Demand for industrial real estate remains strong in Windsor-Essex
Saturday, August 15, 2020
The Windsor Star/Dave Waddell
Despite COVID-19 ravaging the Canadian economy in the second quarter of 2020, demand for industrial real estate remained strong in southwestern Ontario.
Windsor, London, Ottawa and Halifax were the only four communities in Canada to see the percentage of available industrial space decline in the second quarter.
Availability in Windsor dropped by a nation-leading 21 basis points while London, Ottawa and Halifax all dropped by 10 points.
“During the first 60 days of the lockdown we felt a pause in the market,” said Brook Handysides, a vice-president with the commercial/industrial real estate firm CBRE Ltd.
“As we entered Stage 1, things picked up. The values have returned to pre-COVID prices.”
Windsor currently has 3.14 per cent of its 57.7-million square feet of industrial space available while London (39.5-million) has 2.2 per cent, Ottawa (31.6-million) 3.3 per cent and Halifax (12.8-million) 6.5 per cent.
The national availability average is 3.5 per cent.
Industrial space increased by 40 basis points in Toronto and the national average also increased by that figure.
Despite the rise in the Toronto area (792.4-million square feet), the region still only has two per cent availability.
With supply tightening, the cost per square foot of renting or buying industrial space has steadily increased.
In the first quarter of 2018, space in the Windsor area could be leased for $5.37 per square foot. In the second quarter this year it rose by 10 cents to $7.52.
The average asking price per square foot to purchase space in 2018 was $68. Last quarter the cost to buy increased by $6.54 to $94 per square foot.
“The fundamentals are still strong,” said CRBE sales agent Brad Collins, who along with Handysides is based in Windsor. “We’re seeing record highs in sales and leasing rates.”
The cost of leasing in London rose 74 cents to $5.79 per square foot in the second quarter while buying jumped $4.45 to $68.43.
Ottawa saw a decline of $1.04 to lease to $10.41 and there was no change to the $175.78 cost to buy space.
The national average to lease is $9.17 per square foot, up 23 cents, and prices to buy increased 45 cents to $156.41.
Collins said there are several factors at play behind the resilience of the market in the Windsor-London corridor.
“The price of real estate is still an attraction,” Collins said.
“It’s half of what you’ll pay in Toronto ($221.10 per square foot).
“There’s also a $2 discount in the rental rate versus the GTA ($9.71).”
Those advantages have companies casting covetous eyes down Highway 401. Collins expects that trend to grow as the economy stabilizes further after COVID-19.
“Logistics and e-commerce is driving costs in the GTA,” Collins said. “Manufacturers can’t compete with what those industries can pay, so they’re looking further afield.
“Windsor will hugely benefit. They’re looking at a lot of value for a four-hour drive.”
Collins added the Windsor is also a different market in that manufacturing still is the main occupant of industrial space.
“One of the things we noticed in the quarter is a lot of users of space in the Windsor region were quite entrepreneurial and pivoted to meet the needs for medical equipment and other services,” Collins said. “It kept demand for industrial space strong.”
During the last quarter, there were two sales completed of facilities in excess of 50,000 square feet.
An 86,000-square-foot plant in Windsor being vacated this fall by a Tier 1 supplier to FCA attracted multiple offers.
Another building of about 90,000-square-feet in Oldcastle was sold and will also be re-leased for manufacturing.
Both buyers have local roots.
“There’s just not a lot of buildings of 50,000-square feet or more available,” Handysides said. “New supply is being driven by purpose-built expansion.
“With low interest rates and essentially a fully occupied market, it drives the need for purpose-built construction.”
The duo said it’s difficult to predict how the market will finish the year with COVID-19 lingering and the ripple effect of losing a shift at FCA’s Windsor Assembly Plant still to be fully felt.
However, they admit the real estate market’s performance to date has been a pleasant surprise.
“You look at the industrial market over the last 10 years and you can see it reflects the health of the economy,” Collins said.
“Ten years ago, we had a 15 per cent availability rate. Being at 3.14 per cent tells you where we’re at now.”