Canadian Industrial Real Estate Blog

Trends, trends, trends…regardless of the topic matter, trends are ever evolving and industrial real estate across Canada is no exception. The catalyst for most trends within the corporate real estate world are caused by pressure being applied from a given area(s) and in order to accommodate this pressure, changes and/or trending occurs. The following provides insight into one of the more recent trends encompassing the industrial real estate sector.  

Building Specification Trends One of the hottest political, corporate and in-home topics these days is to minimize the environmental “footprint” that is left behind by governments, corporations and individuals. Making it rounds through the water-cooler circuit within our industry is a tremendous initiative sanctioned by the Canada Green Building Council called Leadership in Energy and Environmental Design (LEED) certification. This initiative as it relates to the corporate real estate world is aimed at long-term environmental sustainability.

Sustainable development for distribution centres is becoming more prevelant in the industry today. Energy Efficient design features are being incorporated into more and more buildings and the result not only assists in the environment sustainability but also in direct savings to end users relative to operating costs. As end users are pressured to demonstrate responsibility to their customers, they are beginning to incorporate environmental qualifications and considerations into the decision making of which building they operate in. Landlords/developers are becoming more cognizant of these pressures and expectations and are designing industrial buildings to minimize the footprint and in turn, maximize energy efficiency. 

New industrial building construction will in many cases feature numerous elements of green building techniques such as passive solar walls to augment heating, ventilation and air conditioning (HVAC) systems, reflective roofing material to aid in cooling, air-tightness testing, energy efficient lighting fixtures and systems, day lighting, clerestory windows and skylights and efficient irrigation systems using non-potable water. Many existing buildings are now having their lighting systems replaced with more efficient T5 and T8 housings, which can save a client up to 30% on utility bills. Prologis, the world’s largest distribution centre landlord, is installing technology in one of their facilities to utilize wind power to generate electricity.  

As with consumers in general, end users requiring space within industrial buildings often seize the opportunity to participate in a flight to quality, otherwise known as “Movin’ On Up”. Many of the industrial buildings that have been utilized in past decades were constructed to standards and specifications that are not conducive to the demands and use types that are commonly seen in the market today. When tenants leave these older buildings in favour of newer and better-designed facilities, the buildings they leave are naturally placed into the overall pool of buildings that are considered part of vacancy for that period of time. Two things to consider in these situations are:

1. Even though space is being absorbed in a newer building, that end user has left space behind which may very well be vacant. As such, one could consider that there was an absorption that occurred throughout the relocation. The facts are that unless the end user took space that was larger than the space they left, there was no true net absorbtion as they were simply trading facilities.  
2. One of the rogue factors that has increasingly had an impact on the vacancy rates throughout the City of Toronto proper, is the conversion of what was once industrial or commercial space (known as employment lands), to another use entirely. One of the hottest topics and activities for developers throughout the last 3 – 4 years has been residential intensification and/or the redevelopment of industrial properties to a residential use or zoning. When an industrial building is redeveloped to a use that no longer houses employees, it is theoretically removed from the overall inventory of space.

It is clear to see that the real estate market depends on net overall growth of space required in order to maintain a healthy supply and demand balance.

There is an increasingly amount of end users who are now finding opportunities to locate to what was generally accepted in the past as outlying areas from the GTA. These locales include Brantford, Woodstock, Barrie, Guelph, Kitchener/Waterloo and London, Ontario. This flight to areas that are more accessible to many in the workforce should not have a significant impact on overall vacancies of the measurable areas in the immediate GTA. Developers are already monitoring the progress of new development throughout a much larger geographical area when considering the delivery/development of new buildings.

The Basics - Brownfield properties are simply a parcel of land that has been environmentally contaminated by either an occupant on the land or a neighboring occupant whose contamination has managed to leach onto the parcel of land, often through ground water movement. This is the ugly family member who nobody wants to hear from or speak about.

Brownfield’s are typically created due to manufacturing facilities that were operable on or close to the land and at some point, a leak or spill from processing whatever widget has entered the soil. Many times the culprit can be an underground tank that was used to store some sort of liquid and the integrity of these tanks becomes compromised. Presto, that parcel of land qualifies as a Brownfield site.  

The Challenge - What to do with the ugly family member? There was a great line in the movie about a horse named Seabiscuit. At a point in the movie, the star happens upon a washed-up trainer with a horse that falls into the same category. The eventual line came from the trainer who references his equally downtrodden horse. “You don’t throw away a life just because it is a little banged up!” There are select group of developers/investors throughout North America (very few of which reside in Canada) who have the capabilities (experience, environmental intelligence, understanding of the Ministry of Environment and their processes, guts, etc.) to confidently understand the specific challenges associated with a given Brownfield site (each is a different story) and follow through with a purchase of the property and an eventual remediation plan.  

Brownfield Trend Comments – As cities become larger in scope and Greenfield Development continues to be pushed further away from them, simply due to the land supply or lack thereof, the feasibility of redeveloping properties that are located in or much closer to city cores, becomes more compelling. As a result, there has been a tremendous trend towards taking the risk, spending often large amounts of money and dedicating considerable time towards the remediation of Brownfield sites so that they may enjoy a higher and better use that typically maximizes the value of the property itself. Given the rapidly changing and increasingly competitive global economic environment, many manufacturing concerns have closed all or part of their operations in favor of less expensive manufacturing options in other parts of the World including China, India and Mexico. This of course causes the vacating of buildings that become some of the fuel for the redevelopment trend.

The construction of large industrial buildings are not a regular occurance in the GTA's East end. Belrock Construction is bucking the trend by building a 600,000 square foot (sq. ft.), 3 building development in Oshawa, Ontario. The first phase of the project of 375,000 sq.ft. will be completed in the spring of 2007. Two other buildings will then be constructed by 2008 and will total 150,000 sq.ft. and 75,000 sq.ft. respectively.

The occupant will be Pival International, an automotive logistics group providing just in time shipping to GM who are headquartered in Montreal, Quebec. The site is 41 acres, next to the the new GM plant being developed for the New Camaro.

The site was originally purchased for $100,842 per acre with GI or General Industrial zoning.

Although heavily weighted to Ontario due to the concentration of manufacturing operations, we continue to see manufacturing closures across Canada. Wolverine Tube has announced the closure of their plant in Montreal East. These facilities closures present tremendous opportunities for the industrial redevlopment sector to bring in-fill product to alternate uses. Many developers are looking for in-fill properties within established areas due to many factors including skyrocketing land prices for new development.