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"Forging Hamilton" Columnists

Alex Manojlovich Director, Strategy and Research

Recent

Hamilton experiences healthy Q3, amid interest rate increases

With Q3 wrapping up and overall business sentiment tightening due to interest rate increases, the Hamilton commercial real estate market is steadily chugging along.

With September traditionally being the slowest month of the year for Hamilton, this past quarter witnessed $434 million worth of commercial real estate volume trade – enough to be the fourth-highest quarter since 2017 and near pace with last year's total of $474 million.

The overall number of transactions was also on par as Hamilton saw an increase from 83 to 88 transactions year-over-year. 

Transactions

Industrial land and assets continue to be a very strong commodity.

ICI land was the top performer this past quarter and also laid claim to the top transaction as IKEA Properties purchased 65.41 acres of land on the Hamilton Mountain for $82 million or approximately $1.2 million per acre.

A relatively high, but not unsound purchase price as the demand for industrial land continues to fuel values north of $1 million per acre in Hamilton. The city has witnessed some transactions exceed values of $1.4 million-or-more per acre.

This is easy to understand when reading Colliers' latest quarterly report indicating Hamilton’s average employment land sale price is $1,255,924 per acre and Hamilton’s industrial availability rate to be 0.7 per cent, one of the lowest in the country.

Colliers also notes regional neighbours of Kitchener, Waterloo, Cambridge, Brantford and Guelph are experiencing similar availability rates of 1.7 per cent, one per cent, 0.3 per cent, 1.9 per cent and 0.4 per cent – all lowering year-over-year – and like Hamilton, have witnessed industrial values rise.

For industrial assets, 444 Seaman St. was the second-largest Hamilton transaction at $41,606,734.

At 205,363 square feet, that’s a valuation of $202 per square foot – a huge number when considering the average Hamilton sale price is $171 per square foot and assets of this large size typically see values well below the average.

To see a 200,000-square-foot asset trade for over the market average speaks to the overall demand for industrial in Hamilton, which is also underlined by Colliers’ quarterly findings.

The third-largest transaction highlights a few trends I’ve been noticing in the office market in Hamilton:

  1. the purchase of office space has still yet to recover at a pace we’ve seen pre-pandemic;
  2. offices that trade are usually smaller owner-occupier sized (approximately 2,000 square feet); and
  3. lately the majority of transactions are medical-related, which makes sense as one would assume most medical practices would still require a physical location to operate their business.

Back to the actual transaction: 35 Upper Centennial Pkwy. is a multi-unit medical office that sold for $26 million, or $280 per square foot, a decent valuation for office in this current market. 

Development updates

Not much to report in the way of new development announcements, with only DiCenzo Homes’ 12-storey, 165-unit residential proposal for 639 Rymal Rd. W. showcased at the August design review panel.

However, a few notable residential land transactions took place that will surely set the table for future high-density development.

The most interesting transaction for most Hamiltonians would be for 98 James St. S. a.k.a. The Connolly or the former James St. Baptist Church.

The property was purchased in 2013 by developer Louie Santaguida for $610,000, controversially razed in 2014, was placed in receivership in 2016, purchased by Hue Developments in 2018 for $8.5 million; and now purchased again by an unknown group that is associated with Milborne Group.

Almost 10 years later, the 0.32-acre site sold for $24 million or a staggering $75 million per acre. For context, high-density development land usually trades between $9 to $14 million per acre.

According to the Hamilton Spectator, “city-approved heritage and building permits will be transferred to the new owners," and the project’s architects remain involved in planning. In-place approvals and permitting could provide guidance for the higher-than-average purchase price.

The last proposal was for a 31-storey, 315-unit condominium.  It’ll be a great day once shovels hit the ground for this long-anticipated project.

Also of note, LiUNA’s 75 James development is currently underway kitty-corner to 98 James St S.

A little further north downtown, a property at 100 John St. N. and 61 Wilson St. was purchased by Emblem Developments for $8 million or $13.8 million per acre.

Emblem Developments has made several investments in Hamilton now, with 1 Jarvis currently under construction and the Design District, a three-tower condo proposal, currently undergoing pre-construction sales.

The Design District is located across John Street, with the first tower sold out. Finally, 150 Main St. E., 60 Walnut St. S., and a collection of three neighbouring properties totalling 0.64 acres, sold for $6.1 million or $9.5 million per acre.

The buyer and potential development plans are unknown.

However, the site appears primed to become a high-density development with three frontages, a location within the downtown secondary pla, and a development comparable of the recently completed Walnut Place by Vrancor Group.

In summary

This past quarter illustrated some large transactions and overall healthy metrics with industrial leading the charge.

Even though minimal new development projects were announced, interesting residential land transactions filled the void.

As we head into the winter months with interest rates forecast to increase, we’ll keep an eye on how the market is affected and whether buyer sentiment is put on ice.



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