In Waterloo Region, in 2008, it cost $80,000 an acre to buy a vacant 28.5-acre site zoned for future industrial development. Demand for commercial land then soared, and a decade later, similar properties were selling for between $400,000 and $500,000 an acre.
But what seems like a remarkable appreciation pales in comparison to what’s happened to commercial land prices in the past year, real estate specialists say.
The Cambridge site on Maple Grove Road, for example, was just acquired by Dream Industrial REIT for $912,000 an acre. The plot received multiple bids as soon as it hit the market, even though the plot is irregularly shaped and wraps around other non-owned properties, making development a bigger challenge than a rectangular site.
The Winnipeg market had been steady for the last 20 years, but what we have seen in the last 18 months has been insatiable demand for land and commercial space— Paul Kornelsen, vice-president of CBRE in Winnipeg
“Industrial, commercial and investment (ICI) land sales are on fire across Southwestern Ontario. We actually can’t find enough of it for those who want to buy it,” says Joe Benninger, vice-president with commercial real estate services firm CBRE’s Southern Ontario investment team. “The volume of land deals has been huge, and the momentum is expanding to cities that didn’t see much interest in the past.”
The rush is widespread, involving tens of thousands of acres of land in regions outside the Greater Toronto Area, including the Golden Horseshoe and all the way to Windsor, he adds. “Two years ago, we were talking between $300,000 to $450,000 per acre across Southwestern Ontario. Now it’s $800,000 to $1.5-million per acre.
“Take Hamilton: It used to be hard to sell ICI land there. Now there’s almost nothing left to buy, and prices are higher than ever,” Mr. Benninger adds. The 3,679 acres worth $498-million sold in Hamilton last year was an increase of 51 per cent from 2020, which was also a strong year for commercial land sales.
And the phenomenon is Canada-wide. Demand for distribution, warehousing and manufacturing sites is stripping supply and setting records, according to commercial real estate services firm JLL’s 2022 Canadian Real Estate Outlook.
Commercial space under construction across the country increased by 7.7 per cent quarter-over-quarter at the end of 2021 to 39.6 million square feet, well above the average in 2015-19. Both Montreal and Vancouver witnessed significant ground breakings on the quarter with minimal completions and were the primary drivers of the increase. The report concludes that “2022 is expected to see even greater deliveries as developers continue to race to satisfy demand.”
Across the country, vacancy rates are at historic lows and occupancy cost registered record highs. All local markets saw rental rates increase, with Montreal, Ottawa, Toronto and Vancouver all registering double-digit annual increases. Vacancy rates also declined in all markets, except Montreal, with Toronto and Vancouver sitting below 1 per cent vacancy.
Even Manitoba has experienced an unprecedented land rush. “The Winnipeg market had been steady for the last 20 years, but what we have seen in the last 18 months has been insatiable demand for land and commercial space,” says Paul Kornelsen, vice-president of CBRE in Winnipeg.
“Transactions are increasing; the number is triple what it was in 2019 and that doesn’t include owner occupiers who have small sites and build their own facilities,” he says. “We’re tracking the big institutional developers who are building on spec and finding tenants eager to lease.”
Prices per square foot in Winnipeg have gone from an average of $7 a square foot to $9 “and we’re projecting average lease rental rates to be at $10 in 2022,” Mr. Kornelsen says. New leases in new buildings are garnering up to $14.
Last year, there was a record-setting 1.2 million square feet of industrial property absorption in the city. Amazon opened two warehouses with a combined area of more than 200,000 square feet. These are much smaller than those in the Greater Toronto Area or Vancouver, but Calgary-based Hopewell Development Corp. alone is slated to build 300,000 square feet of new inventory in Manitoba this year. That number by itself would be a record for on-spec new development in a single year, he adds.
“We’re also seeing new entrants into the market – institutional developers who are in the city for the first time because it’s hard to buy land in Toronto, Montreal or Vancouver. They’re looking at Manitoba as an affordable alternative,” Mr. Kornelsen explains. “We’re also looking at a tenant whose lease has expired in Kelowna, and they cannot get space and [are] looking at Edmonton and Winnipeg as an alternative.”
It’s simply a matter of supply and demand, says Marshall Toner, executive vice-president and national lead industrial for JLL Canada. “You can’t just flip a switch. Land takes time to be zoned and serviced to be ready to develop.”
Markets that traditionally never had a high demand are now on the radar because there’s no other place for developers to go. Companies in Vancouver are looking in Alberta because there is not only land available but it’s at a significantly lower price and that can be sufficient to make them decide to change locales, Mr. Toner says.
“There’s such massive demand now that buyers don’t want to wait,” he adds. “If you have a piece of land that’s ready to go, there will be multiple bidders and the price is just going to continue to rise this year.”
The land rush phenomenon
- In Cambridge, Broccolini purchased an aggregate of 105 acres at Old Mill Road and Allendale Road for industrial development.
- In Waterloo region, Fieldgate Commercial bought 48.2 acres from Smart Centres for commercial development.
- In Hamilton, Broccolini purchased of a 178-acre industrial site on Dickenson Road West; Broccolini also bought a 90-acre industrial site on Glancaster Road in Hamilton.
- Near Hamilton airport, Fengate Capital Management bought a 75-acre industrial site on Homestead Drive. Hopewell Development also bought a 38-acre industrial site on Airport Road.
- In Winnipeg, a national developer bought 17 acres of land adjacent to InksPort Business Park for approximately $400,000 an acre. Three parcels in Winnipeg’s Brookside Business Park also changed hands for prices above $375,000 an acre.