The inaugural Southwestern Ontario Real Estate Forum might best be described as a commercial real estate coming-out party for the Kitchener-Waterloo region, which sits just beyond the borders of the Greater Toronto Area.
Held at the Crowne Plaza Kitchener hotel, the event drew a sellout crowd of over 350 industry professionals from across the region, the GTA and Canada. Over half of the attendees were from outside Southwestern Ontario, including about 46 per cent from the neighbouring GTA.
While all of Southwestern Ontario was included in the forum, there was a focus on Kitchener-Waterloo.
The area is increasingly being linked to the GTA through improved transit and transportation and has a rapidly growing population, a revived tech and innovation sector and a strong industrial component.
That was best illustrated during a presentation by Rob Regier, the Region of Waterloo’s commissioner of planning, development and legislative services.
The ION's importance to Kitchener-Waterloo
He laid out the history of one of its economic drivers, Waterloo region’s ION light-rail system. The 19-kilometre route crosses Kitchener and Waterloo, with a bus rapid transit extension into Cambridge. It opened in 2019.
“We are competing with the great urban economies of the world and we need to build infrastructure that supports that work globally,” Regier said of the region of about 550,000 residents.
Highly controversial when it was proposed over a decade ago, ION cost about $850 million to build and was funded by the federal, provincial and regional governments.
In the decade since serious planning and development for the LRT began, Regier said there has been $4.9 billion in real estate investment along the corridor. More is to come.
Few Canadian cities of its size have such a system.
“It put us a decade ahead in terms of the evolution of our real estate market and the structure that we have in the Region of Waterloo,” Regier said.
Rapidly growing population
Other speakers filled in different pieces of the region’s growth puzzle.
Anthony Passarelli, a senior analyst, economics, at the Canadian Mortgage and Housing Corp, outlined the region’s strong growth trajectory.
Immigration added 67,000 new residents to Southwestern Ontario’s sixth-largest urban areas from 2020 through 2022 and up to 98,000 more are expected by 2025.
Internal migration out of the GTA to those six urban areas was estimated by CMHC to be 47,000 during 2021 alone – although that figure might be skewed somewhat by the COVID-19 pandemic.
“The bottom line is there is going to be more people moving into these regions from other countries over the next couple of years based on those targets,” Passarelli explained. “Another thing I would definitely point out is the impact it is going to have on the rental market versus the home ownership market.”
Because newcomers to Canada tend to rent for several years after arrival, that means continuing pressure to build new purpose-built rental apartments.
As has happened across the country, this is creating a supply crunch and higher housing prices for both buyers and renters.
Vacancy remains low in all the major Southwestern Ontario cities, from 1.5 per cent in Kitchener-Waterloo-Cambridge and Guelph, to 2.8 per cent in St. Catharines-Niagara.
“One thing at CMHC I think we are most confident on, in terms of going out to the future, is the rental market forecast which is low vacancy rates in these areas,” Passarelli noted.
Major developments, office challenges
This means opportunities for development abound and as Regier noted, Kitchener-Waterloo has seen its share.
Kitchener is home to Google’s largest Canadian research and development centre, which further boosted an already robust tech sector in neighbouring Waterloo.
Google anchors the innovation hub known as Breithaupt Block at the edge of the downtown, where it has capacity for about 3,000 workers, although recent layoffs in the sector have impacted that. Still, Google’s newest building at the site is a striking, recently occupied 11-storey glass complex (by Allied Properties REIT and Perimeter Developments) that can be seen from several blocks away.
It sits just across King Street from one of the region’s largest multiresidential developments, the multi-phased Station Park by Vanmar developments.
Two completed condo towers of 18 and 28 storeys stand at the site and construction for a third is beginning. It will include four towers at full build-out.
It is one of several multi-tower projects in various stages of planning and development in and around the downtown.
And while Kitchener’s downtown office sector remains challenged by a 30 per cent vacancy rate (the total downtown inventory is about six million square feet), that could be about to change somewhat.
Allied’s vice-president of leasing Gord Oughton said the REIT is negotiating with several potential tenants for over 100,000 square feet of space recently vacated in another nearby innovation district office complex.
And adjacent to Conestoga College’s downtown campus, Toronto-based commercial property manager Europro plans to convert a 100,000-square-foot office building at 22 Frederick St., to residential.
“We felt taking 100,000 square feet off the office market would be beneficial,” Jesse Nathanson, Europro’s vice-president, asset management and investments, said during a roundtable discussion.
Industrial sector benefits from GTA spillover
On the industrial front, meanwhile, the enormous demand for GTA properties has spilled over throughout Southwestern Ontario.
This benefit is being felt throughout the neighbouring Waterloo region, the Burlington-Hamilton area and other municipalities.
Ray Wong, vice-president of data solutions at Altus Group, noted low availability rates, severe land constraints in Toronto and high industrial land and operating costs through the rest of the GTA, are forcing companies to look further afield.
“SWO is a great beneficiary of the low availability rate,” he noted. “It goes back to that advantage of having lower land costs . . . and there is more opportunity in occupancy costs, on the upside, compared to Markham and Mississauga.”