How a shortage of industrial land in Ontario affects automotive investment

A decade after the last Ford Crown Victoria rolled off the line at the St. Thomas Assembly Plant just outside London, Ont., construction crews have begun preparing the former Ford Motor Co. site for a new industrial use.

Broccolini, a developer that has built fulfilment centres in Ontario and Quebec for retail giant Amazon. com Inc., bought the 622-acre (250-hectare) swathe of land last summer and is transforming the site into a warehousing hub.

As desirable Ontario land grows increasingly scarce, shuttered factories are more likely to be redeveloped for uses other than manufacturing, according to a recent study by the Trillium Network for Advanced Manufacturing.

Coupled with rising land and rent costs, the trend threatens to push current Ontario manufacturers and new investment out of the province, said Brendan Sweeney, managing director of the Trillium Network. The nonprofit organization, based at Western University in London, advocates for advanced manufacturing in the province.

Of 169 Ontario plants that shut their doors during the past 15 years, only 18 per cent are wholly used today for manufacturing, according to the December report.

With much of Canada’s economic might centred along Ontario’s Highway 401 corridor, manufacturing faces fierce competition for land. Sectors such as e-commerce, finance, technology and government are all vying for space, unlike in the United States, where industries are better confined to their separate regional pockets, said Sweeney.

“Jammed up in our manufacturing heartland is our Midwest, also our New York and our Washington, D.C., and our Boston,” he said.

Without more insightful planning and protection for factories, land uses of “less economic value” will likely continue elbowing out manufacturers, Sweeney said.

Access to labour, highways and other infrastructure, he said, are key requirements for goods producers. That means developers or redevelopers of other types of projects are often hunting for the same sites.

LAND SCARCE, EXPENSIVE

Victor Cotic, executive vice-president of national investment services at the real estate firm Colliers International Inc., said the boom in warehousing, combined with the Greater Toronto Area’s slow pace of construction on new projects, has given the region’s industrial real estate market the lowest availability of any major region in North America.

A healthy market has an availability rate of five or six per cent, Cotic said, while the Greater Toronto Area sits below one per cent and has for more than three years.

“When it broke that one-percent-availability-rate mark, we started to see a big uptick on rents because there’s now more competition from tenants and buyers for space,” Cotic said. “So we’ve been seeing rental-rate growth in excess of 20 per cent year over year, and there’s no real end in sight.”

Compared with 2016 rents of $5 to $6 per square foot, industrial real estate in the Greater Toronto Area now ranges between $13 and $15 per square foot. This is pushing manufacturers and other companies looking for space to smaller markets throughout Ontario, contributing to higher demand and costs across the province.

This cascade of rising costs has not yet created a “mass exodus” of industrial companies from the province, but Cotic said he is hearing about companies inquiring about relocating to more affordable jurisdictions.

AUTOS DRIVE ECONOMY

For automakers that must stay close to the rest of the supply chain, relocating typically means south of the border — and those moves translate into major economic losses for Ontario, said the Trillium Network’s Sweeney.

Between offering higher-than-average wages to plant workers and buying from other local goods producers and service providers, automakers have among the highest economic footprints of any business, Sweeney said. He estimates they have between five and six times more local benefit than warehouses, which typically handle goods produced outside the province with relatively few workers.

Despite this, Ontario does little to differentiate between land zoned for manufacturing and land dedicated to other industrial uses such as warehousing. For instance, the most recent Provincial Policy Statement, which guides city planning, sets numerous guidelines for protecting industrial and manufacturing land but does not distinguish between the two.

Municipalities typically follow suit. Citing Mississauga, Cotic noted that the city zones land for several types of employment but does not differentiate most manufacturing from distribution.

All other things being equal, he said, a landlord leasing space is also more likely to favour a warehousing client over a manufacturer.

“Warehousing operations are fairly consistent between how they use buildings,” Cotic said. This means an owner can “build that mousetrap” for a succession of clients.

Manufacturers, on the other hand, often require their facility to be at least partially purpose-built, and a different set of upgrades would likely be required when that lessee vacates.

PLANT PROTECTION POLICIES

To preserve Ontario’s manufacturing plants and attract new ones, Sweeney urged the province and municipalities to support retrofits as well as rethink how they zone land for employment. Potentially, that would add tax breaks for businesses that deliver higher economic value.

While warehousing is the gravest threat to manufacturing sites along much of the Highway 401 corridor, within Toronto’s city limits, residential or mixed-use redevelopments are the leading cause of lost factories, according to the Trillium Network report.

Given the province’s tight housing supply, Sweeney said, it can be tough to push back against urban redevelopments. When plants do need to be built, governments should ensure that they can be relocated to areas that are better suited to “a one-to-one swap.” Creating a registry for manufacturing land that would be similar to the one protecting heritage properties should be another consideration, he said.

The Ontario government has not yet moved in this exact direction but has designated 31 “provincially significant employment zones” in and around Toronto. While properties in the zones are not safeguarded from being repurposed for another employment use, the province would need to sign off on redevelopments for housing.

Ontario is closely watching the wider industrial land use issue, said Vic Fedeli, economic development minister. Sufficient land exists for both industrial and housing uses, he said, but ensuring the land is investmentand development-ready is a barrier the government has been working to address over the past three years.

The province currently has several site readiness programs to help municipalities and landowners prepare land for industrial companies looking to expand or locate new plants in Ontario.

“There’s fierce competition to secure that investment,” Fedeli said, “and that means we need to have the sites ready. That can’t be the piece that is holding us back.”