Industrial availability is opening up in the tight Windsor market where a huge production facility for lithium-ion batteries and a coming resurgence in automotive production are combining to turn around the city's fortunes.
CBRE’s office in the city, located just across the border from Detroit, is listing three million square feet. That's leading some, including CBRE associate vice-president Brad Collins, to predict 2023 could be a record year for industrial transactions in Windsor fuelled by companies wanting to be affiliated with the electric vehicle (EV) battery plant.
Properties at 1000 Henry Ford Centre Dr. and 2935 Pillette Rd., totalling 1.7 million square feet, pushed the 1.4 per cent availability rate in the third quarter up to 4.93 per cent to end the year, according to CBRE. The fourth-quarter vacancy rate was 4.55 per cent.
Collins told RENX there were only four or five existing options for industrial users seeking 100,000 square feet or more so land sales and new construction will remain key going forward.
While Windsor experienced a 12.8 per cent year-over-year increase in average net industrial rent, closing 2022 at $9.27 per square foot, that's still well below many manufacturing markets across Canada. Double-digit rental rate growth is anticipated for this year.
Low rents have attracted some Greater Toronto Area (GTA) manufacturers that were priced out of that market in recent years, which has benefited the Windsor economy.
“We're really starting to see groups that historically would stick to the GTA on the investment side and the development side really start to flirt down here,” said Collins.
“We think that's great from a market standpoint in terms of growing our market and improving the sophistication of some of these developments and types of products we have because a lot of our stock is older stock.
"We haven't had this development boom historically, despite having availability rates near rock bottom.”
Electric vehicle battery plant a huge addition
Windsor was given a big boost last March with the announcement that Canada’s first lithium-ion EV battery plant — a joint venture between automaker Stellantis and battery-maker LG Energy Solution — would be built in the city.
Stellantis is already the largest private employer in the Windsor area and the $4.9-billion, 4.5-million-square-foot EV battery plant is expected to employ 2,500 and generate more economic activity in a region that had been hit hard by layoffs in the automotive industry.
“Investor confidence in Windsor assets really turned overnight, from a market that historically has been a bit of a boom-and-bust automotive-based, manufacturing-based economy,” said Collins. “There's always been the threat of losing Stellantis as a major employer for our community.
“With this announcement, and some of the announcements that led up to it from an assembly plant standpoint, that really transformed how people view Windsor and the stability of it going forward.”
“You've now got a more diversified supply chain that's going to be coming in here,” CBRE senior vice-president Brook Handysides told RENX. “Even though it's aligned with automotive production and manufacturing, it’s basically a new branch off of that tree.
“So you're dealing with battery production and all of that supply chain that will align as a complement to the automotive manufacturing backbone that's already here.”
Construction has begun on the EV battery plant, which Collins said is to be operational in late 2024 or 2025.
CBRE is also marketing a 27.58-acre site with two industrial buildings, totalling 342,786 square feet at 9355 Anchor Dr., close to the future EV battery plant. The site includes a fenced 10.56-acre gravel storage yard that could also be used for trailer parking.
Handysides added Windsor’s post-secondary education institutions already offer automotive and engineering programs that attract students from Canada and abroad, and the EV battery plant will enable many graduates to work and live in the community.
Stellantis assembly plant being retooled
In December, Stellantis cancelled plans to eliminate the second shift at Windsor’s 4.4-million-square-foot assembly plant, which will keep almost 4,000 employed. This year the plant will be retooled to accommodate a multi-energy vehicle architecture that will provide battery-electric capability for multiple models.
This will allow maximum flexibility to adjust production volumes to meet changing market demand over the next decade. Once complete, the plant is expected to return to the three-shift operation which ended in July 2020 after 27 years.
“That’s really important for the confidence of the market as well because it allows us to bridge a number of different vehicles, which just leads to stability,” said Collins. “There are a lot of contracts and activities surrounding that as well.”
Users looking to take advantage of synergies with the EV battery and assembly plants should be making land purchase decisions this year to get developments off the ground as soon as possible, said Collins.
“If they think they can roll the bones and try to find something existing, they could wait until 2024 to get something up and running. But that's at a pretty significant risk, given how tight the market is from an existing availability standpoint.”
Improving infrastructure for transportation hub
Windsor is the southernmost city in Canada and the Windsor-Essex region is home to almost 400,000. Some 4.5 million Americans live within an hour’s drive and approximately 2.6 million trucks carrying more than $100 billion worth of goods cross the border between Detroit and Windsor annually.
Billions of dollars have been spent and will continue to be spent on such infrastructure projects as the realignment of Highway 401 and the six-lane Gordie Howe International Bridge being built across the Detroit River to improve trade and boost supply chains between Canada and the United States.
Excluding the EV battery plant, there were 174,040 square feet of space under construction in Windsor’s 58.3-million-square foot industrial market — either through additions to existing buildings or new projects — in Q4. All of it is pre-leased.
Windsor still hasn’t seen any major speculative development. That’s been the norm in the past and a more difficult lending environment of late has kept it that way.
“There have been some groups that have been flirting with the notion of that, but there's not really one development we can point to,” Collins said of spec buildings.
“But there are land deals happening that in the future would contemplate those types of things and you've seen these older users and investors really start to look hard at quality land sites for speculative development in the future just because of some of the underpinnings.”
Industrial building, land values increasing
Most development in the Windsor area is done by local companies and there’s no dominant player — and not much institutional ownership — in the somewhat fragmented market.
A substantial increase in owner-user demand and construction costs, combined with a shortage of sale listings, resulted in the average asking industrial sale price increasing by 27.1 per cent year-over-year to a record of $156.81 per square foot.
A substantial portion of the Windsor user market prefers to own versus lease.
Collins said industrial land prices in Windsor have risen substantially, from about $150,000 per acre five years ago to close to $500,000. Despite higher interest rates and borrowing costs, he expects land to continue to increase in value.