When manufacturing and technology jobs disappear, the industrial buildings that housed them face an uncertain future, too.
In a south-end industrial park here, an almost 40-year-old, 100,000-square-foot building sat vacant for five years as its owners struggled to lease the space once occupied by a now-defunct furniture manufacturer. In Delta, B.C., two younger facilities suffered a similar fate when the owner, a technology company, retrenched to the United States two years ago.
Today, the buildings in both cities have new life through retrofits designed for a changed economy and new industrial tenants. As a bonus, some refreshed properties move up in class, say from C to B.
The trend to modernize industrial spaces is “in its infancy,” says Ron Jansen, vice-president and sales representative for Colliers International in Waterloo, Ont. “But for landlords to be successful going forward with these B and C Class buildings, they will have to do this.”
In Kitchener, prospective tenants passed on the metal-clad building at 199 Trillium Dr., seen as too big, old and dirty, with ceiling heights of 18.5 to 21 feet, lower than the 28 feet or more required by today’s light manufacturers and distributors.
Somewhat begrudgingly, the building’s owners carried out a $2-million makeover to add docking bays at the rear and parking at the front, reclad the exterior, updated lighting and subdivided the power-washed interior for up to three tenants.
“It was the only choice,” says Larry Wolynetz, a partner in Bluetop Properties Inc., which owns the Kitchener building and other properties in Southern Ontario.
In 2004, Mr. Wolynetz and his partners purchased the building for $3-million, renting it as warehouse space until the tenant ran into financial difficulty in 2009.
Despite cosmetic improvements, the building remained “functionally challenged” – Mr. Jansen’s diplomatic description – with the exodus of manufacturing from Kitchener reducing demand for large buildings.
“It was apparent you have to take drastic measures to make a building saleable or leasable in today’s market,” says Cameron Ball, a Bluetop partner. “In this case, it means smaller units with a more modern look.”
Bluetop replaced a 10,000-square-foot bay on the north side with a new entrance and parking while adding docking bays for truck access for two units, each about 43,000 square feet. A third unit occupies 14,000 square feet.
A changing economy also prompted a similarly-significant retrofit at 7831-7979 Vantage Way in Delta. The sale of the 12-acre site owned by Buckeye Technologies Inc., a Memphis, Tenn., manufacturer of cellulose-based products, posed a challenge because one of two buildings on the property had six electrical rooms, sloping floors and 40,000 square feet of mezzanine.
“It was so specialized it was virtually unusable for any other business in its current form,” says Stuart Morrison, executive vice-president of industrial real estate for Colliers International in Vancouver. He represented the seller and assisted the buyer, Triovest Realty Advisors, a commercial real estate investment and management company acting for a Canadian pension fund.
But there were positive features, too.
“If you peeled away your initial perceptions, what you realized was that it [the specialized building] had heavy floor loads, wide column spacing, heavy power, rail service and high ceilings – all really fundamental parts of a Tier 1 manufacturing facility,” Mr. Morrison says.
In February of 2013, Triovest purchased the property for $20.6-million and carried out a retrofit estimated at between $5-million and $10-million that included flattening the floors of the specialized building and removing interior encumbrances. The site has been rebranded as the South Fraser Industrial Centre to take advantage of what Mr. Morrison describes as “game-changing” infrastructure: a new four-lane expressway connecting the Tsawwassen Ferry Terminal in southwest Delta to North Surrey.
This year, Triovest leased 45,000 square feet at $7.50 a square foot to a media company for 10 years. That leaves 232,000 square feet of leasable space, with possibly up to four tenants occupying a minimum of 60,000 square feet each.
“The reason they [Triovest] bought the real estate and engaged in a fairly complicated renovation was that they could create the right product in the right location at an advantageous price,” says Mr. Morrison. He estimates the property has moved up in class to B-plus from a low B.
Back in Kitchener, with renovations nearly completed, Bluetop has leased about 90 per cent of its property to two mid-sized businesses for $4.95 a square foot.
One of them is a Kitchener manufacturer and global distributor of containers for recycling and document shredding that outgrew its current location and moves into its 43,000-square-foot unit by late summer.
“This one [building] met our specific business model and business requirements,” says Gayle Nummelin, co-owner and vice-president of Jake, Connor and Crew, named for her husband, Patrick Connor, and a golden retriever named Jake. “It really ticked all the boxes.”
Leasing in a new building would cost an additional $1 to $2 a square foot, with space for mid-sized firms at a premium in Kitchener. Ms. Nummelin says the Bluetop partners worked with her firm to understand its manufacturing needs and adapted the building accordingly, even agreeing to an unusual condition that Jake, the dog, and his successors have access to the facility.
As in Delta, the Kitchener building moved up in class. A former B-class property that slid to C when it no longer fit the market has regained its form, Mr. Jansen says. “It is a B-class building by today’s standard.”