Re-shoring: The birth of an industrial real estate boom . . . maybe

AACI | Vice President, The Regional Group of Companies Inc.
  • Jul. 11, 2013

john clarkOntario alone has lost about 300,000 manufacturing jobs since the start of the great recession, so it is little wonder re-shoring has become a popular topic over the past year.

But does it herald boom times to come in Canada’s industrial real estate sector or is it more hype than hard reality?

Simply put, re-shoring is the repatriation of manufacturing jobs lost in previous decades to lower-cost centres overseas.

Higher labour costs in markets such as China, higher shipping costs thanks to increased crude prices (now at about US$100/bbl, since prices bottomed out in late 2008 at around $40/bbl), and the traditional irritants of waiting weeks for finished products to arrive via container ship, have led many manufacturers to reconsider their offshore practices.

According to a recent Globe and Mail story, Boston Consulting Group predicts the combination of production returning from China and increased exports will create between 600,000 and a million jobs in the U.S. over the next decade, while other reports suggest upwards of 60,000 jobs have already been created in the U.S. since 2010 as a result of re-shoring.

Subject to much debate

Canada’s version of this story is subject to much debate. Some sources say our higher labour costs will keep us on the sidelines unless the government steps in with substantial incentives to lure multi-nationals who would otherwise turn to the U.S.

Others suggest Canada will see a return of manufacturing operations, but they will rely less on the availability of skilled workers left idle by the recession and more on automation.

This could be the start of a new industrial revolution and, if this happens, it could give Canada a competitive advantage in having new right-sized industries.

But any uptick in manufacturing activity, even if it doesn’t have a substantial impact on the labour force, can still affect real estate markets. Whenever real estate markets are affected, there is a potential for someone to make, and someone else to lose, money.

It’s very likely the next industrial wave won’t look like the last one coming out of the 1940s.

Ontario’s manufacturing slide hasn’t been limited to the automotive sector and southern Ontario.

From Black and Decker in Brockville, to Hershey’s in Smiths Falls and Duplate in Hawkesbury, communities across the province have felt the pinch. Jobs are lost, families are left in financial duress, and the local real estate market becomes bloated with vacant manufacturing, warehousing and distribution facilities.

Brockville a prime example

This is perhaps no better demonstrated than in Brockville, a community on the shore of the St. Lawrence with an amalgamated population of about 39,000 that bills itself as the City of 1,000 Islands.

In 1966, power tool manufacturer Black & Decker opened a plant that at its peak employed 1,000 people. Last fall, the 500,000-sq.-ft. facility, which had been reduced to a distribution operation with only 60 staff, closed its doors and was subsequently put up for sale for a song.

The April 2013 selling price was $2 million for a facility that would have cost more than 20 times as much to replace.

The facility has since been acquired by a B.C.-based property management firm which is leasing it out in pieces. Considering the depressed pricetag, the new owner has the real advantage of a very low cost to carry.

This is an opportunity which one buyer has taken advantage of, not to roll out the welcome mat to re-shored manufacturing operations (though I am sure it would welcome those, too), but to entice companies from other higher-cost centres, such as Ottawa, at least according to a story in the Brockville Recorder.

Such cheap industrial properties are for sale all over Ontario and no doubt in other centres across Canada, often with a skilled or semi-skilled local labour force anxious for new opportunities.

I believe forward-looking investors and property management firms will be, or should be, keeping a close eye on this re-shoring trend to see which manufacturing industries are most likely to be part of this potential wave.

They must work to understand the labour, equipment and logistics needs of these manufacturers and what incentives will lure them to Canada and to specific regions of Canada.

Armed with this intelligence, they can then strategically acquire available properties that will have the most appeal while market prices remain depressed.

I am not advocating that anyone engage in rampant speculative buying, but if there is any substance to this re-shoring trend in a Canadian context, it will have an impact on specific real estate markets across the country and the best way to take advantage is to be proactive.

To discuss this or any other valuation topic in the context of your property, please contact me at
[email protected]. I am also interested in your feedback and suggestions for future articles.

John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

Read more

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