Zero carbon projects emerge in Toronto and Montreal while Vancouver developers add stacked buildings to the menu
Canada's industrial market continues to be a bright spot in the overall national investment market.
Investors are chasing new supply and enjoying record rents while new construction reached record highs in the first quarter of this year. The national leasing market remains among the tightest in the world, with a vacancy rate of just one percent. Rent has climbed by more than 30% in many markets, according to the Colliers Capital Market Snapshot for Q1 2023.
It all means that industrial space continues to draw the attention of larger investors despite challenges to the broader commercial market including elevated inflation, high interest rates and a slowing economy.
While industrial demand remains strong in cities like Toronto, Montreal and Vancouver, that doesn't mean the designers, builders and marketers of industrial space are resting on their laurels. Innovation is happening in these markets to future-proof industrial buildings and meet the demands of buyers and occupiers, today and tomorrow. In Toronto and Montreal, that mostly means the emergence of net zero-ready or certified developments. While in Vancouver, ever-present land constraints are leading to the construction of more multi-level industrial buildings, including near the urban core.
Global brands seeking zero-carbon buildings in the GTA
Industrial developers and owners in the GTA who are not taking steps to prepare for a large-scale transition to net zero carbon will eventually find themselves on the wrong side of the leading edge.
The demand side of the market is evolving. A rising number of Fortune 500 companies have zero-carbon requirements built into their ESG policies. Meanwhile, government regulations are pushing more developments towards zero-carbon ready and zero-carbon certified.
To achieve zero-carbon certification, a building’s operations are audited for criteria like: increased insulation value of roof and walls; sufficient on-site power generation to allow for full electric conversion; structural envelope improvements to support rooftop solar panels; availability of electric vehicle charging stations and bike parking; LED lighting; heat pumps; and other factors. The CAGBC is the body that acknowledges zero carbon certification, which is completed during a project's site plan application process with the municipality.
In some cases, companies are building their own zero-carbon structures to achieve internal corporate policy requirements, but going zero-carbon also carries strong value on the leasing side, and the GTA market is starting to see zero-carbon industrial buildings developed on spec.
Zero carbon is a difference-maker in the GTA
There's a strong business case to develop zero carbon for the leasing market. The benefits include cost savings and energy modelling, improved air quality and reduction of GHGs, improved comfort for users — and potentially more favourable financing options from banks.
Forty-two percent of companies in the Fortune Global 500 have now delivered a significant climate milestone or are publicly committed to do so by 2030, according to a Climate Impact Partners report, “If Not Now, When?” A much larger group, 63%, have a target by mid-century. That's up 22% in the last year. The list includes heavy hitters such as Apple, Toyota, Nestle, Unilever, Maersk, XPO, Zara, DSV and CEVA Logistics. Colliers also aims to be zero-carbon operationally by 2030.
These are the types of occupiers that every landlord would dream to have in a building, so it is becoming essential to set a building apart from the pack while also earning premium lease rates and resale value, especially for large-format buildings that can achieve scale.
Toyota, Canada Post facilities set a strong example
In May 2021, Toyota achieved Zero Carbon Building – Design certification by the Canada Green Building Council (CaGBC). Toyota's Eastern Canada Parts Distribution Centre, a facility with 133,000 square feet of warehouse and office space in Clarington, Ontario, is one of the most environmentally sustainable buildings of its kind in the country.
Earlier this year, Canada Post opened its new zero-carbon parcel sorting facility in Scarborough. The Albert Jackson Processing Centre is a 585,000-square-foot, $470 million facility located at 1395 Tapscott Road. It’s Canada Post's first zero-carbon building and one of the largest industrial projects in Canada with the Zero Carbon Building Standard designation.
The facility, located on a site brokered by Colliers, will be able to process more than one million packages a day at full capacity. It’s a key hub for the postal service’s national network and beacon for a large-scale zero-carbon proof of concept.
Montreal industrial market also taking steps towards zero carbon
Montreal is also experiencing a movement towards zero-carbon development, spurred partly by ESG policies among many leading tenants and businesses.
It begins with larger corporations, especially publicly traded companies, and it will start to trickle down to smaller enterprises, albeit over a longer period as efficiencies emerge in the design and build space, locally. There is typically more value in scale, but the opportunity to save operational costs in efficient buildings will become more attractive for smaller users.
Like in the GTA, Montreal’s industrial market is increasingly subject to concerns over investment returns, market futureproofing and care for the environment. Lenders and investors are looking deeper at supporting projects with ESG components and zero-carbon strategies, while larger corporations are eager to demonstrate a commitment to ESG and carbon reductions.
Two zero-carbon projects underway
Real estate developer Rosefellow recently announced an industrial campus in Kirkland that will target zero-carbon certification. The $300 million campus will comprise three buildings. The first building will be complete by the end of 2023 and the remainder of the project by the spring of 2024.
The company recently told SustainableBiz that it will pursue zero-carbon certifications for all its projects moving forward. Kirkland will be the first of 14 zero-carbon developments in Quebec and Ontario for the developer.
Meanwhile, Lorocan is developing a massive zero-carbon industrial campus in Montreal East. 40NetZero aims to provide state-of-the-art industrial facilities that meet today's manufacturing, distribution and warehousing needs in a sustainable, carbon-neutral environment that will obtain official and recognized certifications (SITES, LEED, and LEED Carbon).
Located at 9120 Pascal-Gagnon Street, the campus will consist of three million-square-feet of space across 11 buildings that are all fully tailored to users’ specific requirements and needs. Spaces are available at a minimum of 50,000 square feet. The investment totals $900 million.
Land shortage prompts multi-level industrial in Metro Vancouver
Vancouver's industrial story is one of familiar challenges. The mountains, the sea, the U.S. border and the Agricultural Land Reserve all act as barriers for urban spread, requiring more creativity and effort to ensure the region has enough industrial space to meet demand, much of it spurred by the Canada’s busiest port.
Vancouver’s industrial market will also eventually embrace zero carbon, but the foremost innovation happening today is a shift towards higher-density, or stacked, industrial projects — including near the urban core.
The market is critically short of supply on the industrial side. Average lease rates for industrial in Metro Vancouver climbed from $11.60 per square foot (PSF) in 2019 to $22.90 in 2023, according to Colliers data. Average prices to buy industrial space in the region have climbed from $298 per square foot in 2019 to nearly $600 per square foot today.
Multi-level industrial projects are already going up, including Oxford Properties’ Riverbend Business Park in Burnaby, which is Canada’s first large-scale multi-level industrial building.
Meanwhile, Wesgroup Properties is building Elevate Industrial in Coquitlam. It includes 19 light industrial units on the building’s second floor. The property will also include parking and truck access via an exterior ramp. Construction is expected to be completed in 2024.
In Vancouver, Conwest’s Riverworks and Ironworks projects include second-floor warehouse units that are accessible by freight elevators. Both levels have ceiling heights with enough depth to accommodate racking.
Also in Vancouver, Wesbild is building Marine Landing, a two-building, four-level mixed-use industrial project near the Marine Drive Canada Line Station. A partnership with KingSett Capital, Marine Landing is Canada's largest stacked mixed use industrial project with 236 light industrial and office strata units ranging from 600 to 34,000 square feet.
Geography and land use realities prompt stacked innovation
Industrial buildings have long offered multiple levels of ancillary office space, but the focus on stacked industrial is moving more of the industrial operations onto upper levels of the building. Designing buildings to accommodate heavier loads and truck access to upper floors remains a challenge, but solutions are coming.
Stacked industrial construction will take a major step forward as builders and consultants generate more experience and efficiencies, unlocking solutions around column sizing and spacing, floor loads, ceiling heights, creative ramping and the ability to introduce heavy robotics on upper floors. Overall construction costs should also come down over time as local specialization occurs.
Stacked industrial is on the way to becoming mainstream. The industry just needs a bit more time and better cooperation from municipalities to scale up development and to meet the demands of the local economy.
Strength in the asset class isn’t tamping down innovation
With new national industrial construction touching record highs in the first quarter of this year, the Canadian market remains among the tightest in the world, with a national vacancy rate of one percent and yearly rent growth surpassing 30% in many markets.
Canada continues to attract the attention of larger investors globally, but that success amid macro challenges isn't tamping down innovation in industrial development in our largest centres, nor should it. We expect to see a continued innovation drive that leads to more zero-carbon buildings and stacked industrial projects.