Great North Barriers

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Navigating Development Challenges In Canada

By Robyn Ogden

n the dynamic world of real estate development, the self-storage sector has proven to be both lucrative and challenging. In Canada, this industry faces a unique set of obstacles that are intensifying, particularly due to soaring land costs and stringent material requirements imposed by rigorous fire codes. Cody Hulme from Trachte Building Systems delves into these pressing challenges, analyzing their impact on the industry and exploring potential solutions.

A Barrier To Entry

One of the most formidable hurdles for developers in Canada’s primary markets, like downtown Toronto, is the prohibitive cost of land. Prices in these areas can escalate upwards of $20 million per acre, placing immense financial strain on developers. These exorbitant costs are pushing more developers to consider secondary and tertiary markets, where land is relatively more affordable, ranging from $1 to $2 million per acre. However, these areas come with their own set of challenges, notably lower rental rates for self-storage facilities, which can significantly impact profitability.

Jan Belik, head of acquisitions at Access Storage, expresses the severity of the situation. “Municipal development fees have become very expensive in Ontario,” he says. “No matter what kind of building you are doing, the government wants their piece of the pie before a shovel hits the dirt.”

High Cost Of Compliance

Apart from land acquisition costs, developers must contend with municipal development fees, which have seen a dramatic increase over the years. Previously, these fees hovered around $8 to $12 per square foot, but they’ve now surged to approximately $24 per square foot. For a million-dollar building, these costs can take a significant toll on the bottom line, making new projects, especially in less dense markets, harder to justify.

The permitting process adds another layer of complexity and expense. Obtaining the necessary approvals can be a lengthy and unpredictable ordeal, further complicated by potential changes in design requirements imposed during the process. The bureaucratic hurdles not only delay projects but also add unforeseen costs, undermining the financial viability of developments.

An Expensive Mandate

Canada’s stringent fire codes significantly influence material costs in the self-storage sector. Requirements such as fire separation walls on every structural wall can double construction expenses. Moreover, specific fire route stipulations may require that a higher percentage of exterior doors in a facility remain as unprotected openings. Exceeding this percentage necessitates the installation of costly fire shutter doors or additional fire protections, inflating the project budget considerably. Additionally, potential steel tariffs may also play a significant role in escalating material costs, further compounding the financial challenges developers face.

Adaptations And Solutions

Despite these challenges, the market is adapting. Developers are increasingly exploring secondary and tertiary markets to find financially viable projects. Moreover, there is a growing advocacy to reduce governmental barriers and lower development fees, which could potentially save developers 15 percent to 20 percent on costs.

These potential savings are not trivial; they represent a substantial relief that could make many projects feasible again, particularly in markets outside the primary urban centers. As the industry confronts these challenges, collaboration among developers, municipalities, and regulatory bodies will be crucial. By working together to streamline processes and potentially recalibrate fee structures, the sector can enhance its growth prospects.

At A Crossroads

The self-storage industry in Canada is at a crossroads, facing high land acquisition costs, escalating municipal fees, and stringent material cost requirements due to fire codes. These factors collectively pose significant barriers to entry and expansion, particularly in the primary urban markets. However, the shifting focus to more affordable secondary and tertiary markets, combined with efforts to reduce regulatory burdens, offers a pathway forward. By addressing these challenges head on, stakeholders can unlock new opportunities and continue to thrive in this ever-evolving sector.

Robyn Ogden is the marketing manager of Trachte Building Systems.

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