Lease, Sale Prices Way Up in London Commercial Real Estate Market: 2023 Report

As the fastest growing city in Ontario and one of the top five in Canada*, accelerated population growth has placed upward pressure on available residential and commercial real estate in London, causing rapid price appreciation in the city and surrounding communities. This, according to the new 2022 Commercial Real Estate Report from RE/MAX Canada, with local market insights provided by Eavan Travers, CCIM, REALTOR® and Gary Robinson, Broker of Record, RE/MAX Advantage Realty Ltd. Brokerage.

With most developable land inside urban growth boundaries unavailable, there little usable land is left to satisfy existing demand. The city and the province will have to move at a faster pace to bring supply to the market or prices for industrial and residential properties will escalate beyond reach.

Vacancy rates for industrial space have currently fallen below one per cent. Availability rates currently hover at 1.3 per cent** for industrial product in London, and spillover has pushed into neighbouring St. Thomas, Elgin County, Woodstock, Strathroy, Mount Bridges and Dorchester as demand continues to climb. End users are particularly active, willing to pay more to secure both space and ownership. Scarcity of product has pushed up rental rates by about 50 per cent. New industrial lease rates are achieving levels previously unseen.

Recent comments made by City of London staff suggest the city will be calling for an increase in city-owned industrial land values, doubling prices from $125,000 an acre to $250,000 per acre. Despite their efforts to cool the red-hot commercial market, the increase is unlikely to have any impact on fixing the current supply shortage. London and the surrounding areas continue to attract industry including agri-food, manufacturing, digitalized media and technology, health and professional services, with large companies such as Amazon, Maple Leaf Foods, Dr. Oetker and CDK Global choosing to lay roots in the city and area. Over a million square feet of industrial space is currently under construction.

Shortages exist at virtually every price point for commercial real estate in London, with the exception of downtown office space. There has been a huge push for multi-unit, purpose-built residential rentals that speak to the city’s plan for intensification through higher density, which has prompted demand for redevelopment across the city, including underdeveloped old industrial, institutional product, and retail tracts.

While there has been a slight reduction in overall office availability rates at 18.1 per cent**, there continue to be post-pandemic challenges in terms of the return to the office in the downtown core, where rates are higher. Lease rates have been competitive with landlords undertaking total conversions for quality tenants. Demand for suburban office space remains healthy. Several new, multi-storey office developments are underway in the city’s west end. The provincial government recently announced the relocation of the Workplace Safety and Insurance Board (WSIB) offices, bringing 3,000 potential new employees to London.

Retail continues to strengthen as restrictions put in place over the pandemic ease. Traffic is picking up in the area malls, with retail sales volumes climbing. Improvements continue to be made to retail malls that enhance the shopper’s experience. Many landlords have focused on larger restaurant chains and exciting new recreation areas to attract shoppers to the malls.

Given London’s strategic location to Toronto–one of the country’s busiest commercial and residential real estate markets–and the US Border, and frequent announcements that positively impact local economic growth, the outlook for commercial real estate in London is expected to be bright.

Sources:
*Number four on Statistics Canada’s list of fastest growing cities in Canada with a 10 per cent growth rate between 2016 and 2021 – Census Canada
** Altus Group