Small Town Canada should take note: 2019 promises to be another boom year for commercial real estate in Canada, industrial in particular.
Consider this in the context of the federal government’s renewed commitment in December to get its act together with regard to regional infrastructure investment.
All of it adds up to a fresh opportunity for smaller communities that have endured years of economic decline due to the loss of anchor employers. They can now act to revitalize themselves by attracting fresh investment which will bring jobs and new additions to the local tax base.
Let’s take it by the numbers
According to Avison Young’s annual report, industrial vacancy hit a new record low across Canada of 2.9 per cent at the end of 2018. This market is expected to tighten further in 2019. For example, Toronto and Vancouver (with vacancy rates of 1.3 and 1.5 per cent respectively last year), are expected to rank in the top three tightest markets in North America for 2019.
Why? Here’s PricewaterhouseCoopers’ take, from its Emerging Trends in Real Estate 2019 report:
“The rising popularity of online retail is driving an unprecedented need for industrial space for distribution and return centres. The sector is seeing significant rental increases for the first time in years. Vacancy rates are particularly tight for large, big-box distribution space.
“Other niche areas of interest include cannabis production facilities, data centres and spaces with large electrical capacity for cryptocurrency mining. While the GTA and Montreal are particularly hot markets, growth is strong across Canada.”
Three examples in Eastern Ontario
We have of course seen this already in my neck of the woods – Eastern Ontario. In my last article, I talked about the new cannabis facilities being set up in abandoned industrial sites in the small towns of Chesterville and Smiths Falls.
Add to this Amazon’s new order fulfillment facility under construction in Ottawa’s rural East End – more than one million square feet, on a 96-acre property with loading bays for 100 trucks. It’s ideally situated near a four-lane highway interchange.
That location more than justifies the millions of dollars developer Broccolini is spending to extend water, gas and electricity to the site and to construct new roads, sidewalks and interchanges.
There are stories like these in smaller communities across Canada, thanks in part to the record tightness of the big-city markets. Not so very long ago, developers would advertise their housing projects with a statement like “There’s a job at the end of every street.”
That was before people began to travel for extraordinary amounts of time, but I think we can reinvigorate that kind of statement with policies that allow us to say, “There is a good job in every town.”
Money looking for a place to land
And there is no shortage of money sitting on the sidelines looking for such investment opportunities. I’ve been reading works like The Ascent of Money: A Financial History of the World, by Niall Ferguson, to learn more about what became of all that quantitative easing, pumped into the markets a decade ago in response to the 2008 recession.
While inflation didn’t shoot up as a result of this stimulus (thanks in part to a fractional reserve banking system), CRE asset valuations in many markets did. In addition to boosting bond and stock markets, trillions of dollars ended up with big institutional investors like banks, insurance companies and pension funds.
If the volume of market activity in Canada is any indication, CRE as an investment class is obviously a big beneficiary and is likely to remain so. (Read my article from a year ago about quantitative easing and CRE.)
Federal infrastructure dollars
Shortly after taking power in the last federal election, the Trudeau Liberals announced a new infrastructure program that would quickly invest (make sure not to say “spend” in front of Infrastructure and Communities Minister François-Philippe Champagne) some $14.4 billion, with 10s of billions more to follow.
This is meant to help address Canada’s woeful infrastructure deficit, to repair roads, bridges, highways, transit and water systems. We have a big infrastructure deficit and this initial investment probably is just a down payment on what really is needed.
This can only benefit smaller communities, by ensuring they can woo potential investors and new anchor employers which need things like good roads and utilities. The problem so far is things have gotten off to a slow start, apparently due to a shortage of companies available to do the work in some parts of the country.
We’ll see if the federal Liberals do get those dollars better distributed and showing results in the months to come.
With land prices in major cities at record-high levels, there is an opportunity to spread industrial growth to include the smaller communities that have seen dismal performances over the past few decades. They just need some help to fill in the missing pieces – such as increased electrical capacity and broadband Internet service.
Time to self-promote
In the meantime, Small Town Canada needs to be out there promoting itself with its advantages over the Big City to price-sensitive industrial players. Shamelessly plug advantages like lower land costs, lower housing costs for employees, lower property taxes and, in many cases, lots of available industrial space in need of a new lease on life that can be had for a song.
It’s time for the mice to roar.
To discuss this or any valuation topic in the context of your property, please contact me at firstname.lastname@example.org. I am also interested in your feedback and suggestions for future articles