September 27th, 2024
“For every action, there is an equal and opposite reaction.”
- Isaac Newton
When riding a wave at its peak, few seldom stop to think about the next sequence of events as it inevitably comes down.
This doesn’t mean that every bull run is followed by a crash.
That said, humans are known for their over-indulgence in both optimistic and pessimistic scenarios; the former manifesting as the largest industrial pipeline in the GTA’s history while the latter took form as enormous overflow and stockpiles following the pandemic.
As we work through supply-side shocks and integrate new technologies, businesses change. And these changes are reflected ultimately in the real estate footprint underlying the operation.
This has led us to a point where the GTA industrial market just saw the highest industrial vacancy rate in a decade, with the largest quarterly negative absorption in 14 years, and the first average rent decline in 8 years.
Heading into the tail-end of 2024, we expect a flurry of transactions as tenants weigh their options, look to re-organize and enhance their spaces, as well as to take advantage of more moderate pricing.
We also forecast the changing landscape and shift towards the on-shoring of manufacturing to result in a strong demand for heavy power facilities and design-build opportunities. General industrial users and logistics and warehousing tenants will continue to purchase and lease, albeit at reasonable levels relative to the recent boom.
That is why, for this week’s newsletter, we will continue our series and take a deeper dive into the various uses that Tenants have for heavy power industrial facilities.
From Voltage to Value: Heavy Power Applications in Industrial Real Estate
It’s critical to understand how various manufacturing industries utilize heavy power for specific processes when occupying industrial facilities. Heavy power is essential for supporting complex machinery and energy-intensive operations that drive production in diverse sectors.
Below is a summary breakdown of how different types of manufacturers rely on heavy power:
Automotive Assembly Process. Source: AssemblyMag.
1. Automotive Manufacturing
- Robotic Assembly Lines: Heavy power is crucial for running robotic systems that automate vehicle assembly; including welding, painting, and part manipulation. These systems require consistent, high-voltage power to operate efficiently and handle the weight and precision needed.
- CNC Machines: Computer Numerical Control (CNC) machines are widely used for fabricating parts and components from metals to plastics. CNC operations are power-intensive due to their cutting, drilling, and shaping.
- Testing and Simulation Equipment: Many automotive manufacturers use heavy power for simulation tools to test the performance of parts and components under various conditions.
2. Food Processing and Packaging
- Refrigeration Systems: Large-scale food manufacturing facilities often have industrial refrigeration systems that need substantial power to maintain proper storage conditions for perishable goods.
- Automated Processing Lines: From mixing and grinding to packaging and labeling, automated processing lines demand significant power to handle high volumes of food products efficiently.
- Sterilization Equipment: High-temperature ovens and steam generators used for sterilizing products and packaging require consistent heavy power to ensure safety and compliance with health standards.
Food Processing and Packaging Process. Source: Arco National Construction.
3. Chemical and Pharmaceutical Manufacturing
- Reaction Vessels and Reactors: Chemical and pharmaceutical companies rely on heavy power to run reactors that synthesize chemicals or medications. These reactors often require controlled heating, stirring, and pressurization.
- Industrial Ovens and Dryers: Many pharmaceutical manufacturing processes, such as drying or forming medications, depend on high-powered ovens and drying systems.
- HVAC and Filtration Systems: These facilities often need large HVAC systems with advanced filtration for cleanroom environments, which ensures contamination-free production.
4. Metal Fabrication and Steel Manufacturing
- Electric Arc Furnaces: In steel manufacturing, electric arc furnaces are used for melting scrap steel or raw materials. These furnaces require a substantial power supply to reach the high temperatures necessary for metalworking.
- Forging and Pressing Machines: Heavy-duty forging and pressing machines, used for shaping metals, operate under immense loads and require continuous high power to perform industrial-grade tasks.
- Plasma Cutting and Welding: Plasma cutting tools used to slice through thick metals and welding machines that fuse materials together are highly dependent on consistent power.
Injection Moulding Process. Source: RJG Mold Smart.
5. Plastics and Textiles Manufacturing
- Injection Molding Machines: In plastic manufacturing, injection molding machines rely on high power for the precise control needed to mold raw materials into products. These machines operate under high pressure and heat, both of which demand heavy power input.
- Textile Processing Machines: Machinery used for weaving, dyeing, and finishing textiles consumes large amounts of energy, especially in automated operations that handle continuous fabric processing.
6. Electronics and High-Tech Manufacturing
- Semiconductor Fabrication: Semiconductor plants rely on high-voltage power for photolithography, etching, and doping processes, which are fundamental to producing microchips.
- Cleanrooms and Environmental Controls: Maintaining the ultra-clean environments necessary for producing high-tech components requires heavy HVAC and air filtration systems that run on substantial power.
- 3D Printers and Advanced Robotics: High-tech manufacturers use industrial 3D printers and robotics for prototyping and manufacturing electronic components, all of which require stable power.
High-Tech Manufacturing Process. Source: Integra Sources.
7. Data Centers (Supporting IT Manufacturing)
- Server Racks and Cooling Systems: Data centers support IT manufacturing by housing large servers, which need not only high power to operate but also robust cooling systems to manage the heat generated by thousands of servers.
- Backup Power Systems: Data centers are often equipped with uninterrupted power supply (UPS) systems and backup generators to prevent downtime, adding to the heavy power requirements.
Conclusion:
Overall, the businesses that require heavy power to run their manufacturing processes span across a diverse range of industry sectors. As near-shoring and the movement towards domestic production of goods continues to grow, the need for electrical capacity in industrial facilities will too.
As a continuation from our first issue of this series, there has been a shift back to reality with respect to logistics and warehousing leasing and speculative development. No – this industry vertical is not going away, it is simply counterbalancing following the enormous growth of the past several years.
In the meantime, businesses are looking to nearshore their manufacturing, processing, and packaging operations just as all industrial users are exploring ways to enhance productivity and leverage automated systems. Finally, the rise of AI and quantum computing means a need for semiconductors and data centers. All of these translate into a need for heavy power capacity.
Just as high-clear warehouses draw a premium on rents due to their ability to better-service warehousers through racking and cubic volumes, so too may heavy power facilities command higher prices, particularly due to the time and cost required to bring said power to an industrial property.
Next week, we will shift towards the emergence of what we are calling “high-powered warehouses;” the convergence of more traditional Big Box warehouses with advanced technologies used to pick, pack, and ship goods to increase throughput and reduce reliance on labour.
In the meantime, for a confidential consultation or a complimentary opinion of value of your property please give us a call.
Until next week…
Goran Brelih and his team have been servicing Investors and Occupiers of Industrial properties in Toronto Central and Toronto North markets for the past 30 years.
Goran Brelih is an Executive Vice President for Cushman & Wakefield ULC in the Greater Toronto Area.
Over the past 30 years, he has been involved in the lease or sale of approximately 25.7 million square feet of industrial space, valued in excess of $1.6 billion dollars while averaging between 40 and 50 transactions per year and achieving the highest level of sales, from the President’s Round Table to Top Ten in GTA and the National Top Ten.
Specialties:
Industrial Real Estate Sales and Leasing, Investment Sales, Design-Build and Land Development
About Cushman & Wakefield ULC.
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 53,000 employees in 400 offices and 60 countries.
In 2020, the firm had revenue of $7.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com.
For more information on GTA Industrial Real Estate Market or to discuss how they can assist you with your real estate needs please contact Goran at 416-756-5456, email at goran.brelih@cushwake.com, or visit www.goranbrelih.com.
Connect with Me Here! – Goran Brelih’s Linkedin Profile: https://ca.linkedin.com/in/goranbrelih
Goran Brelih, SIOR
Executive Vice President, Broker
Cushman & Wakefield ULC, Brokerage.
www.cushmanwakefield.com
Office: 416-756-5456
Mobile: 416-458-4264
Mail: goran.brelih@cushwake.com
Website: www.goranbrelih.com
