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Southwestern Ontario Commercial Real Estate Outlook 2023

February 24, 2023 3 Minute Read

Kitchener skyline

2023 Real Estate Outlook Series

By the end of 2022, Southwestern Ontario commercial real estate markets saw significant differences in performance by asset class and sub-market.

London’s downtown office vacancy rate rose to 26.2% despite activity in the city centre approaching pre-pandemic levels. Meanwhile Waterloo Region’s downtown office vacancy dropped to 22.8%.

On the industrial side, tight market conditions in Waterloo Region and London meant another year of steadily increasing rental rate growth and sale prices.

And Windsor is basking in the industrial momentum created by the launch of an EV battery plant there.

We spoke to Southwestern Ontario Managing Director Amanda Fediuc about what she’s watching for in the region’s commercial real estate markets in 2023.  

Industrial

It’s going to be another year of high-performing industrial markets here, with availability across the region still hovering around 1%.

Industrial has been a strong performing asset class over the past few years, and will continue to be resilient despite uncertainties in the economy. We’ll continue to see meaningful investments and expansion throughout the region.

In looking at Waterloo Region alone, it has a healthy construction pipeline; although most of that space is spoken for, there are considerable developments in play to help improve availability.

We remain bullish on the industrial markets along the major highways, particularly the 401 corridor. With such close proximity to the GTA, we’ve seen tremendous growth. Our region is a great option for both occupiers and investors. It’s a safe bet.

The region has also drawn great attention with the investments that have come from government and venture capital for the electric vehicle battery industry in Southwestern Ontario. It’s very promising for this area: Windsor, Ingersoll, and London, too. There’s talk of it being a contender for a Volkswagen battery plant.

So there’s excitement not just about the battery plants, but what happens around them, the clustering effect bringing significant employment opportunities and growth around these sites and across the region. 

amanda-feduic-quote-card-outlook-2023

Office

Our office markets will continue to face challenges. There has been a fundamental shift in the way people work. What we’re seeing in the labour market and economy more broadly is playing out in the office sector. 

We’ll continue to see employers navigate return to office and optimize use of their office space.  Much like other markets, we’re seeing moves to smaller spaces that are high quality and amenity-rich. The flight-to-quality trend is alive and well and will continue this year.

Then there’s the adaptive re-use idea, which is a natural part of the discussion when looking at the London and Kitchener markets.  Assessing which B- and C-class buildings might be suitable for some form of conversion will be an important exercise to go through.

Not all buildings are candidates for conversion and there are also significant financial investments to consider, but there’s increasing attention focused on the possibility of converting this space to multifamily. 

We haven’t had much of this conversion activity yet. But it could be a viable option, and help to reinvigorate our downtown areas and address housing supply challenges.

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