Future Cities
Emerging Industrial Markets: Midwestern Ontario
November 19, 2021
Midwestern Ontario is among North America’s fastest-growing industrial markets, optimally located between the U.S. border and Toronto—the continent’s fourth largest logistics hub. With an abundant supply of labor and developable land, Midwestern Ontario offers relief to Canada’s tight industrial market conditions and is primed for takeoff.
Demographics
More than 5 million people live within 50 miles (80 kilometers) of Midwestern Ontario, comprised of the cities of Kitchener, Cambridge, Waterloo, Guelph, Brantford and Hamilton, with projected population growth of 6.7% over the next five years. Nearly a quarter of its residents are in the important 20-to-34 age cohort. The region is accessible via two Canadian-U.S. border crossings—Detroit (a three-hour drive) and Buffalo (less than two hours)—and is one hour away from the Greater Toronto area. Approximately 13 million Canadians and 9 million Americans live within a 250-mile radius.Figure 1: Midwestern Ontario Population Analysis
Source: Environics Analytics, CBRE Research, 2021.
The local transportation and warehousing labor force of 34,900 is expected to grow by 12.7% over the next five years. The median hourly wage for warehouse workers is C$18.50 (US$13.79).
Figure 2: Midwestern Ontario Warehouse & Storage Labor Fundamentals
Source: Conference Board of Canada, Government of Canada Job Bank, 2021.
Location Incentives
Among the top incentive programs available in Midwestern Ontario is the Ontario Development Charge Act, which provides a development charge discount for projects that increase an existing industrial building’s gross floor area. Brownfield development is also encouraged and supported through various municipal programs. In Hamilton, grants and tax abatements are provided through the ERASE Program to help cover the cost of remediation. In the Waterloo region, direct remediation costs and up to 20% of indirect costs can be applied against the project’s development charges.Midwestern Ontario is a major part of Canada’s Innovation Corridor. Several government-support programs foster innovations in manufacturing, clean tech, “agri-tech”, life sciences and autonomous vehicles. Notable examples include:
- Funding of up to 15% of the costs of a new expansion or innovation project through the Southwestern Ontario Development Fund.
- Grants through the provincial Achieving Innovation and Manufacturing Excellence (AIME) program to support training and innovation within the manufacturing industry.
- The Ontario Innovation Tax Credit, which covers between 8% and 12% of scientific research and experimental development (SR&ED) costs accrued in Ontario.
Figure 3: Top Incentive Programs
Logistics Driver
Land availability is the main driver of Midwestern Ontario’s industrial development market. Formerly a cost-effective standalone market, the region is fast becoming an extension of the Greater Toronto area, where a lack of developable land and strong demand has led to a razor-thin 0.6% industrial vacancy rate. Left with virtually no options, Toronto area investors and occupiers are shifting their sights westward to Midwestern Ontario.As occupiers essentially filled all of the available industrial space in Milton, the western-most Greater Toronto submarket, in 2019 and 2020, developers set their sights on the closest Midwestern Ontario market of Cambridge. Connected by Highway 401—the busiest highway in North America—Cambridge is one of the tri-cities jointly referred to as Kitchener-Waterloo-Cambridge (KWC).
KWC boasts a diverse and well-educated workforce that serves the high-tech manufacturing sector, food & beverage producers and the cold-storage industry. It has seen a wave of new warehousing and logistics operators. The region’s mix of rapidly growing occupiers include e-commerce companies and manufacturers in need of off-site warehousing space. New entrants to the market are predominantly from Greater Toronto that account for more than half of the region’s occupier requirements.
Hamilton also is a key market in Midwestern Ontario. Southwest of Toronto, Hamilton has roots in steel manufacturing and now also serves the tech and life science industries. The market is in the early stages of spillover demand from the Toronto submarkets of Oakville and Burlington, with mid-to-large distribution users making up most of the relocating new entrants. Hamilton’s multi-modal amenities include one-hour highway access to Greater Toronto, rail services, a Lake Ontario port and a 24-hour heavy cargo airport. Land availability is beginning to dry up as developers bought more than 1,000 acres since 2018 and began new projects.
Developers are now moving westward to Brantford, which has recently seen land purchases of more than 500 acres. Brantford still has the most land availability of any other Midwestern Ontario market, but this is expected to change in the short-to-medium term given current activity levels.
Supply & Demand
Midwestern Ontario has an industrial inventory of more than 116 million sq. ft. and is on track for a banner year with year-to-date net absorption of 1.6 million sq. ft. through Q3, higher than any other comparable period in more than a decade. With an availability rate of just 0.7%, the region currently has the tightest industrial market conditions in all of Canada. Recent demand has pushed the average asking rental rate up by 19.5% annually to a record-high C$7.29 per sq. ft. (US$5.43), but 37.3% less than the average rate in Greater Toronto.Construction completions are expected to total 729,000 sq. ft. in 2021, with a prelease rate of 60.5%. Development activity is forecast to increase to 1.7 million sq. ft. in 2022.
Figure 4: Midwestern Ontario Historical Data
Note: Excluding Hamilton.
Source: CBRE Research, Q3 2021.
Figure 5: Midwestern Ontario Breakdown by City
Source: CBRE Research, Q3 2021.
Emerging Industrial Markets
Spotlighting markets across North America that offer demographic, logistics and incentives advantages for industrial investors and occupiers
Related Insights
The Waterloo Region’s availability rate decreased quarterly by 20 bps to a record low 0.7%, while the vacancy rate remained at 0.6% for the second consecutive quarter.
Contacts
James Breeze
Vice President, Global Industrial and Retail Research
John Morris
President, Americas Industrial & Logistics, Advisory Services
