Beds and Sheds Dominate Hamilton Commercial Real Estate Market

2024 Hamilton Commercial Real Estate Trends

Beds and sheds continued to dominate the Hamilton commercial real estate market and the greater region spanning Halton to Niagara, in the first quarter of 2024. This, according to the RE/MAX 2024 Commercial Real Estate Report. Multi-family, purpose-built rentals have been the top-performing asset class so far this year, with transactions up 25 per cent across the regions in the first quarter, compared to year-ago levels for the same period.

Despite the delta between construction/financing costs and returns, CMHC incentives including 50-year amortization periods and the federal government’s elimination of the Good and Services Tax (GST) have created a more hospitable environment for developers. Many builders have shelved their plans for condominiums, turning to purpose-built rentals to accommodate rapid population growth in the region. Vacancy rates hovered at 2.1 per cent for purpose-built rentals in Hamilton in October of 2023, remaining near historical low levels, according to the CHMC Rental Market Report. In St. Catharines-Niagara, vacancy rates sat at 2.8 per cent, with “the increase in supply helping to offset some of the impacts of increased demand from prospective homebuyers delaying purchases” in today’s high interest environment.

While demand is still strong for industrial properties, lack of inventory was responsible for a 22 per cent downturn in sales in Q1 2024. Sellers remain steadfast in their desire to hold on to their properties, especially given consistent increases in industrial rental rates – up 9.3 per cent so far this year, compared to the first quarter of 2023. Vacancy rates currently hover at 1.6 per cent, with warehousing and fulfillment space most sought after. The absence of serviced land continues to hamper sales, with new construction at least three to five years out. REITs and institutional investors have been exceptionally active in this segment, with Slate Asset Management leading the way. The company recently announced new details for the Hamilton Steelport, an industrial park with more than 800 acres on Hamilton’s waterfront that is expected to generate $3.8 billion in economic value over the next several decades.

Office leasing in the downtown cores of communities lining Lake Ontario continue to struggle with leasing challenges but have managed to outperform larger markets with a vacancy rate of 4.8 per cent. Office construction dating back to the ’70s and ’80s in the Hamilton core is an unlikely candidate for residential conversion as a result of the floor plates. The best bet for conversion would be any turn of the century office buildings, but those are few and far between. Suburban office markets, on the other hand, continue to experience growth, particularly in Oakville and the Niagara Region.

The retail sector in Halton to Niagara region is shifting from urban to suburban communities where foot traffic is on the upswing. Trendy shops and restaurants as well as service operations including health and wellness, hair and nail salons, laser clinics and Pilates studios are thriving as buyers choose to shop local throughout these smaller communities including Oakville, Burlington, Ancaster, and Font Hill in St. Catharines. Retail rental rates have climbed in tandem, up 2.3 per cent in Q1 2024, compared to the same period in 2023.

Local malls and shopping centres are also changing up their retail mix, adding restaurants and service providers, while submitting applications for a residential component to local municipalities. Lime Ridge Mall will soon be anchored by the largest Tesla dealership in the country, with over 60,000 sq. ft., while the site of the former Sears store will be refurbished for new commercial tenants and restaurants. Two mid-rise residential buildings consisting of 320 rental units are planned for the site, which has already received approval on the conditional site plan. Progress has also been made at Stoney Creek’s Eastgate Square Mall where the redevelopment of the southern portion of the 45-acre property is currently underway.  The first of several phases includes eight mid-rise buildings and eight blocks of three-storey townhomes.

While malls and strip plazas continue to investigate best-use options for their properties, overall vacant land sales are faltering. Elevated interest rates, high construction costs, labour shortages, and an excess of provincial and municipal development costs have stifled residential construction, particularly on greenfield developments leading to a 50 per cent decline in land sales this year, compared to year-ago levels for the same period. Given that the current supply of housing in the region falls well short of demand, residential construction has never been more necessary.