Why industrial land prices are soaring to new heights in Ontario

By
Millicent Wong
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0
118
financial contribution

  1. property

The “ugly duckling” of real estate classes has changed significantly given the surge in private investment in everything from logistics centers to electric vehicle battery factories

Published on June 26, 2023 • Last updated 7 hours ago • 4 minutes reading time

Currently, investors are spending an average of $11.89 per square foot or $517,928.40 per acre for industrial space. Currently, investors are spending an average of $11.89 per square foot or $517,928.40 per acre for industrial space. Photo by Scott Dunn/The Owen Sound Sun Times/Postmedia Network files

Karl Innanen can remember when industrial land in southwestern Ontario was sold for $1,000 an acre.

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Innanen, executive vice president and broker at investment firm Colliers, has watched prices rise steadily in the corridor that runs from the Golden Horseshoe in the east to Windsor since the beginning of his career in the late 1980s. But even he was unprepared for the dramatic increase seen in the Waterloo region in recent years.

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“In 2021, we saw prices go from $350,000 per acre to $500,000 per acre,” Innanen said in a recent interview. “In our office, we were talking, ‘Could it be possible that we could hit $1 million an acre before the end of the year?’ $1 million an acre just seemed like a crazy idea – but it happened, we hit $1 million an acre before the end of 2021. Then in 2022, people started paying a million, half a million on a regular basis — and then the question was, “Hey, are we going to hit $2 million an acre?” And that happened in late 2022,” Innanen said.

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The Colliers Industrial Market Report for the Waterloo Region for Q1 2023 showed that investors are currently spending an average of $11.89 per square foot or $517,928.40 per acre on industrial land, with some sales – such as a recent deal for a 7.9-acre property near Cambridge that raised a staggering $16.35 million, breaking the $2 million mark.

The boom in the wider region, fueled by private investment in everything from logistics centers to electric vehicle battery plants, is taking industrial development out of the hands of the municipalities that once spearheaded the process.

“All of a sudden, what was almost a non-profit industrial real estate company became a private, for-profit industrial real estate company, and around the same time we saw a dramatic price increase,” Innanen said of the transformation between 2015 and 2020, as private developers began acquiring farmland, seeking rezoning and control the planning process.

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The change has sparked heated debate among stakeholders: while some welcome the increase in market vitality and efficiency, others have raised concerns about rising rents and lower affordability for businesses looking to establish a presence in the region.

We used to be able to develop a business park for $5 million to $10 million, and now land prices are up over 500 percent

Brad Hammond

Brad Hammond, Economic Development Officer for the City of Woodstock between Kitchener and London, said local authorities have historically played a role in rural development to influence local economies, focusing on factors such as job creation and growth. However, rising costs have made it difficult for local governments to stay in the game.

“At some point, the councils were stripped of the price to participate in land development and had to let the private sector build it,” Hammond said in an interview. “I think that’s been happening in a lot of communities the closer you get to Toronto, certainly within GTA. We used to be able to develop a business park for $5 million to $10 million, and now land prices are up over 500 percent.”

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The growth of GTA is one of the factors driving development further west. Industrial land prices in Brampton and Mississauga range from $2.5 million to $4 million per acre, making the $500,000 bill at Woodstock look like a steal.

Among the big transactions that have transformed the market in recent years is a deal in which developer Broccolini acquired 105 acres in Cambridge for $55.24 million. In Kitchener, Crestpoint Real Estate and Perimeter Development made a remarkable $21.15 million investment on a 38-acre property, while Krug bought a $14 million 23.7-acre property in the same city. Dream Industrial REIT also made its mark with the acquisition of a 70-acre property for $26 million. In addition, Fiera Real Estate acquired approximately 65 acres of industrial space in Brantford for approximately $118 million.

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The largest investment in the region was more than just a real estate deal. PowerCo’s $35 billion Volkswagen battery plant, which will be located on 370 acres in St. Thomas, will employ 3,000 people and receive billions of dollars in subsidies from multiple levels of government.

Industrial real estate is the ugly duckling of the real estate asset classes compared to office buildings and retail space

Mitchell Blaine

Electric vehicle adoption is not the only global trend impacting the region.

According to Mitchell Blaine, executive vice president of sales and leasing at global commercial real estate company Jones Lang LaSalle (JLL), pandemic-related disruptions have exposed the vulnerabilities of international supply chains, prompting companies and governments to reconsider their reliance on remote and fragmented supply chains and manufacturing networks.

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The need for resilient and agile supply chains is a top priority, and industrial real estate has proven to be a key driver of this shift. As a result, industrial assets are experiencing a reclassification in the eyes of investors, who now see them as indispensable components of a diversified real estate portfolio.

“Industrial real estate is the ugly duckling of the real estate asset classes compared to office buildings and retail space,” Blaine said. “After a prolonged period of repression, industrial prices, property values ​​and rents have all caught up, indicating a clear shift in the market.”

In regions like Southwest Ontario, where manufacturing, clean technology, agricultural technology, life sciences and autonomous vehicles are driving the renaissance, broader investment interest is only fueling the fire.

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Blaine believes that both the private and public sectors have a role to play, especially when it comes to big developments that can have long-term benefits.

“These investments are important. We have to compete for them as a province and as a country,” Blaine said. “Any private manufacturer is going to be evaluating Canada right now, they’re going to be evaluating the US, they’re going to be evaluating Mexico, and they’re going to be evaluating overseas…” A $35 billion private and public investment is a massive investment that the region has yet to make will benefit for many years.”

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