Southwestern Ontario Industrial Market Turning the Corner

Challenging conditions give way to modernization and adaptation of former manufacturing facilities

LONDON, September 25, 2013 The Southwestern Ontario economy has experienced its share of challenges in recent years, but if commercial real estate is any indication, better times are ahead. The industrial market has long set the tone for the regional economy, and an assessment of commercial real estate transactions from the past year points to new sources of demand that could bolster municipalities across the region. Peter Whatmore, Senior Vice President for CBRE Limited, hosted CBRE’s annual Southwestern Ontario Market Outlook Breakfast in London this morning, and his remarks were quite optimistic.

“The worst is behind us in the industrial sector. We are experiencing employment gains, which are translating into demand for commercial real estate,” said Whatmore. “Southwestern Ontario is a market in transition and the prospects for the future are encouraging.”

Traditional manufacturing is giving way to high tech industries with significant robotic components. Whatmore used a cluster of six former manufacturing buildings as an example of the transition that is underway in the region. The six buildings sold in the last 36 months, were all good quality properties, averaged 240,000 SF, and occupied 24.0 acres on average.

“After property values were adjusted to reflect new economic realities, these buildings sold and are being converted from their original, mostly manufacturing uses, to logistics and light assembly facilities,” said Whatmore. “These buildings previously housed 5,600 employees, but now contain less than 800 people. This may not seem like good news on the surface, but repurposing facilities is helping to stabilize the job market and could ultimately have positive spinoff effects.”

With landlord expectations in check, municipalities in Southwestern Ontario have the ability to compete with other locations in the Greater Toronto Area that have seen occupancy costs escalate. As a result, incremental growth is expected in the distribution, logistics, and small assembly sectors along the 400 series highway corridors. There has already been an uptick in high bay industrial construction in these areas, in anticipation of higher demand.

While much of these new trends are still taking root, London’s industrial sector has been quite robust over the last year with overall occupancy up substantially and vacancy now sitting at 9.4%. A significant amount of growth has come from the food sector. The soon to be operational Dr. Oetker plant is coming on stream and the recent 100,000 SF Natra Chocolate manufacturing transaction is set to produce new jobs.

“While certainly not new to the region, it’s also nice to see that the auto sector is back in a big way. Demand for space from this sector is reminiscent of the period prior to 2008,” said Whatmore. “Those in this sector who survived the recession are now thriving and are expecting a strong three to five year run.  Multiple parts supply and logistics contracts are being bid across Southwestern Ontario.”

The Windsor market continues to rebound, with tool and die employment at a level many would not have anticipated. Parts and logistics businesses are performing well enough that many companies are renewing leases and are often expanding their real estate footprint. The new cross border link is also expected to create construction jobs and could attract more logistics facilities to the area.

“Commercial real estate fundamentals will continue to improve across Southwestern Ontario over the next year with some new growth in the industrial sector starting to positively impact the office sector as well. The market is turning the corner in many ways and is setting a new and encouraging trajectory,” said Whatmore.

About CBRE

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