The industrial asset class continues to lead commercial real estate in Hamilton and the Golden Horseshoe, with strong demand for both properties listed for sale or lease demonstrated throughout much of the first quarter. Sales volume was up more than 50 per cent to $45.1 million in Q1 2023, up from $29.5 million during the same period in 2022, according to Co-Star.
Manufacturing facilities are most sought-after in Hamilton, representing approximately 50 to 60 per cent of all sales/leasing activity, followed by warehousing and distribution sites. Inventory remains tight throughout the area, with new industrial parks in and around the Hamilton Airport now fully leased. Rental rates for industrial space remain on an upward trajectory, now sitting at an average of $13.65 per square foot. Cap rates continue to trend lower, at just under six per cent in 2023. Last year’s sale of the Stelco site, with more than 800-acres of zoned industrial, is expected to bring approximately 725 acres of Class A industrial product to the market once the site is remediated and re-developed (75 acres have been leased back to Stelco). Apart from the Stelco site, which is expected to take years to develop, industrial land remains scarce and hard to come by throughout the region.
Retail product, especially strip plazas, has also experienced strong demand in the first quarter of the year in Hamilton. Ownership of both malls and plazas continue to find exceptional value in their parking lots, submitting proposals to convert under-utilized areas into high-density residential/commercial developments that promote live-work-shop communities. Eastgate Square, for example, has a proposal before council that includes of 5,162 residential units on its 45-acre property, while Lime Ridge Mall is seeking approval on 320 units in two 12-storey buildings on their site. Given the current housing shortage in Hamilton, characterized by tight inventory levels and upward pressure on both housing values and rental rates in recent years, these proposals may offer a feasible solution to existing market challenges. Recent retail sales, while falling short of last year’s levels, saw a significant uptick in price per square foot, rising from $267 to $416 year-over-year, based on data from Co-Star.
The availability rate for office space in Hamilton’s downtown core was accelerated by the pandemic and remains high to date, pushing close to 20 per cent. While some improvement has been noted in demand for urban/suburban office space, the work from home phenomenon has had a significant impact on the city’s commercial office space. There have been some discussions regarding the conversion of existing office space to much-needed residential in the downtown core, but the ability to convert remains in question, given that very few of the buildings have floor plates conducive to residential.
REITs continue to be an active participant in industrial real estate but have stepped back from other commercial asset classes in the Hamilton, given the rising cost of construction in today’s high interest rate environment. The promise of lower rates down the road should once again spur investment in multi-unit residential and other sectors, although the impact may not materialize until early 2024.