Are we gonna hit $2 million an acre?': Industrial land prices are soaring to new heights in Ontario

  6/26/2023 |   SHARE
Posted in Commercial Real Estate by Ron Hyde| Back to Main Blog Page

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Significant shift from being seen as ‘ugly duckling’ of real estate classes 

An executive vice-president and broker at investment management company Colliers, Innanen has watched prices in the corridor that runs from the Golden Horseshoe in the east toward Windsor rise steadily since he began his career in the late 1980s. But even he wasn’t prepared for the dramatic surge witnessed in the Waterloo Region over the past few years.

“In 2021, we saw prices move from $350,000 an acre up to $500,000 (an acre),” Innanen said in a recent interview. “In our office, we were talking about, ‘Could it be possible that we’ll hit a million dollars an acre before the end of the year?’ A million dollars an acre just seemed like a crazy idea — but it happened, we hit a million dollars an acre before the end of 2021. Then in 2022, people were regularly paying a million, a million a half — and then the question became, ‘Hey, are we gonna hit $2 million an acre?’ And that happened late in 2022,” Innanen said.

Colliers’ Waterloo Region Industrial Market Report for the first quarter of 2023 showed investors are currently shelling out an average of $11.89 per square foot or $517,928.40 per acre for industrial land, with some sales — such as a recent deal for a 7.9-acre plot near Cambridge, that fetched an astonishing $16.35 million — topping the $2-million threshold.

The boom in the wider region is being driven by private investment for everything from logistics centres to electric vehicle battery plants and is pricing industrial development out of the hands of municipalities, which once led the process.

“We all of a sudden had an almost not-for-profit, industrial land business turn into a private, for-profit, industrial land business, and around that same time, we saw prices go up dramatically,” Innanen said of the transformation between 2015 and 2020, when private developers began acquiring farmland, seeking rezoning and navigating the planning process themselves.

The shift has sparked a vigorous debate among stakeholders: While some hail the injection of vitality and efficiency into the market, others have expressed concerns about rising rents and decreased affordability for businesses seeking to establish a presence in the region.

Brad Hammond, economic development officer at City of Woodstock, located between Kitchener and London, said that in the past, municipalities played a role in land development to influence the local economy, focusing on factors such as job creation and growth. However, the increasing cost has made it difficult for local governments to stay in the game.

“At some point, municipalities got priced out of being in the land development business, and they had to defer to the private sector to build,” Hammond said in an interview. “I think that’s happened in many communities as you get closer to Toronto, within the GTA anyway. We used to be able to develop a business park for between five and $10 million and now land prices have increased upwards of 500 per cent.

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

Among the major transactions that have reset the market in recent years are a deal that saw developer Broccolini acquire 105 acres in Cambridge for $55.24 million. In Kitchener, Crestpoint Real Estate and Perimeter Development made a notable investment of $21.15 million in a 38-acre site, while Krug purchased a 23.7-acre site in the same city for $14 million. Dream Industrial REIT also made its mark with the acquisition of a 28.5-acre site for $26 million. Additionally, Fiera Real Estate acquired approximately 21.6 acres of industrial space in Brantford, with a price tag of around $118 million.

The biggest investment in the region was more than just a land deal. PowerCo’s 370-acre $35-billion Volkswagen battery plant, which will sit on a 370-acre site in St. Thomas, will employ 3,000 people and is receiving billions in subsidies from multiple levels of government.

Electric-vehicle adoption isn’t the only global trend having an impact on the region.

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

The need for resilient and agile supply chains has become a top priority, and industrial real estate has emerged as a key enabler of this transformation. As a result, industrial assets are witnessing a reclassification in the eyes of investors, who now view them as indispensable components of a diversified real estate portfolio.

Industrial real estate is the ugly duckling of real estate asset classes compared to office buildings and retail spaces,” Blaine said. “After a prolonged period of being suppressed, industrial pricing, land values, and lease rates have caught up, indicating a significant shift in the market.”

In regions such as Southwestern Ontario, where manufacturing, clean tech, ag tech, life sciences and autonomous vehicles are driving the renaissance, broader investment interest is only adding fuel to the fire.

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

“These investments are important. We need to compete for them as a province and as a country,” Blaine said. “Any private manufacturer right now will be evaluating Canada, they’ll be evaluating the U.S., they’ll be evaluating Mexico and they’ll be evaluating abroad…. A $35-billion investment mixed between private and public is a massive investment that’ll benefit the region for years and years to come.”

Source: Financial Post

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