The VW effect: London set to cash in by hiking price of industrial land

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The price of land in London’s industrial parks may increase by $100,000 an acre and with a half-dozen Volkswagen suppliers looking to locate here, the hike could mean a windfall for city hall.

Raising the price of manufacturing land in London puts the city in line with neighbouring communities and shouldn’t hurt competitiveness because demand remains strong, local real estate and development officials say.

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With PowerCo, the name of the Volkswagen subsidiary building an electric-vehicle battery plant in St. Thomas, expected to name its suppliers by year’s end, demand for London region manufacturing may get even hotter, said Kapil Lakhotia, chief executive of the London Economic Development Corp.

“We have several prospects in the pipeline who are awaiting a decision from PowerCo,” he said. “When they make their decision we expect many of them will land in London or the region.”

Volkswagen is expected to open its $7-billion electric-vehicle battery manufacturing plant in 2027. 

Lakhotia said he wouldn’t be surprised if “about a half-dozen” suppliers locate in the city and area, including St. Thomas, which has more than 1,000 acres (400 hectares) put aside for suppliers and other industry.

“We don’t feel this increase will dampen any investment opportunities,” he said. “Demand for industrial land in London and the region is very strong. The pricing proposal is in keeping with other locations, our competitors.”

In a report going to city council’s corporate services committee Monday, city staff is recommending the following changes for land in serviced industrial parks effective Aug. 1:

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• the price of lots up to five acres (two hectares) at Innovation Park and Huron Industrial Park increase to $325,000 an acre from $225,000. Lots of more than five acres rise to $300,000 an acre from $200,000.
• All lots at Trafalgar Industrial Park increase to $300,000 an acre, up from $200,000.
• Price for lots in Innovation Park increase to $400,000 from $300,000.
• An additional charge of 15 per cent for all sites fronting on Highway 401 and five per cent for those facing Veterans Memorial Parkway.

The current prices were last increased in 2022.

As for competing communities, industrial land in Guelph, Cambridge and Waterloo costs from $500,000 to $1 million an acre, a staff report said.

“London has generally remained in the middle in terms of municipal land pricing and remained competitive. Smaller municipalities such as Strathroy, Sarnia and Tillsonburg have remained lower in terms of price for many years,” the city staff report states.

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“In terms of neighbouring municipalities such as St. Thomas, Woodstock, and Ingersoll, price levels have risen in the past 12 months based on discussions with various industry sources. 

London has nearly 300 acres (121 hectares) of serviced land ready for development in city industrial parks and another 270 acres (110 hectares) of unserviced land, said Bill Warner, city hall’s director of realty services.

Private land,  not owned by the city, can also be sold and rezoned for industrial use.

An April report from commercial realty firm CBRE said that for the first time since 2022, the availability rate for London industrial space has risen above one per cent.

“Despite this, London retains its position as Canada’s strongest industrial market,” CBRE said.

It is expected 800,000 square feet of industrial space will be built by year’s end, with 90 per cent of it already pre-leased. 

Sean Ford is managing partner at Dancor Construction, which builds for the manufacturing sector. He agreed increasing land prices shouldn’t hinder demand, but questioned whether the city has enough private industrial land in its supply.

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“The bigger concern is that we need to add a lot more (privately owned) industrial land. The city doesn’t have enough,” he said.

There is about 250 acres (100 hectares) now available, Ford said. “We need to add about 500 acres (220 hectares) over the next several years to meet demand. We’re short.”

Dancor is building a 550,000-square-foot warehouse in the city for the Gap and will break ground soon on a 360,000-square-foot expansion of an industrial plant in St. Thomas, he said. 

City-owned land can be used only for advanced manufacturing, such as automotive plants, defence industries, pharmaceuticals and agri-food. More land is needed for other industries, such as warehousing, Ford said.

“I’m buying private land, rezoning it, servicing and developing it. I’m not buying city land because I don’t fit in those categories, but both city and private have to exist,” he said. 

ndebono@postmedia.com

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