- What Cushman & Wakefield finds that Canadian cities are among the most expensive for industrial property development
- Why Inflation, rising interest rates and high labour costs are major factors
- What next Analysts expect construction activity to pick up in Canada following the interest rate cut
Canadian cities are among the priciest locations in North America for industrial construction, Cushman & Wakefield found.
The findings are included in the brokerage’s 2024 construction cost guide, ranking the top 45 industrial real estate markets across North and South America, including Toronto, Montreal, Vancouver and Calgary.
Construction costs for Canadian commercial properties across asset classes have shot up 32% in the last five years, according to the report. John Corless, Cushman’s Toronto-based industrial project development services lead, attributes the increase to supply chain shocks, sharp price hikes for building materials, inflation, municipal development fees and high labour costs.
To produce the rankings, Cushman solicited cost estimates from general contractors for small, medium and large projects, based on specifications provided by the brokerage, research manager Sandy Romero said. They included factors like office space and steel frames but not land costs.
In the small category, a 109,000 sq ft property would cost $176/sq ft to build in Calgary, $172/sq ft in Vancouver and $170/sq ft in Toronto. Those costs trail only Seattle, which, at $182/sq ft, is the most expensive market in the Americas to build. Montreal ($165/sq ft) was the sixth priciest city.
Smaller industrial projects had the highest construction costs across the Americas in general, with an average of $142/sq ft. That represents a 17% increase year over year, largely in part because of the expense incurred for architecture work, according to the report.
For medium projects, defined by Cushman as 476,000 sq ft, Calgary, at $97/sq ft, was the most expensive Canadian city, followed by Vancouver ($93/sq ft), Toronto ($92/sq ft) and Montreal ($91/sq ft). Both Calgary and Montreal dropped compared with a year earlier, while Toronto’s costs shot up $11 and Vancouver’s remained unchanged. Denver ($109/sq ft) was No. 1 in the medium category.
In the large category, for projects of 901,000 sq ft, Calgary ($84/sq ft) was again the most expensive Canadian city, but well below Denver ($105/sq ft) and Portland, Ore., ($101/sq ft). Toronto ($78/sq ft) and Vancouver ($79/sq ft) were just above Montreal ($77/sq ft), the cheapest Canadian city for large industrial building construction. In Montreal, prices dropped 17% year over year, according to the rankings.
Looking ahead, Corless is cautiously optimistic that costs will eventually stabilize following the 25 basis points cut to federal interest rates announced by the Bank of Canada this month. But he’s skeptical the move will result in more construction anytime soon.
“I think you will see that it will become far more feasible to develop industrial properties and ultimately the reduction in interest rates is nice, but I don’t think it’s going to create a waterfall of activity,” Corless told Green Street News.
The findings hammer home for Corless the point that industrial property builders pursuing projects in Canada need to tighten up their development strategies to ensure maximum cost efficiencies.
“I think the main message to everybody involved in the supply chain is check your numbers,” Corless said. “Go back to the drawing board. Because we all want to be as competitive as possible. But at the same time, we can’t be unprofitable.”
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