A smart industrial hub stretching beyond the Greater Toronto Area (GTA) into much of southern Ontario is transforming not only the way business is done, but the buildings in which that business is done, too.
The observation is contained in a recent Savills whitepaper, authored by Toronto-based Senior Vice President Allen Grinberg and corporate real estate advisor Graham Booth, that examines the Hub and its implications. They represent commercial tenants as part of their work for the consulting firm for commercial real estate founded in London, England in 1855, which today has branches around the world.
Logistics facilities, warehouses, manufacturing facilities and data centers using the Internet of Things, robots, sensors, drones and wearable technologies are becoming more common as the fast delivery of goods and knowledge becomes more important in society.
“It’s been in the works for many years, but with better and better technology, it comes online faster and faster,” Grinberg told RENX. “It uses space and manpower very efficiently. It improves people’s wellbeing in the workplace. It increases productivity and energy savings and improves logistics efficiency.
“Most importantly, I think that public perception is changing as we get more and more goods delivered on time and at the time we want.”
Low vacancy rates and high rents
GTA had an industrial vacancy rate of just 1.5 percent in the second quarter of 2021, while the average net asking rent rose to $ 10.45 per square foot – 50 percent more than three years earlier. These vacancies are becoming scarcer and rates continue to rise.
“Toronto has been a cheap industrial market for a long time,” says Grinberg. “Twenty years ago rents in Toronto were a dollar or two a foot. Ten years ago it was about six or seven dollars.
“Now there’s a new product coming out in Vaughan that costs $ 14 net, up four percent a year.”
In the landlord-friendly market, many are becoming more picky about their tenants. Savills recently represented a clean manufacturing tenant who was turned down because the landlord only wanted to rent to a logistics company that only needed to install racks – and not the extra infrastructure required by manufacturers – in the event the tenant defaulted should.
Booth said owners are now also often unwilling to rent a building to multiple tenants. They wait until a larger tenant comes and takes up the entire space because they don’t want to worry about the extra effort or the cost of subdividing a building.
Industrial users need to rethink priorities
As Ontario’s Greenbelt limits the availability of land for development near Toronto and the short to medium term expected increase in demand for e-commerce and logistics facilities in the GTA, the whitepaper says that users are turning traditional aspects of industrial facilities into order To stay close enough to integrate into the “smart” city.
The report includes a checklist of what industrial land users should consider when assessing their needs and integrating with the Smart Hub in Southern Ontario. They include:
– the company’s current and future needs, including space and technology needs;
– where they should be;
– the best type of building to meet corporate objectives;
– whether to lease or own;
– sustainability and environmental concerns;
– occupancy costs;
– Access to a skilled workforce;
– and available support and incentive programs.
Since some malls are struggling and trying to branch out into mixed use to make better use of their space, one might think that some industrial users would look to them for remodeling.
Grinberg didn’t see much of that, though, and Booth can only think of one example – a customer of a fulfillment company who took over a former Target business on short notice for less than two years.
Southern Ontario manufacturers rely on organizations such as the Automotive Parts Members Association, NGen, the Autonomous Vehicle Innovation Network, and the Refined Manufacturing Acceleration Process Network to support their investments in technology and drive innovation in the region.
They also provide opportunities for collaboration that can lead to facility and supply chain modernization solutions.
Booth said the goal of such organizations, as well as regional innovation centers, is “to accelerate innovation, create jobs and promote the Ontario economy.”
Increase in the clear height
Smart warehouses can store a larger volume and a greater variety of products, so that the ceiling heights increase accordingly. A 20 year old warehouse typically has a ceiling height of up to 24 feet.
Now, with the advances in the Industrial Internet of Things, technology enables robots to reach taller racks, and a minimum length of 28 feet is now expected. Clearance heights of 36 feet or more is becoming common as the cost per cubic foot drops significantly thanks to the higher ceilings.
Encouraging efficient use of the cubic meters of an establishment to which rent is not directly applied allows users to minimize the square footage for which rent is charged. These savings can be applied in other areas.
Grinberg said some older buildings are being retrofitted, citing a company that specializes in roof lifting that will increase a headroom from 14 feet to 28 feet. However, as a building ages and shows other inefficiencies, it may make more sense to demolish and rebuild it.
However, Grinberg pointed out that older facilities with money in their infrastructure and sufficient power supply usually do not need great headroom to house data centers, so some of them will be retrofitted.