Canadian Industrial Real Estate Blog

Vancouver – Water and mountains in seemingly every direction is cause for concern by anyone trying to locate land for industrial construction in and around Canada’s most populous Western city. Perplexity is a common result of efforts to secure medium to large parcels of land close to the masses and any such parcels that do exist are typically held by a select few developers who are only willing to part with their land under a design build sale arrangement - the developer gets the contract to construct the required building and then sells the end user the land and building as a total package, at a tidy profit. In order to secure large parcels to be developed individually, one must drive 60 – 70 kilometers outside of the CBD to Gloucester and/or Campbell Heights and pay between $800,000 - $1,000,000 per acre.

Toronto – The largest transportation and logistics hub in the country comes with it’s own set of large challenges including the availability of large parcels of land. Growth has been exceptional in the Greater Toronto Area (GTA) industrial real estate markets since 1995 with the focus of expansion being on the Northwest municipalities of Vaughan, Mississauga, Brampton, Oakville and Milton. With what is known as the Oak Ridges Moraine (an ecologically sensitive geological landform that spans 160 kilometers across the North section of the GTA) being a no-fly zone relative to development to the North, Lake Ontario to the South and a marginal interest in large industrial developments to the GTA East, the only place to grow is West. Mississauga, Brampton and Oakville are effectively out of large blocks of land that are easily available for purchase which has forced further travel West along Highway 401 and The Queen Elizabeth Way to Milton, Halton Hills. These areas are located within approximately 15 kilometers of the CBD, offer availability to services immediately and typically trade within a range of $375,000 to 450,000 per acre. Municipalities such as Kitchener/Waterloo, Guelph, Brantford, and Woodstock are frontiers that are starting to emerge as future development communities of choice. Typically located 30 – 40 minutes away from the CBD’s, employment lands here typically range in price from $300,000 to $350,000 per acre.

Land is becoming scarcer by the year as demand clearly outpaces supply. This is most evident when it comes to employment lands (land that is used for purposes of commerce) surrounding the major centres throughout North America. As our focus is transportation and logistics, we are best to examine industrial buildings and the changes to land requirements that are developing due to the ever-growing size of the logistics industry. Single industrial buildings are growing to a size rarely heard of before in Canada and as such we regularly see buildings being constructed that are up to 700,000 square feet. All of this growth is causing serious constraints on suburban municipalities and the individual provinces trying to keep pace with demand. These issues add up to one eventuality – increased cost. A few of the key components of information surrounding the subject of employment land and the direct impact on it’s cost are availability, where future employments lands will likely be developed, locational proximity to customers and employees - typically described as the nearest Central Business District (CBD), and when services (water, sewers and hydro) will be available. The naxte 4 blog posts provide a brief commentary on employment lands throughout Canada with a particular focus on large parcels exceeding 20-plus contiguous acres.  

Montreal – The largest city in “La Belle Province” has seen moderate demand for industrial buildings and therefore growth of development lands throughout the last decade. Other than specific local developers, few have endeavored to construct speculative buildings in the hope of tenants deciding to pursue a flight to quality. Instead there has been a steady growth based predominantly on steady organic growth of local and national industrial building users. As a result land costs have climbed in a manner more akin to steadiness than a panicked or rushed manner. The general availability to purchase a large parcel of land within city limits is non-existent, which has caused developers and end users to seek future employment land development in areas such as Vaudreuil and Laval. These general areas are located within approximately 20 kilometers of the CBD, offer availability to services immediately and typically trade within a range of $150,000 to $225,000 per acre. 

As populations continue to grow outside of the major centres, it seems that the growth of new arrivals within the cities keeps pace. The one similarity is that they all need a place to live, often in new homes and/or condo’s built to accommodate accordingly. The fundamental difference of course, is that development in the suburban areas typically happens on green-field land (land that has never been developed upon in the past) and urban development takes place on land that has had a previous use.  

One of the shining trends that has been occurring on a frequent basis over recent years is the redevelopment of industrial (otherwise known as employment) lands that used to be home for manufacturing uses. As a large part of our collective manufacturing sector continues to move to more economical locales, the vacated properties are being bought by residential developers who take these properties through a rezoning process with an end goal of having them become zoned for residential in the future. Developers are following much of the planned objectives of the local governments within these cities who have  a strong desire and need to provide housing. The generally accepted terminology for this re-zoning trend is Residential Intensification. 

Further trends are developing amongst the industrial sector in a manner that is less about re-zoning and more about the desire for what is now considered a “coveted” zoning designation. The zoning designation is often referred to as M2, which allows for outside storage. As we continue to grow into more of a consumer nation, which is more reliant on services and distribution and less so on manufacturing, we find that corporate uses in the industrial sector are seeking distribution centres.

Naturally, distribution of most given product requires trailers to haul the goods. Often these trailers are stored while they wait to be filled and utilized accordingly. When these trailers sit outside and not up against a shipping door of an industrial building, they are most often designated as being stored, hence the requirement for a specific zoning allowing for this storage. Wise are the 3^rd party logistics providers and corporate supply chain departments that see these trailers as an opportunity to utilize the space within these trailers as a cheap way to store product without paying the rents being demanded by landlords and/or accordingly, the taxes reaped by government(s).     

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. 

The lack of supply of serviced industrial lands have directly effected the pricing on serviced and zoned lands. A summary of recent serviced industrial land transaction pricing (approximate) in the Greater Toronto Area are as follows:

Vaughan, Ontario - $600,000 - $675,000 per acre

Brampton, Ontario - $475,000 - $650,000 per acre

Oakville, Ontario - $375,000 - $425,000 per acre

Mississauga, Ontario - $550,000 - $625,000 per acre

Oakville North Secondary Plan is one step closer to fruition due to a settlement occurring on June 15th, 2006 between the Town of Oakville and major landowner group regarding the Natural Heritage System (NHS). The land owners have agreed to donate to the Town of Oakville, free of charge, all lands identified in the NHS. This key step in the planning process will both accelerate the current OMB hearing process and as a result accelerate the increase in land values. Current owners of effected lands should develop a disposition strategy that will align their property with the OMB hearing timeliness, effectively positioning their property for the greater after tax returns.