London posts strong industrial leasing and building figures
London may be on the verge of an industrial building boom. The city posted solid industrial leasing and building figures this year in the midst of the COVID-19 pandemic, but it may pale to what is coming as warehousing businesses have been squeezed from the pricey, overbuilt Toronto market and are landing in London, say industrial real estate insiders.
We think this year and next year there will be businesses banging on London’s door. The demand is so strong, said Sean Ford, president of Dancor, a development firm that builds commercial space. The virus hurt us, but things are booming again.
Dancor recently completed two buildings of more than 23,000 sq. ft. each on Robins Hill Road at Huron Street and they are full, he said.
The firm is preparing to build another 100,000 sq. ft. building without a tenant in mind, but it is confident it will be snapped up.
We think London is coming into a sweet spot in the next few years, Ford said.
The construction figure is dominated by Maple Leaf Foods building a 640,000 sq. ft. plant in London and HCL Logistics on Oxford Street, a warehousing firm in the former Electro-Motive Diesel plant, adding a 150,000 sq. ft. expansion.
From January to June, 378,817 sq. ft. of industrial real estate was leased in the city.
The industrial market is strong and moving in the right direction. It is getting better and better, said Ted Overbaugh, senior vice-president CBRE. There are a lot of additions to the market. I don’t see it slowing down. Industry has been solid through the pandemic but if anything it will speed up.
Much of the growth is in the warehousing and logistics sector, as more consumers are buying from online services and having goods shipped.
Still, there may be a lot more building on the horizon, said Kapil Lakhotia, chief executive, London Economic Development Corp.
We have had a solid year to date but based on work we are doing now for the rest of the year and what is in the hopper, we are confident there will be more land purchases taking place, said Lakhotia. There will be more jobs created, more spaces filled.
In fact, the city bought about 80 hectares of land at Bradley Avenue at Veterans Memorial Parkway, near the Dr. Oetker plant, for future development, he added.
There is only about 100 hectares of industrial land remaining in city hands.
Dancor bought 40 hectares of land for additional building, 24ha at Dundas and Creamery roads and 16ha at Gore Road and Veterans Memorial Parkway.
We have been super busy. It has been very active, said Mark Henderson, director business liaison with the city. We are fielding a lot of land inquiries. We have had a lot of significant activity even during the pandemic.
Henderson, who works with businesses in real estate transactions with the city, agrees the next few years will be busy in the industrial land sector and the saturated and costly warehouse market in Toronto is driving logistics businesses here.
They are definitely looking at London. They don’t want to go to Toronto anymore. They want to be here, he said.
Recent industrial wins by the city in landing Aspire Foods and Anvo Laboratories have nothing to do with Toronto real estate, but the city is competing well against other, similar-sized communities for new business, Lakhotia said.
We are a better fit for what they want to do, he said.
Industrial real estate in Toronto is priced at about $13 (£9.96) a sq. ft. and space here in London, leases on average for $5.79 (£4.43) a sq. ft. although some new properties lease for about $9 (£6.89) a sq. ft.
If there is one drag on the future industrial sector, it is development charges levied against warehouse operations. While an auto parts plant or food processor will not pay development fees for a new plant, city politicians decided in 2017 to charge warehousing and logistic businesses development fees as they use larger pieces of land with few workers on site.
A firm paying $1 million (£0.77 million) in development charges could get about $250,000 (£191,453) back from the city, said Henderson.
But without those fees, London would have grown its industrial business by hundreds of thousands of square feet from 2017 to 2019, when the sector here was slow, said Ford.
Development charges are a huge issue, said Ford. There have been missed opportunities. We have had site selectors reach out to us and when they hear development charges, we are off the list.
Overbaugh called the fee a “warehouse tax,” suggesting it would be better if the price of land increased across the board and all development charges were waived.
If you look at Brantford, Woodstock and the GTA, 80 per cent of our deals now are warehousing. We are missing out on deals, tenants and opportunities, said Overbaugh.
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