London commercial real estate report with logo

.

Despite rising interest rates and the fallout from the pandemic, commercial real estate in London has remained relatively buoyant. Industrial continues to lead the way, with lease rates and sale prices rising substantially over year-ago levels. Vacancy rates remain at historically low levels, with solid demand for warehousing and distribution space prompting an abundance of new construction in the region.

The city’s geographic proximity to major arteries and rail lines at an affordable price point continue to attract global investment. Prominent examples include large-scale operations such as the new high-tech Amazon facility boasting 2.8 million sq. ft. on four levels on the old Ford Talbotville site and the multi-billion-dollar Volkswagen electric vehicle battery plant in St. Thomas –the largest in the world—both slated to open in coming years. Availability rates have edged lower in tandem with growing demand in Southwestern Ontario, according to Altus Group, with rates now sitting at 3.3 per cent. Cap rates continue to rise for both industrial and retail, rising about one percentage point from one year ago to between five and five and a half per cent.

Land sales remain solid in both the residential and industrial segment, while the pace of activity has slowed somewhat from year-ago levels. The challenge to date has been the development process, which is cumbersome and slow moving. Fees charged by the municipality and the province also continue to impede development and need to be streamlined to increase new building activity.

There continues to be strong interest demonstrated in new multi-unit residential construction. REITs remain active in this segment of the market. Higher rental rates –up significantly year-over-year in the London area– are contributing to the enthusiasm in this sector.

The retail sector has performed quite well over the past year, with strip malls in new and older housing developments in high demand. Supply is tight, falling well short of demand, with the number of properties listed for sale few and far between. The area’s major malls, however, are struggling to lease space and some have converted their retail space to office and commercial in an effort to attract new tenants.

Office leasing and sales remain soft, with the effects of the pandemic still lingering. The downtown core has been particularly hard hit, with availability rates now hovering over 20 per cent. Older B and C class buildings will have to undergo major upgrades to attract tenants, with landlords offering inducements and step leases to sweeten the deal. There has been some talk about converting some commercial buildings in the core to residential, but not all floor plates are an easy transition.

Lower interest rates and greater clarity surrounding the remote work issue should help to revive the ailing commercial office sector. The only question is when?

Report Archives

As the fastest growing city in Ontario and one of the top five in Canada*, accelerated population growth has placed upward pressure on available residential and commercial real estate in London, causing rapid price appreciation in the city and surrounding communities. This, according to the new 2022 Commercial Real Estate Report from RE/MAX Canada, with local market insights provided by Eavan Travers, CCIM, REALTOR® and Gary Robinson, Broker of Record, RE/MAX Advantage Realty Ltd. Brokerage.

With most developable land inside urban growth boundaries unavailable, there little usable land is left to satisfy existing demand. The city and the province will have to move at a faster pace to bring supply to the market or prices for industrial and residential properties will escalate beyond reach.

Vacancy rates for industrial space have currently fallen below one per cent. Availability rates currently hover at 1.3 per cent** for industrial product in London, and spillover has pushed into neighbouring St. Thomas, Elgin County, Woodstock, Strathroy, Mount Bridges and Dorchester as demand continues to climb. End users are particularly active, willing to pay more to secure both space and ownership. Scarcity of product has pushed up rental rates by about 50 per cent. New industrial lease rates are achieving levels previously unseen.

Recent comments made by City of London staff suggest the city will be calling for an increase in city-owned industrial land values, doubling prices from $125,000 an acre to $250,000 per acre. Despite their efforts to cool the red-hot commercial market, the increase is unlikely to have any impact on fixing the current supply shortage. London and the surrounding areas continue to attract industry including agri-food, manufacturing, digitalized media and technology, health and professional services, with large companies such as Amazon, Maple Leaf Foods, Dr. Oetker and CDK Global choosing to lay roots in the city and area. Over a million square feet of industrial space is currently under construction.

Shortages exist at virtually every price point for commercial real estate in London, with the exception of downtown office space. There has been a huge push for multi-unit, purpose-built residential rentals that speak to the city’s plan for intensification through higher density, which has prompted demand for redevelopment across the city, including underdeveloped old industrial, institutional product, and retail tracts.

While there has been a slight reduction in overall office availability rates at 18.1 per cent**, there continue to be post-pandemic challenges in terms of the return to the office in the downtown core, where rates are higher. Lease rates have been competitive with landlords undertaking total conversions for quality tenants. Demand for suburban office space remains healthy. Several new, multi-storey office developments are underway in the city’s west end. The provincial government recently announced the relocation of the Workplace Safety and Insurance Board (WSIB) offices, bringing 3,000 potential new employees to London.

Retail continues to strengthen as restrictions put in place over the pandemic ease. Traffic is picking up in the area malls, with retail sales volumes climbing. Improvements continue to be made to retail malls that enhance the shopper’s experience. Many landlords have focused on larger restaurant chains and exciting new recreation areas to attract shoppers to the malls.

Given London’s strategic location to Toronto–one of the country’s busiest commercial and residential real estate markets–and the US Border, and frequent announcements that positively impact local economic growth, the outlook for commercial real estate in London is expected to be bright.

Sources:
*Number four on Statistics Canada’s list of fastest growing cities in Canada with a 10 per cent growth rate between 2016 and 2021 – Census Canada
** Altus Group

More to Explore

Taxes

Should You Pay Property Taxes Through Your Mortgage?

March 28, 2024

5 Things To Do To Prep Your Backyard for Spring and Summer

March 27, 2024

Spring Checklist for Homeowners

Spring Checklist for Homeowners

March 26, 2024

RE/MAX Awards header

About the RE/MAX Awards and Recognition Program

March 25, 2024

Real estate

Real Estate Definition: Title Search

March 25, 2024

moving with pets

RE/MAX and Pet Valu Team Up to Make Moving with Pets Easier

March 25, 2024

8 Easy Outdoor Home Improvements to Consider This Spring

March 23, 2024

Assignment Sale

Real Estate Definition: Assignment Sale

March 22, 2024

How to Move With Pets

How to Move With Pets: A Complete Guide

March 22, 2024

Find the
Right Agent

Sign up
For Our Newsletter

Hidden

Next Steps: Sync an Email Add-On

To get the most out of your form, we suggest that you sync this form with an email add-on. To learn more about your email add-on options, visit the following page (https://www.gravityforms.com/the-8-best-email-plugins-for-wordpress-in-2020/). Important: Delete this tip before you publish the form.
Untitled(Required)

*RE/MAX, LLC, 5075 S. Syracuse St., Denver CO, 80237; RE/MAX Western Canada and RE/MAX Ontario-Atlantic, 639 Queen Street West, Toronto, ON M5V 2B7, 905-542-2400