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Welcome to Altus Insights Podcast Series. This podcast brings together some of our leading brainiacs at Altus Group to discuss, debate, and on occasion complain about the evolving state of Canada's residential and commercial real estate. Join Ray Wong, Marlon Bray, and Avi Zelver for monthly podcasts covering the latest market and construction cost trends across major markets in Canada.
Marlon Bray: So today's podcast in Toronto, they believe they're the center of the universe and always have been.
I think Ray's in Toronto, but we won't judge him right now. So today we're gonna chat about a Real Hot Region, which is Southwest Ontario. More affordable solution to the Gong show that has become Toronto and surrounding areas. And if you're looking for housing affordability and affordability in general, just look down the 4 0 1.
So today we're joined by an expert in that field, Mitch Blaine of JLL. Mitch joined JLL in 2021, brings 19 years of experience in commercial real estate in southwest Ontario, and is considered a market leader in that region. His resume includes over a thousand transactions, totaling over $3 billion, and he is represented a wide array of global, national, and local companies.
So thanks very much for joining us today, Mitch.
Mitchell Blaine: Thanks for having me, gentlemen. I'm honored that I'm the last of a legacy here, so thank you guys.
Marlon Bray: No problem at all. So Ray wrote these questions, 'cause for these ones he likes to control what I'm gonna say. Usually the controversial topics I write, the questions are Ray panics.
So the nice and easy softball ones for everyone today in the terms of the discussion. So Southwest Ontario's dominated the headlines early year with the announcement on the Volkswagen EV battery plan. Obviously, I suppose it's the one further down the road in Windsor that hit the headlines again recently is all resolved.
But before the region benefited. Before this, the region has benefited from affordable housing increase increasing population migration from the G T A and a significant growth in the tech cent tech center. And it's been recognized as having a globally recognized university there. So what's your overall take on the state of the commercial real estate market in southwest Ontario?
Mitch, maybe we'll start reviewing that Ray for 2 cents worth.
Mitchell Blaine: Yeah, I, know just before we got officially recorded here online, we were talking about some of these super cycles, right? The ever, ongoing and eternal battle of, core versus suburban, real estate. And I think, you know what gentlemen?
I think the pandemic threw us into another supercycle of a pivot a bit outta the core, into the burbs. And whether that's Toronto relative to kitchen or Waterloo in southwest Ontario, or even the downtowns inside of these communities, I think we've really seen an acceleration of that shift to the burbs. And at the same time, you've got this large.
Workforce in millennials that are now getting past the point where they say, Hey, I'm having kids. I'm to that age. Pandemic's shown me. I like lifestyle and I think, right place, right time with southwest Ontario, right? Relative value, and I think the right proximity. To a place like Toronto. So if you want to have the big downtown, vibe, you can still visit it quite easily, especially with some of the infrastructure connectivity.
So I think we're just right place, right time, investments made over many years, many decades even. it's southwestern Ontario's time and the story's not fully told. we've got some things going on in the world that may, you know, put us on a bit of a path in other directions.
time will only tell. But right now we do feel that the Southwest Ontario commercial real estate market is poised for very strong performance, even through a time where obviously some of the markets are pretty challenged. Fundamentally, the demand,the people that live in these communities, that work in these communities, are looking for what we think a place like Southwestern Ontario has, which is a lot of value and a lot of, amenities and access.
So that's my hot take.
Raymond Wong: Yeah. I totally agree with everything you, just mentioned, Mitch, and, the, price difference, especially for. Not just industrial land, but commercial land and G T A versus Southwestern. You see the growth opportunities there and i remember back in two thousand and
six and seven when cap rates in some of those, markets were reaching similar on, the retail commercial side with Toronto. Now you,sort of thought that was kind of wonky and didn't make sense. But the values that have increased, and again, there's still slightly.
Marlon Bray: Lower than, than the G T A, but you don't really question Some of the cap rates you're starting to see that maybe, have a little bit less of a gap between the G T A. and Southwest Ontario. Do you see that as a concern, Mitch, that because of that demand, because of industrial whatnot, do you think that the, recent price increases, is caused for concern for, that region?
Mitchell Blaine: I think, you know, I'll use industrial 'cause office is a bit more opaque. It's a bit harder to say here's what's really going on with industrial. If you look at industrial rents,we had Ray back in our days in working together for many years. Like it was always Cambridge, Guelph was always a buck cheaper afoot than Mississauga for industrial space.
And it stayed like that. What it really was it was about 10 to 15% cheaper on a gross occupancy cost basis. Your rent was 10 to 50% cheaper, and so yeah, the rents have jumped rate, but if you look at the spread over Toronto for tenants with lease rates, Or even on cap rates that relative spread versus G T A has maintained.
In fact, some communities, you look at a place like Branford, so Branford see, saw a huge amount of land transaction activity, because it hadn't caught up to that 10 to 15, even 20%, value spread to Toronto. And so it started to catch up quickly. So I think that our relative pricing is still in check.
No doubt. We need to watch it. I think there's, a lot of focus on net rents, which is important, especially on the ownership side to the tenants that care about the rent checks. They gotta cut gross rent checks, right? So property taxes, maintenance costs,we need to watch it.
We need to watch. As we're going through this market shift, whatever that looks like, we need to watch what does happen in Toronto. Because if look at, if rents in Toronto drop, which they don't seem to be doing, we've got to be aware that there will be no doubt a knock on impact. To the secondary markets like Cambridge, Kitchener, even as far as London, Windsor.
However, I would argue that there is an interesting element at play right now and Marlon, you mentioned, some of the recent investments with Volkswagen, the Stellantis plant, in Windsor. we went through this super cycle in the pandemic of e-commerce, right? Everybody's buying their groceries from their house.
You weren't allowed to leave your house in Ontario, right? So we were forced to really pull a lot of that demand forward and we made some pretty significant jumps on e-commerce demand. we still don't feel we fully. saturated that market, it still makes up a very small portion of retail, but we did make a very quick jump on the amount we buy online through a pandemic.
What we're seeing now though, like the Stellantis and Volkswagen case studies is it's moving to manufacturing. And the world is a pretty unstable place. I'd love to say in Canada we're the, epicenter of everything manufacturing. no doubt. Our big brothers to the south in, the United States are getting the lion's share of manufacturing investments.
But if you are gonna make something and you look at Windsor, you look at London, St. Thomas, even Kitchener, Cambridge with, some really legacy manufacturing,decades, generations behind the, manufacturers are looking for labor. As much as automation is a huge part, they're looking for people that have that skill and that is, largely found in these secondary markets with a lot of, legacy in manufacturing.
And so we actually think that, yeah, we made the e-commerce jump and that's important 'cause we're a big population, but now we're into the second phase of this, post covid kind of world. And the manufacturing phase is gonna take longer to implement it, right? Think about if you're trying to build a manufacturing plant, that doesn't happen overnight.
St. Thomas. It's going to take five years to develop the land, build it. That's not happening overnight, like possibly a warehouse might. And so what we think is actually gonna happen is there is going to be even more activity in the secondary markets for industrial in particular, especially related to manufacturing, food production.
Like you just, again, think about the world we live in as it relates to. some of the clean energy focus and investments, food, food insecurity, global trade, like it does poise, you know, set itself up well to see some good,continued growth in secondary markets that have a manufacturing heritage.
So that's my take for now.
Marlon Bray: Yah and I know in reading the article, some people have been questioning the federal government's investment in these plants. And to me it makes perfect sense that we've gotta think about the future and people are looking in today's value. But if you start looking out 10, 15 years, these investments will pay for themselves easily.
Like they're about, oh, it's $12 billion. To me, that's a drop in the ocean by what it's gonna create. If you look, it's not just the plants, it's the jobs, it's the housing and everything else that's gonna bring along. I think if the government actually invested a lot more money, they'd see a much better return.
And I know we always call it the secondary market and why we call it secondary market. I think it's time we started to look at it a little bit different. We've got two primary markets and I think it, it just, Southwestern Ontario happens to be bigger than Toronto. But this obsession we squeeze in everything into Toronto, I think is ultimately it's a bad idea and we need to spread out the love, so to speak and be diverse.
And that's why I think I agree with you guys. Southwest Ontario is gonna be hot. Now, the only thing with Southwest Ontario, the government plans to build one and a half million housing. Very few of those are actually in southwest Ontario, relatively, and I actually, I'm actually wondering whether or not Southwest Ontario's underutilized in terms of that future 10 year plan, especially if you start looking at a city the size of London, Kitchener of Waterloo is corridor and Guelph.
Their targets, I think are modest, aren't they? For the size of the cities they could become, you could double the size of London, I think in theory with the land that's available and the infrastructure that you could build to support that.
Mitchell Blaine: I, think you're absolutely right, Marlon,
But I, think you have to be careful with Southwest Ontario. It's kinda like saying Canada's all the same, right? We all know at least those that are here, Vancouver's very different than Toronto. Why? Because it's, there's a very large geography, right? And same thing with Southwestern Ontario, right?
And so I would just argue that certain parts of Southwestern Ontario in particular, if you look at Waterloo region, so that's the cities of Kitchener, Cambridge, and Waterloo primarily. Okay. They've had a massive investment in infrastructure, whether that's light rail, transit, highway expansions for connectivity, London will get it eventually.
But it hasn't had the benefit of time and it's just got that geographic distance to build a bigger highway. there was not too long ago, and it seems to come up every election cycle talk of a high speed rail line right between Windsor to Montreal. Right. And mean, sounds like an incredible vision.
We'd love to see it. We'd love to use it. But that'll take time. And so I think right now, the area that's gonna benefit from this current surge is the Waterloo region, simply because it had the investments done, the work has been completed, the construction's been done. I think you're right though the next step will be the London further down the highway.
But I, I also think. London, Windsor have a different value proposition than a Waterloo region. Water. The region is a bit more,connectivity to Toronto as a value prop, whereas I would argue when you look at proximity to the US border crossing, Of London and Windsor. That's very interesting when we're in this reshuffling of the deck of our global trade partners, right?
And so I think those markets will have a different growth for different reasons than just the connectivity and the infrastructure. But I think right now, water, the region is, the current kind of fringe of that will really benefit from housing. And if you look at, the official plan, one of the region was all just, Redone growth targets,recalibrated in it no doubt has a lot of growth coming.
So does Branford. It's kind of that one hour, proximity to Toronto where the real, I don't wanna call it a cutoff, right? All of these secondary and southwestern Ontario markets are benefiting from the immigration and the growth of population. But no doubt, it's really noticeable at about that one hour west of Toronto, which is that Branford Waterloo region boundary, if you will.
Marlon Bray: The HighSpeed rail would be nice. It's a shame our government likes to talk about stuff rather than build it. 'cause I think Waterloo Kitchen of the LRTs a great example. He spent it and it worked out great. I suppose that was then a bad example. 'cause the l r t doesn't run an eglington, it's gonna take 40 years to build by.
Mitchell Blaine: It doesn't marlin, there's the point. It doesn't happen overnight, it, it never comes fast enough. And I'll tell you what I mean. Sorry. I'll go down a bit of. when l r t was finished, appreci Shade, right? Kids from Waterloo, l r t connectivity of University of Waterloo, Laurier College, the highway, trying to, integrate the whole region.
So it then ties into Toronto and, abroad. Right then, you got about three years of l r t being done, finished and a real good runup, like we had some real big investments. Obviously Blackberry accelerated a bunch. Then you had Google the tech incubator that was going on, like really humming and then a pandemic hit and public transit.
I'm sure many of the listeners remember like there was a time there in lockdown state. How many people were hopping on a bus or a train, right? And so there was a moment there for sure. I remember the train going by our office and by, by my house where you're looking inside the light rail transit trains and it's empty.
However, what's interesting right now is those trains are very busy. And what I, theorize is also happening is have you tried to buy a car lately? They're pretty expensive. Okay? Not just the cost. The car look at interest rates, right? Interest rates on some cars right now, whether leasing or financing, like you're upwards eight or 9%.
This is not cheap. Which is why we have public transit. So I think, again, I think these secondary, pardon me,these cost effective markets that have infrastructure, have the affordability spin in a time where inflation, like we haven't had this inflation thing for a while and I've really never lived through it.
So I'll be honest, I'm just never experienced it. It's gonna put pressure on people to say, I need to get more bang for my buck. And you get more bang for your buck, a k, a value in a place like Southwest Ontario, Waterloo region. while still having all the amenities. So again, I think even in a, downturn, if that's what we're in, I think a place like Southwest Ontario will outperform the balance and alternative markets because of the value and because of some of the investments that were made.
Marlon Bray: Yeah,
Raymond Wong: definitely you saw that shift and you go have to go back, 10, 20 years with Hamilton and people moved out to Hamilton because of the lower price housing and now, 10, 20 years later now those same people are creating their own companies, entrepreneurs in Hamilton and create demand for their, instead of doing that one or two hour go train, commute into the city.
More people are gonna come out to Southwestern Ontario based on the affordable housing. But then I think that's gonna create more labor and plus companies usually move where there's labor. And that whole quest with talent, which we've we're continuing to experience with, talented companies are, gonna realize that they want to be closer or at least have the branding closer to, their workers.
Marlon Bray: And for that type of exposure,
Mitchell Blaine: I. to that point. Sorry to jump in on it. no problem. There is one big piece to Southwest Ontario that is not to be ignored, and it does run from Windsor to Guelph. If we want to use that as our kind of spread of geographies, it's universities. And if you think that Canada and.
Value proposition on the global stage for competitiveness, right? We're trying to attract a Volkswagen plant, we're trying to attract Toyota plants. We're trying to attract the Googles of the world. What are they looking for? Are they looking for cheap labor? No. They're looking for high quality, educated that can understand technology, and right in the backyard of Waterloo region, you got the largest, if not, globally renowned computer engineering schools that also let you take your.
IP off campus, which is a, another whole rabbit hole, but like that's unique all the way down to London, which is Western University. One of the leading. Business and, healthcare schools going. So I, again, I think even when you look at what our, value pitch and this vision is in this part of the world, I think Southwest Ontario, because of those post-secondary education institutions that they benefit well.
But I will tell you these, Institutions, these post-secondary schools, whether it's the universities, Costco College, they're expanding rapidly to meet the demand, especially with immigration, because that's a big driver of growth in our country, as we all know. And so there are not, they're not only have been important, they're gonna be massive, generators of high quality labor, at a time where that's where.
we're going to thrive So, I, I'm really excited for it if you can't tell. and then
Marlon Bray: the point I was gonna make so it'll get me in trouble is Ray used Hamilton as an example. I actually think Guelph, Kitchener of Waterloo and London in a hell of a lot of a higher draw than Hamilton as we go forward in the future without being rude to Hamilton, especially in terms, so that's my point.
Usually get in trouble. 'cause when I talk about Hamilton, everyone gets all upset, but,Guelph's a hell of a lot nicer.
Mitchell Blaine: You know what I mean? You're not wrong. Like there is a time where, you know, Hamilton, wonderful city, incredible infrastructure, has incredible potential to question how long it'll take to pivot it.
There's a lot of heritage there around Steel City that's gonna take time for it to really evolve beyond what it's, Century of, kind of steel city looks like. Whereas you get into a, you get into Guelph or Waterloos, these are green fields, this is farmland. Like it's, it is pretty clean looking.
No offense to Hamilton, it can get there. It is just gonna take time. And so I think it's easier with the blank canvas than having to go through redevelopment and regen, gentrification of. Say a Hamilton just gonna take time. It's gonna come later.
Raymond Wong: Yeah. And I need to feel
that I also need to defend Hamilton here.
if you look at, go going to, MI Mitch's point by universities with, McMaster there and the whole life science growth in that area, and that's stopping into a whole new sector that's rapidly
expanding. So I think there will be,
Companies that will fit into that, growth pattern as well as with some of the heritage buildings and the older stock.
And I agree with you, Mitch, with,the redevelopment of some of the industrial areas and potentially, uh, telco down the road that,maybe a little bit of challenges with getting the right zoning and, the right permitted use, they do have a number of things that are, they're pushing for that's very innovative that will cause a bit of a separation, not just Toronto, but as well as that, Kitchener
Waterloo area.
Mitchell Blaine: I agree. Hey, you know what though? If you could snap your fingers on Hamilton and have it be what, it could be. Yep. It'd be incredible. this, I would argue is our challenge, and sorry to get on the soapbox politically here, but you, we've got this macro situation.
Where this part of Canada, this part of the world with immigration, with,kind of ability to grow, we've got land, right? Like we, we could meet the market in the fact, lead the market. you only hope that we. Facilitate it. we hope our governments facilitate it quickly, right? we all know that they're trying to remove some of the red tape around housing with the strong mayor stuff that's going on.
I hope it can be fast enough. look at interest rates. Inflation are something that, is a global issue that's no doubt slowing development. it's very,rock in a hard place here as we raise interest rates, development, feasibility. it's hard to make the numbers work, so why do you do it?
So again, slowing down the potential for the redevelopment of, a Hamilton because the costs have just gone up and the market can't afford it. I do believe though, look, Markets cycle this will pass. We will get through inflation. yield curves will normalize, like all this will settle back and continue to cycle on this
ferris wheel, we always do. It's just, there may be a bit of an intermittent delay here for how, however long, while we work through this interest rate thing. hopefully red tape gets outta the way and hopefully we can clear some of this inflation and then could see a real strong rip up for Southwestern Ontario, including Hamilton.
Marlon Bray: Need some more innovative politicians. 'cause that's what holds Hamilton back. Hamilton holds itself back and that's been the problem As long as I've lived here for 20 years, it could, it should be already be a great city. And they try and head in the same direction and then they go around and around in circles and never go anywhere.
Then everyone then moves on to somewhere Difference to talk about the cycles.
Mitchell Blaine: Marlin, sorry to catch you off. That, that is, if there's one thing though, I think, and in the role that I think all of us, and I'm sure many people that are listening to this play, is.
it's important that we recognize as communities, whether we're, vendors inside of a community, politicians, just citizens of these communities that, we don't put up so much resistance. capitalism, Is still alive and well. And it will very quickly. If there's any resistance in a place in a single community, they will jump the capital will jump and they'll go find the path of least resistance.
So we have to find ways as communities and leaders inside of communities to really welcome it, understand that there's. Policies in place for protectionary reasons, right? We do need to have structure, otherwise we can have a real mess later on. But at the same time, we just gotta make sure that we don't get overlooked.
Don't get jumped over like you're describing, Marlon, because otherwise like it, it will move quick. it will move on very quickly. So I just,
Marlon Bray: so last question then. Do we have any concerns looking forward with Southwest Ontario and what are the big opportunities with the region if we start looking out 10, 20 years?
Mitchell Blaine: So concerns, outside of some of the macro stuff, interest rates, inflation, all that kind of, fun stuff. I struggle on a comparative basis to think there's anything inside of southwest Ontario that's a big problem. Again, I, when you define a problem to me, it's yeah, you could complain that, the sky's cloudy.
The end of the day when you compare it to everywhere else. Heck, I'm sorry I'm biased. I know I'm biased. You compare it to most parts of the world right now, it looks pretty bloody amazing, right? And so I struggle to think that there is a structural concern inside of southwest Ontario. If the concern is that can we meet this?
Moment this time, can we, the ingredients are all there. it could be amazing. Can we meet that cycle? That'll be, if you want to call that the challenge. That's what it is, because it doesn't last forever. And eventually, the pendulum will swing and look at it. There'll be a time where it's, we go up again.
We go into the core. Everybody wants to be in Toronto. That will happen again. Might be five, 10 years, 20 years. Who knows when that happens, but it no doubt always does ebb and flow. The opportunities are exactly that, though, the same breath, right? Like you have this opportunity in front of you, it will likely last for five, 10 years, right?
you think about, we talked about the St. Thomas timeline to build that plan, it's five years. If you look at. You know these Toyota plants in Cambridge and Woodstock that were built over the last 20 years, okay? It took 10 years for Cambridge. Once Cambridge's plant. Toyota plant was built, it took at least 10 years for the investment to start paying off, right?
So I think we've got a real good runway on growth. I think we need to let some of the macro settle, right? Interest rates settle, and then I think we'll see another. Rip up. but there's a few key drivers for me. As long as Southwest Ontario holds its relative value in pricing to not just Toronto, but abroad, that we stay in our band, stay in our lane on cost.
We don't start getting over what some of these other parts of the market might look like. And I also think that these post-secondary education in a recession, by the way, if we are in a recession, what happens? People go back, they retool, they re-skill, right? They. Those institutions, the post-secondary education institutions become a very big catalyst for future growth.
So to me, those two things, as long as they stay in check, which they appear to be, I think all other asset classes, whether you're living here, you're working in an office, working in a factory, in a warehouse, selling your wares in a retail shop, like all of it will do well as a community.
but again, I'm pretty biased, but I think we got a pretty great voice.
Raymond Wong: Yeah. the only thing that, and Mitch you mentioned earlier regards to just keeping track of, the market dynamics because now the challenge with, some of these logistic warehouse manufacturing is labor and.
Certain extent that's being accommodated with via public transit as well as with cars and getting into these warehouses. it's also, the cost of logistics and moving, goods. Now Amazon built that, new warehouse to service London, but for Kitchener Waterloo, Cambridge area to service the G T A.
There's that balance with respect to, getting the goods to their, consumers and, clients and still weighing out the cost to actually transport with the cost of fuel, the cost of labor, and so on and so forth. So as long as that can be In check. Otherwise, maybe it would make sense to make, you haven't seen it in Toronto yet, but you've seen it in Vancouver with, two or three story industrial and whether or not I gets to that point whereby they're trying to focus on controlling some of the costs and not just real estate.
Overall, I think the overall growth and with, Volkswagen opening the next five years and creating that central point for, that type of technology and to separate Canada and have them, have us recognize the strong leader in that sector, I think really works and creates growth. For, the region.
and that's the only sort of challenge I see. But everything else, if nothing else,if everything just keeps going the way they are and with the, with affordability and with the immigration and the other things that, yeah, I see good long runway for Southwestern Ontario on potential growth.
Marlon Bray: Yeah, I think it's set up perfectly for growth in the future. So cheers, Mitch, for joining us today. It's been great to have you join us on the last podcast. So this is the end of the Altus podcast with me and Ray. So you'll have to look out for us at future presentations and conferences.
And look, it's, gonna be a little bit bumpy over the next couple of years. Interest rates are a little wing nutty high right now. And Toronto's not exactly ideal. So Southwest Ontario's a great alternative. you've seen the adverts of Calgary. I keep saying everyone should go to Calgary .
But we're looking forward to see how the market plays out.So it's been a great time doing the podcast. So thank you for me. Thank you for joining us, Mitch.
Mitchell Blaine: Thank you gentlemen, and hey, I'll just leave one last thought as much as we've been talking in general terms here, devil is in the details.
I appreciate what you and your team and Ray, we've known each other for a long time. I appreciate the detail, painstaking detail. You go to provide really important insights, nuanced insights because like London, and Kitchener, they are different places and so appreciate everything you guys have done and keep doing it.
And to anyone listening to this, pay attention to the details because it's critically important. It's gonna be more important than ever.
Raymond Wong: Thanks, Mitch.