Demand softens for Windsor-area industrial space
Demand in the Windsor industrial real estate market slowed in the first quarter of 2024 with the availability rate creeping above the national average to 3.85 per cent.
There was a rise of 101 basis points in the availability rate compared to the final quarter of 2023 and the year-over-year rise in availability was 54 basis points.
“We're seeing some turbulence and choppiness in the market,” said CBRE Windsor vice-president Brad Collins. “It's taking a bit longer for existing industrial buildings to be absorbed by tenant or buyer demand.”
The national availability rate for industrial space is 3.7 per cent. The tightest market in Canada for industrial space was London at 1.1 per cent.
Collins said the Windsor market is reflective of the general slowing in the economy across the nation.
“It's probably a mix of economic uncertainty, higher interest rates and certainly automotive being slower,” Collins said.
“Parts of the market that are quite quiet are the tool and mould sector. We haven't seen new contracts get handed out and there have been delays in some of the product launches, particularly in the U.S.
“We're hearing there is still a lot of fear of being able to compete with some of the foreign markets for contracts in terms of pricing. There's hesitation from tenants to relocate or expand.”
Collins added that market chill is best illustrated by the lack of a large transaction taking place in the first quarter.
“There really wasn't anything big. It doesn't mean there isn't anything in the works, but nothing landed in the first quarter.”
Despite the easing of demand, the impact on prices was mixed.
The sales price per square foot declined just over $4 to $171.39 while the net lease rate climbed 7.7 per cent compared to the final quarter of 2023 and is 21.3 per cent higher compared to 12 months ago. The net lease rate is $11.34.
Collins said the average sales price per acre of industrial property remains firm in the mid- to high-$400,000 range.
“We're getting more of a balanced market than one that was seller or landlord driven where they were dictating the business terms or pricing,” Collins said. “We're getting to more of an equilibrium in the market and some availability has opened up.
“I think you'll see prices levelling. We won't see the torrid annual growth of the past few years.”
CBRE Windsor senior vice-president Brook Handysides expects the activity level in the second half of the year to pick up.
“We're hoping to see some interest rate cuts in the second half of the year,” Handysides said. “That will signify to the market, those investors who have been sitting on the sideline, it's time to get back into the market. The cost of borrowing going down will help investment.”
Handysides also expects to see more activity from the battery plant supply chain as the Nextstar Energy facility moves closer to completion in 2025.
“We're waiting to see that activity,” Handysides said. “We were expecting to see this tsunami of activity and we haven't seen that yet.”
Collins noted that while the automotive and EV sectors may have slowed, the non-automotive sectors have maintained decent activity levels.
“There are still some expansion plans from groups diversified away from automotive,” Collins said. “The pharmaceutical and agriculture sectors have been more active.
“There are expansions in Leamington (greenhouses). We've seen ADM (Archer Daniels Midlands) getting money to expand.
“They're still bullish on Windsor.”