As the new CEO of Northcrest Developments, Derek Goring has stepped into a once-in-a-lifetime opportunity: heading up the transformation of the 370-acre Downsview Airport Lands site in northwest Toronto.

Goring assumed the new position on May 30 after serving as Northcrest’s executive vice-president of development since October 2019.

“It feels good and the response has been good and I’m really enjoying the responsibility and the privilege of having this job,” Goring told RENX. “It’s really fun and I love doing it.”

Goring’s previous private and public sector experience as senior VP of development for First Gulf, senior VP of land development for Infrastructure Ontario and development director for Waterfront Toronto will serve him well for the Downsview project, which is expected to take 30 years to complete.

“It does feel like all the work that I’ve done for the last 20 years led to and prepared me for this,” Goring said. “It just came along right at the perfect time for me.”

Northcrest and Canada Lands collaboration

PSP Investments acquired the 370-acre Downsview property from Bombardier for $825 million in 2018 and created Northcrest as a wholly owned subsidiary to oversee the development.

Bombardier will start moving from the site in August, setting the stage for the first phase of the multi-decade project.

Canada Lands Company owns an adjacent 150 acres and has been working closely with Northcrest for the past few years.

While that collaboration will continue, the nature of the relationship will change once the Downsview Area Secondary Plan is approved by City of Toronto officials.

The plan will set out the long-term vision for a complete community centred on transit investment, job creation, parks, open spaces, community services and facilities to meet the needs of existing and future residents and workers.

The Downsview Area Secondary Plan area is generally bounded by Keele Street to the west, Wilson Heights Boulevard to the east, Sheppard Avenue to the north and Wilson Avenue and Highway 401 to the south.

“It only made sense to plan it as one parcel, which is what the Secondary Plan will do,” Goring said, “but the phasing that we’re proposing means that we’re starting at the far edges.

“So, effectively, once the Secondary Plan is finished, we’ll become neighbours, but also to a certain extent competitors. They’re developing their site and we’re developing our site and the neighbourhoods we’re starting with are not next to each other.

“Because the site is so big, it’s almost like they’re in different submarkets.

“So we’ll continue to talk to them and I’m sure that relationship will continue to be good, but I don’t expect that we’ll be spending as much time with them in the future as we have been over the last couple of years. And that’s not because we don’t want to; it’s just the natural evolution of how the site is going to build-out.”

The adjacent 291-acre, Canada Lands-owned Downsview Park, which was created in 2012 and is separate from the Downsview Airport Lands, will remain at the heart of the community and won’t be reduced in size.

Work being done with variety of stakeholders

Northcrest has also been working with Indigenous rights holders and other stakeholders, and Goring said that will continue.

“The tools and formats will evolve over time, I’m sure, but it’s really about how we continue to ensure that the input and feedback of those groups are embedded in the decision-making process of how the site is going to evolve.

“With the plan that we have, and as much as I think it’s a really good plan, to suggest that it’s not going to change over the course of 30 years is just not realistic.

“There will be opportunities, market changes and technology changes. Social conditions and political considerations will evolve. We’re going to need to evolve as well.”

A framework is being established that will tie all of the site’s neighbourhoods together, while also ensuring they retain their own distinct character. The existing airport runway will be repurposed into a public space to connect the neighbourhoods, according to Goring.

The Hangar District

The first neighbourhood to be created will be the 102-acre The Hangar District, which is proposed to include:

•    2.2 million square feet of residential gross floor area (GFA) for 2,850 new homes;
•    2.9 million square feet of non-residential GFA, including approximately 1.5 million square feet of retrofitted airplane hangars;
•    more than six acres of parks and open spaces as well as a direct connection to Downsview Park;
•    access to three subway stations and one regional GO Transit station;
•    a new elevated pedestrian and cycling bridge, as well as cycling infrastructure throughout the district;
•    active programming, including new public art and community and recreation facilities; and
•    a focus on low-carbon, innovative energy and mobility solutions, as well as blue-green infrastructure.

“It will be very different than any of the other neighbourhoods, with lower density and much more employment-oriented than the other districts,” Goring said of The Hangar District.

“We’re spending a lot of time thinking about the public realm and the retail and other uses that will ensure that it has a sense of place from the minute that it’s opened, and part of that is doing a pretty significant amount of development in that first neighbourhood up front.

“It’s going to be a very large first phase so that it doesn’t feel like the first people moving in are going to feel like they have to wait 10 or 15 years to get the full experience of the neighbourhood.”

Film and television production studio

PSP Investments and Los Angeles-based Hackman Capital Partners, a privately held real estate investment operating company and owner of studio-based equipment and production vendor The MBS Group, signed a memorandum of understanding two years ago for a long-term ground lease and the construction of a film and television production studio campus.

The deal will see an investment of approximately $200 million and is expected to create thousands of new direct and indirect jobs. The long-term plan envisions more than one million square feet of production and support space, with sound stages ranging from 20,000 to 80,000 square feet.

Goring is hoping to get the Secondary Plan approved in the first half of 2024, followed by approval for The Hangar District. The goal is to start construction in 2025.

Taking advantage of the site’s scale

“It’s really important that we are looking at this not just as a series of buildings, and we’re doing residential, office, retail and industrial,” Goring said. “What’s as important, or more important, are the spaces between the buildings and the way we’re doing it.

“There’s a big focus on things like community benefits, affordable housing, parks and public spaces, and ensuring those places are really done at a high quality and with involvement from the community.

“I think the process that we’re following is pretty unique and different than the way typical development happens, and that’s partly because of the scale that we have, and we’re really trying to leverage that scale to do things differently. ”

Among these are “proactive” attempts to include schools, community facilities, parks and public spaces as well as considerations for affordable housing, he said. The project is also considering arts, culture and employment opportunities.

“There are a lot of things that we’re doing that either aren’t typically required or aren’t (normally) possible, because of the scale that we’re working on, and that’s something that is both challenging but also really exciting and rewarding.”

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SmartStop Self Storage REIT says it has become the fifth-largest self-storage operator in Canada with the $300-million acquisition of eight properties in the Greater Toronto and Hamilton areas.

The properties comprise 7,400 units and 758,000 square feet of rentable space.

They were acquired by SmartStop’s affiliates Strategic Storage Trust VI, Inc. and Strategic Growth Trust III, Inc., REITs which are managed by SmartStop.

SmartStop and its affiliates now own or manage 33 operating self-storage properties in Canada, consisting of approximately 28,600 units and three million square feet of space.

Several of those facilities are held in a joint venture with Toronto-based SmartCentres REIT, though this transaction is outside of that JV.

14 Canadian properties acquired in past year

The Ladera Ranch, Calif.-based company has been aggressively adding properties in Canada over the past 12 months.

This acquisitions brings it to 14 operating facilities added to the portfolio during the past year, with a value of approximately $450 million.

“I firmly believe that our recent expansion in Canada is a pivotal move that perfectly demonstrates our vision for strategic growth,” said H. Michael Schwartz, CEO of SmartStop, in the announcement.

“With these class-A facilities, we are bolstering our commitment to serving the Canadian market while addressing a significant demand for purpose-built self storage in the thriving Greater Toronto Area.”

Tuesday’s announcement does not identify the individual properties which were acquired, but it does note the areas they service.

The facilities are in Burlington, Hamilton, North York, Woodbridge (Vaughan), Toronto and Mississauga.

While some will increase SmartStop’s presence in communities it already serves, several of the locations open up new neighbourhoods for the firm.

“Each of these class-A assets represents a unique opportunity for growth and innovation, enabling us to strengthen our presence in this dynamic landscape,” said Bliss Edwards, executive vice-president of Canada for SmartStop, in the announcement.

“We are extremely excited to bring SmartStop’s operational excellence and our best-in-class customer service to both new and existing communities that our properties serve.”

About SmartStop and the trusts

SmartStop Self Storage REIT, Inc. is a self-managed REIT with a fully integrated operations team of approximately 500 employees.

Through its indirect subsidiary SmartStop REIT Advisors, LLC, the firm also sponsors other self-storage programs.

As of June 20, 2023, SmartStop has an owned or managed portfolio of 192 operating properties in 22 states and Canada, comprising approximately 135,000 units and 15.2 million rentable square feet.

SmartStop and its affiliates own or manage 33 operating self-storage properties in Canada, which total approximately 28,600 units and 3.0 million rentable square feet.

Strategic Storage Trust VI, Inc. (SST VI) is a Maryland corporation investing in income-producing and growth self-storage facilities and related self-storage real estate investments in the United States and Canada.

As of June 20, 2023, SST VI has a portfolio of 13 operating properties in the United States comprising approximately 8,660 units and 1,005,000 rentable square feet (including parking); 11 properties with approximately 9,800 units and 1,050,000 rentable square feet (including parking) in Canada, joint venture interests in three development properties in Ontario and Quebec and one development property in Ontario.

Strategic Storage Growth Trust III, Inc. (SSGT III) is a Maryland corporation with a primary strategy of investment in growth-oriented self-storage facilities and related self-storage real estate investments in the U.S. and Canada.

As of June 20, 2023, SSGT III has a portfolio of five operating properties in the U.S., comprising approximately 4,400 units and 487,400 rentable square feet and one operating property in Canada, comprising approximately 750 units and 74,400 rentable square feet.

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In Hamilton and Niagara, Ontario, two high-profile projects are transforming brownfield spaces and attracting modern industrial users.

As cities evolve and economies transform, the adaptive reuse of industrial spaces is a powerful strategy for revitalizing and repurposing outdated facilities. HOPA Ports and partners are taking this approach to strategic assets within the port authority’s 1400-plus acre portfolio of multimodal industrial lands on the Canadian Great Lakes.

“Adapting a space from one industrial use to another can be complex, because every potential user’s needs are unique,” said Jeremy Dunn, HOPA Ports’ Commercial Vice President. “We start by investing in key transportation infrastructure and upgrades, but we also have to stay flexible, so a new customer is getting exactly what they need from their facility and improving their supply chain.”

Investments underway in HOPA’s Hamilton rail logistics hub

At Pier 18 at the Port of Hamilton, HOPA is transforming a legacy industrial site into a new rail transload hub, providing much-needed rail capacity and space for modern industry. The Pier 18 hub sits within the footprint of former steel manufacturing lands on the Hamilton Bayfront. At the heart of the development is a 10-acre rail transload hub with capacity to handle rail car storage, rail transloading, container handling and more.

Work began recently on investments to rehabilitate and expand the rail infrastructure. Connected to the CN line, close to marine terminals at the Port of Hamilton, and with direct access to 400-series highways, Pier 18 is ideally located for a rail transload facility. “We’ve seen the number of rail cars transiting the port increase by 122% in the last decade,” said HOPA’s Jeremy Dunn. “Still, there’s a need for much more rail capacity in Southern Ontario.” CN Rail and Hamilton Container Terminals are partnering with HOPA to offer rail services, which bring extraordinary value to the adjacent development lands at Pier 18.

The rail hub is surrounded by 60 acres of industrial development land, and HOPA is welcoming inquiries from potential users who can benefit from the site’s specialized multimodal and heavy industrial services.  “We can offer industrial supports that just aren’t available at your typical greenfield site,” noted Dunn. “New users will have access to rail transloading, de-stuffing, dry and liquid bulk transloading, gantry cranes, and spaces for industrial processing, all within a secure site which is appropriately zoned for industry.”

Expanding Thorold Multimodal Hub welcoming new tenants

In the Niagara Region, HOPA Ports and partner BMI Group are delighted with the market response to the revitalized industrial space at the Thorold Multimodal Hub, a 600-acre reinvented industrial complex adjacent to the Welland Canal. The Hub includes a former paper mill and auto parts manufacturer property, both of which had been idle for many years, and combines them with other adjacent industrial lands.

To-date, close to $90 million has been invested in the Thorold Hub, including refurbished warehouses, road and rail infrastructure. The site has more than a million square feet of indoor space, in addition to outdoor storage and build-to-suit greenfield development land.

HOPA partner BMI Group has been instrumental in restructuring some of the Hub’s most challenging spaces. “The transformation has been amazing,” said Justus Veldman, Managing Partner with BMI Group. “We are ahead of schedule, able to put more space into action as productive employment land, and giving Ontario companies the space and transportation supports they need to thrive.”

Some of the Hub’s most valuable features are in-place thanks to the space’s industrial history. “We have Class A Power with 185MW of capacity and the lowest rates in Ontario,” said HOPA’s Niagara Property Manager Kurt Vos. “An on-site effluent treatment plant can treat 960 litres of wastewater per second from a wide variety of waste streams. We have such a variety of spaces, from 5,000 to 200,000 square feet, with exceptional features like 60-foot ceilings and 60-tonne cranes, already in-place.” The Hub also serves as a nexus between transportation modes, with direct marine access, rail service including indoor and outdoor transloading, and highway access 30 minutes from the Canada-US border.

Already, more than a dozen companies have taken up residence in the Thorold Hub, including Canadian Maritime Engineering, and clean-energy innovator CHAR Technologies.

“In order to ensure that manufacturing continues to grow in Ontario, we have to get creative about these legacy industrial sites,” said HOPA’s Jeremy Dunn. “Each one is different and offers unique opportunities, which we optimize by working closely with our customers.”

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The Greater Toronto Area (GTA) is likely to experience an oversupply of office space for the next 20 years, according to an Altus Group Economic Consulting report titled Office Needs and Policy Direction in the GTA.

The study was commissioned by the NAIOP Greater Toronto Chapter.

“We thought it was a chance to start putting some facts behind a lot of anecdotal observations that the industry was having as it relates to our office stock,” NAIOP government relations chair and Dorsay Development Corp. senior vice-president of residential Leona Savoie told RENX.

“We wanted a good position piece so that we can start discussions with all levels of government . . . about building some more flexibility into our policy realities.”

NAIOP Greater Toronto is a commercial real estate industry association that undertakes policy work to assist governments.

It’s comprised of more than 1,200 members from 300 companies, including owners, developers, managers and related industry advisors.

Office availability rates are rising

Office absorption in the GTA averaged 2.8 million square feet per year from 2014 to 2019. Since the onset of the pandemic, there’s been a loss in leased space of 5.3 million square feet and availability rates have elevated in class-A, -B and -C buildings in all regions.

The availability rate rose from about 10 per cent to 17.5 per cent in Q1 2023 and some 35 million square feet of office space is available to lease — more than double the amount in Q1 2020.

There’s also now close to 40 million square feet of office space in the development pipeline, according to the report, and developers are getting nervous about new investments.

Lenders are reluctant to make new loans related to office assets and owners of existing buildings are considering options for conversion in cases where demand falls too low to make operating their buildings feasible, according to the report.

Employment space policies should be reviewed

Complicating the situation are City of Toronto policies encouraging or requiring inclusion, retention and/or replacement of all non-residential gross floor areas when a site is being considered for development or redevelopment.

These requirements are significantly impacting the feasibility of projects as developers may be reluctant to create office spaces that could go unused, according to the report.

“No developer wants to build 40,000 or 50,000 square feet of office replacement if it has no value and the residential portion of a mixed-use development has to subsidize it and then have it sit empty,” Savoie observed.

“At the same time, I don’t think any purchaser of a condominium would want to buy into a building where they’re sitting on top of an empty office structure.”

Forecasting for the future

The report looked at the current and potential new office supply in the development pipeline as well as three hybrid work scenarios — employees spending two, three or four days a week in the office. They are based on a projected 2041 office inventory of 217 million square feet — and don’t take into account the potential for demolitions or conversions, or that lack of financing or other factors results in some projects not being constructed.

It said there could be a surplus of approximately 49 million square feet of office space and a vacancy rate of 45.7 per cent by 2041 if employees are in the office only two days a week.

That surplus drops to 9.4 million square feet and a vacancy rate of 31.1 per cent if employees are in the office three days a week.

“We knew we had a problem, but we didn’t think it was of the magnitude that this forecasts,” Savoie said.

In the four-day-a-week scenario, the report forecasts a need for approximately 15 million square feet and a 16.5 per cent vacancy rate by 2041.

Functionally obsolete facilities

These scenarios are likely to result in a growing stock of buildings rendered functionally obsolete due to outdated design, features, technology or environmental and sustainability standards.

Owners of these spaces may need to invest in renovations or upgrades to modernize their properties and make them more appealing to potential tenants.

However, in a market with an availability rate close to 20 per cent and prospects of worsening conditions over the next 20 years, incentives to invest heavily in older buildings are reduced.

Owners may also choose to repurpose properties for alternative uses, such as converting them into mixed-use developments, co-working spaces or residential units. It’s incumbent on municipal planning policies to keep pace with these needs in order to preserve the role that office buildings play in cities, the report says.

“I think the City of Toronto could welcome some more residential into the financial district without compromising its function,” Savoie said. “What are we going to do with all this vacant space and what are we going to do with all of this surplus land that will not be developed for employment uses for the foreseeable future?

“We already see in municipalities like Markham, Mississauga and Vaughan where they’re holding on to employment land in hope that it will be built on one day. But there are a number of areas that we can point to in those jurisdictions where they’ve been holding on to it already for four decades and we still haven’t seen offices built.”

Need for better office conversion policies

Given the current oversupply, projects in the development pipeline and the weak projected demand for new office space, the report recommends governments enact policies to facilitate and incentivize conversions to residential.

It further states policies restricting the conversion or redevelopment of existing office space into other uses be dismantled.

“If there is an empty office building that you can’t convert to residential as it stands, I think there should be permission to allow the owner to demolish and replace it with what is feasible at the time,” Savoie noted.

“We have to tear down sometimes and create something new in order to keep a vibrant core or vibrant city. Having an empty building doesn’t serve anyone.”

The report also advises governments take a regional approach to planning for future office needs and re-evaluate the amount of lands designated for employment.

“All of those areas that are designated employment throughout the region should be approached more on a regional basis,” Savoie said.

“Every municipality assesses their needs individually as opposed to across jurisdictions.”

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The first quarter of 2023 is in the books and looks to have been defined and influenced by the impacts of the Bank of Canada’s rapid interest rate hikes which began near the middle of 2022.

It’s a trend being felt broadly across Canada, according to CBRE.

However, now heading into Q2, some respite is emerging as the pause in interest rates has potentially provided a sufficiently stable environment to encourage normal levels of CRE activity.

Hamilton transactions

In contrast to the $346 million worth of commercial real estate transactions recorded in the Q1 2022 in the Hamilton region, there has been a decline of 38.4 per cent in transactions completed in Q1 2023. Only $213 million worth of transactions were recorded.

Both of those stats can be mainly attributed to the cost of debt.

During Q1 2023, only 59 transactions were completed, compared to the 99 transactions completed in the first quarter of 2022.

Hamilton typically witnesses around 85 transactions in any given quarter.

The 59 transactions represents the second-lowest total for any quarter since Q2 2020 when pandemic lockdown measures were in effect and stifled the market with 51 transactions taking place.

$346 million is still the record amount for Q1 transactions and by contrast, $213 million for 2023 is fairly average.

Considering the incredibly low volume of transactions, it’s encouraging to see values are relatively healthy, coupled with the fact the first quarter of the year usually witnesses lower dollar volumes than the ensuing quarters.

The largest transaction in Q1 was completed in January, as an approximately 86,000-square-foot industrial building located on 21.5 acres of land at 400 Jones Rd., sold for $25.5 million.

The high purchase price is also reflective of the demand for logistics assets with land to accommodate trucking and storage.

Residential land

Land transactions, both commercial and residential, have also quietened for the past several months.

Q1 2023 did, however, witness a bevy of interesting deals located near the core and priming downtown for high-density development in the foreseeable future.

A 0.70-acre parking lot at 117 King William St. was purchased by Brad J. Lamb Realty Inc. for $7 million (representing $10 million per acre), which is more or less on par with high-density development land value.

Within the immediate vicinity, other parking lots have been purchased by Rosehaven Homes, Kaneff Group and Emblem Developments within the past several years.

Staying in the core, 169 Jackson St. E. was purchased by Fengate Asset Management for $3 million or approximately $13,050,000 per acre.

In December, Fengate had also purchased the adjacent corner site, totalling a potential development site of 0.63 acres.

Next door, Vrancor Group recently completed the construction of its multiresidential development Walnut Place.

Fengate is also involved with the currently under construction residential developments Cobalt and 75 James.

Finally, 205 Cannon St. E., an existing commercial building located on 0.74 acres downtown, was purchased by Aventus Developments for $2.55 million or just under $3.5 million per acre.

This marks Aventus Developments’ second purchase in Hamilton after originally purchasing the former Tivoli Theatre site in Q1 2022.

Directly across Cannon Street East, Vrancor Group has also completed a 12-storey multiresidential development.

Nearly all land transactions, and a healthy chunk of other large commercial real estate transactions, are requiring large VTBs.

Developments

A few interesting developments were proposed at Hamilton’s Design Review Panel this past quarter.

Main Margaret Inc. pitched a 171-unit development for 392 Main St. W. The proposed mixed-use development would feature commercial uses on the first floor and eight additional floors above for residential use.

This strip of Main St. W. is witnessing multiple land purchases and development projects with Westgate Condos the furthest along and currently under construction.

DiCenzo Construction Company also proposed a plan to build 751 units on 117 Jackson St. E. The project consists of two mixed-use towers of 30 and 39 storeys erected adjacent to the tallest tower in Hamilton, Landmark Place.

New Horizon Development Group plans to construct new units at 1284 Main St. E. with 975 units proposed on and around the former Delta Secondary School building.

The design includes 14-storey additions surrounded by stacked townhouses along the perimeter.

Summary

Overall, based on the Q1 transactions and market conditions, we can conclude that the year started at a slower pace.

There could be a silver lining, however.

After nearly a year of higher interest rates, the resulting stability could provide investors, who have been on the sidelines, with a fresh perspective on how to approach the remaining quarters of 2023 and ultimately increase activity.

This could be a reason why we’re beginning to see increased activity during Q2.

However, until interest rates soften, Hamilton and most of Canada, should continue to expect muted transaction volumes for the foreseeable future.

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Industrial remains the Greater Toronto Area’s (GTA) most desirable asset class, given its low availability, strong rent growth and continued appetite for newly developed product.

“Five years ago in Q4 2018, rents were seven dollars (per square foot in the GTA),” said Collier’s executive vice-president Marc Kirshenbaum during a May 30 Land & Development Conference panel discussion at the Metro Toronto Convention Centre.

“Now we’re close to $20, so tenants looking for renewals are in for sticker shock.”

Industrial properties that were selling for close to $200 per square foot in 2018 are close to $400 per square foot now.

The volume of industrial land sales jumped by 420 per cent from 2020 to 2021 due to a surge in investment in new warehousing and distribution centres, Kirshenbaum added.

Will the good times in industrial continue?
The first question asked of the panel by moderator and Cadillac Fairview senior vice-president of industrial development Paul Macchione was: Will these good times continue?

“We’re seeing continued strong strength in the industrial market,” said John Scioli, Panattoni Development Company research manager for strategy and market intelligence .

“We’re still seeing strong pre-leasing of 40 to 50 per cent, which in an historical context is still a very strong market.”

Panattoni specializes in building speculative properties and receives multiple offers for the industrial facilities it builds across the GTA, Scioli added.

While new development seems to be slowing, there’s still plenty of new product scheduled for delivery during the next 12 to 24 months.

Macchione asked if there are concerns about an over-supply of space, or whether absorption will continue to keep pace.

There’s been record-setting net absorption for industrial properties across North America for the past two years, according to Scioli.

He doesn’t have any concerns about over-supply in the GTA, the continent’s fourth-largest industrial market.

Tenant demand is still there, sales volumes have dropped due to higher interest rates and there’s a chance some spec-built developments will be sold to design-build users, Kirshenbaum told the panel.

What industrial tenants are looking for
While 40-foot clear heights are desired by many tenants for warehousing and logistics spaces, Scioli said manufacturers generally don’t need ceilings to be as high.

Having ample electric power inside buildings is becoming more important for users as is having an adequate amount of electric vehicle charging stations for the growing numbers of cars, vans and trucks that will no longer be gas-fuelled in the future.

Kirshenbaum said tenants want more mid-bay product of 20,000 to 100,000 square feet as many new developments are a minimum of 250,000 square feet.

He primarily works in the Toronto suburbs of North York and Vaughan where there are a lot of older buildings with 14- to 16-foot clear heights and tenants looking for newer, more efficient spaces.

Scioli said mid-bay and small-bay industrial facilities are more expensive to build, but he’s starting to see tenants split up larger buildings to accommodate the space needs of these users.

Greater Golden Horseshoe markets
Scioli noted the boundaries of the GTA industrial market are expanding.

There are three million square feet of development in Waterloo Region, as well as expansion in Hamilton and Durham, giving tenants who don’t need to be in the heart of the GTA more options at lower prices.

Kirshenbaum likes Barrie as an industrial market because it has Lake Simcoe Regional Airport, which means 20-minute access to Toronto and 90-minute access to major northeastern United States cities.

The city north of Toronto also offers GO Transit commuter train and bus service and a nearby Lakehead University campus in Orillia, which Kirshenbaum said partners with 6,200 employers in the area and specializes in industrial-related trades.

Home prices are half of what they are in Toronto and industrial land is cheaper as well.

Scioli said the City of Hamilton has been cooperative and efficient with entitling developments and Panattoni is looking to break ground soon on its second project in the city.

He said municipal officials in Oshawa and Keswick, a city of fewer than 30,000 located on the shore of Lake Simcoe north of Toronto, have also been great to work with.

Kirshenbaum said big-box industrial space in south Etobicoke hasn’t leased as quickly as expected as expensive housing has negatively impacted the labour market.

He sees the area more as the spoke in a hub-and-spoke model, believing it’s better suited for smaller warehouse facilities serving larger hubs.

Lease and insurance considerations
WeirFoulds LLP executive partner Lisa Borsook said leases for industrial facilities that aren’t yet built provide more challenges than those for existing buildings.

Tenants can have concerns about outdoor rights, the types of alterations they can make, additional electrical power needs and escalating budgets.

The biggest concern, however, is with construction delays and how they can impact both moving in and installing specialized automation systems that can cost in the tens of millions of dollars.

HUB International senior risk services consultant Chris Della Mora said it’s important to prepare as early as possible when it comes to insuring industrial buildings.

Insurance is a high-cost consideration that can go higher, or even make facilities uninsurable, without advance planning.

Della Morra stressed the importance of “being ahead of the game in knowing what’s going to be in the facility” as even minor changes during the retrofitting process can have a major impact on insurability and costs.

He recommends getting insurance companies involved as early as possible as it’s easier to make changes at the design phase than after construction starts.

Della Mora cited the example of a former food distribution centre purchased and retrofitted to become a plastics manufacturing centre. Then the company was told it was uninsurable due to the new use.

Borsook said she always gets in touch with insurance companies to find out how insurance clauses will work in a lease, to anticipate risks and work out who bears responsibility for additional costs or construction delays.

ESG considerations
Environmental, social and governance (ESG) has been a focus for both Panattoni and its capital partners as it’s become increasingly important to create more efficient buildings.

Green bonds for financing environmentally friendly developments can also offer better interest rates.

While tenants in Europe are willing to pay extra for greener and more sustainable buildings, or may refuse to move into facilities that aren’t of a certain environmental standard, Scioli said that sentiment hasn’t yet crossed the ocean to Canada.

European-headquartered firms are leading the charge for more ESG considerations in Canada and Scioli expects it to grow in importance.

Future-proofing buildings by making them net-zero-carbon-ready, even if they’re not cutting carbon emissions to zero already, should become a more important goal.

ESG is a hotter topic among landlords than tenants, according to Kirshenbaum, although more tenants are developing sustainability plans.

“A tenant going into a LEED building is great for their corporate profile,” Kirshenbaum said.

“But the reality is that we don’t see tenants having mandates for landlords regarding work that needs to be done on the ESG side.”

Borsook said she’s been asked by landlords to include as many ESG elements as possible in leases and hasn’t received as much pushback from tenants as she anticipated.

Construction and interest costs
Panattoni is moving forward with all of its planned projects and is about to break ground on a 440,000-square-foot building in Guelph, but Scioli said construction financing is presenting challenges for some developers as some lenders exit the market.

Scioli said Panattoni is incorporating four per cent annual rent increases in its leases, up from 2.5 per cent in the past, to help keep up with rising costs.

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