involvement in industry. Some of the benefactors are: 

Bolton & Caledon – located North-West of the GTA, this area is experiencing a tremendous amount of growth and interest from the development community and end users due to its labour force which come from local residents as well as the City’s of Brampton, Mississauga and Vaughan, availability of farm land considered to be less expensive than tradition development opportunities to the South East and the proximity to CP Rail Intermodal Terminal located at Hwy 50 and Rutherford Road. 

Milton – located immediately West of Mississauga along Hwy 401, this Niagara Escarpment bordered community has seen rapid development from AMB, HOOPP and Verus. Mitlon has tremendous access to PIA, is served by major rail providers and has access to multiple major highways within minutes.  

Guelph & Kitchener-Waterloo (GKW) – located West of Milton, along Highway 401 and now included as part of the Greater Golden Horseshoe (GGH), this area has long been an alternative place to live vs. being in the actual GTA. Although much of GKW’s growth has been organic, the last 4 years have provided increased optimism and attention from traditional GTA based developers and end users. 

Brantford – located South West of Milton, GKW and the GTA, Brantford is home to 32,000 people and is experiencing one of the most aggressive industrial development growth propositions within the Southern Ontario region. Hindsight suggests that this growth makes complete sense given it’s access to major arterial highways that lead equally as easy to Toronto, Buffalo and Detroit coupled with a work force that draws from within as well as the neighboring communities of Hamilton, Stoney Creek and Cambridge. Brantford is an up and comer that has attracted attention from many major developers. 

Woodstock – located West of the communities named earlier, this 34,000 person community and self-proclaimed dairy capital of Canafa sits at the cross roads of Highways 403 and 401. The auto industry has been particularly generous to Woodstock in part due to less expensive land, proximity to transportation routes and willingness by local government to work with industry.  The future looks bright for these alternative development communities, and sustainability appears to be good.