What a difference a decade can make.
Hamilton used to be a small city one hour outside of Toronto, a place for many young professionals to establish themselves – and at an affordable price! But the municipality has transformed into a considerable economic hub in Ontario, enjoying a diverse economy from manufacturing to retail. Because of this, Hamilton has been able to weather the storm of higher interest rates and a slowing economy, including its commercial real estate market.
Hamilton Manufacturing Boom
Hamilton manufacturing facilities are in heavy demand, accounting for more than half of all sales and leasing activity in the city. This is followed by warehousing and distribution locations.
The challenge for many companies is that inventories remain tight throughout the entire area. Consider this, new industrial sites in and around the Hamilton Airport are entirely leased. Rental rates for industrial space are on an upward path, reaching an average of $13.65 per square foot. With supply failing to keep up with strong demand, the industrial asset class is leading the city’s commercial real estate market.
Recent data found that sales volume surged 50 per cent to $45.1 million in the first quarter, up from $29.5 million in the same period a year ago.
Real estate investment trusts (REITs) have been an active force in industrial real estate. However, these investment funds have taken a step back from other commercial assets, citing growing construction costs and higher interest rates.
The Rise of Retail
But it is not only manufacturing that is enjoying strong demand in Hamilton.
Retail, such as strip plazas, had seen impressive demand volumes in the January-to-March period. Other data show that retail sales confirmed a jump in price per square foot: surging 55 percent year-over-year from $267 to $416.
But while some will immediately think of storefronts as the driver of this growth, parking lots are maintaining exceptional value. The reason? Commercial real estate developers are presenting proposals to convert under-utilized areas into high-density commercial and residential developments. This would promote and facilitate the rise of live-work-shop communities that many urban centres are considering these days.
An example of this is Eastgate Square. The company submitted a proposal before the city council that consists of more than 5,100 residential units on 45 acres of property. Or, as another instance, Lime Ridge Mall is looking at constructing 320 units in two 12-storey buildings on their location.
Industry observers note that this is a realistic solution to the various challenges gripping the overall Hamilton real estate market, particularly the issue of housing shortages. With more supply coming online across the entire city, the proposals could alleviate the tightness, push down prices, and reduce rental rates.
What About Hamilton Office Space?
With the work-from-home boom sweeping across corporate Canada, commercial properties that feature office space have taken a significant hit. It is estimated that the availability rate for office space in downtown Hamilton is around 20 per cent.
This, of course, has led to an impact on downtown Hamilton and the broader city economy.
Could converting these spaces into residential units be a suitable option for Hamilton?
“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,” RE/MAX wrote in a recent report. “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.”
The Hamilton Economy
Despite initial expectations that the Hamilton economy would be sluggish amid rampant price inflation and high interest rates, the Hamilton economy has performed exceptionally well. Data show that industrial growth has played an exceptional part in Hamilton’s robust environment. This is true last year and heading into 2023.
But can it maintain the momentum? This is a crucial question for many market forecasters.
We know that Hamilton attracts businesses in various sectors because of its strategic location. Hamilton is situated near major transportation routes, including highways, ports and Canada’s third-largest cargo airport. Indeed, Hamilton offers a substantial number of opportunities for small-, medium-, and large-sized businesses. But officials are not sitting on their hands. They are taking steps to revitalize certain parts of the city and move ahead with infrastructure developments. Ultimately, from a skilled workforce to a dynamic business community, the Hamilton commercial real estate market will continue to support the city’s growth.