4. Location Decisions: Identifying Investment Location Factors

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1 4. Location Decisions: Identifying Investment Location Factors The intent of this section is to consider factors that guide location decisions for the non-retail nonresidential sector in Halton and the GGH. The section discusses the relative importance of financial and non-financial factors from the perspectives of end-user tenants making location decisions. Much of the established research on location decisions has adopted a sector-based approach to identify business priorities. However, in addition to industry-specific considerations, other factors such as the size of an organization, its stage of growth, and its business plan influence location decisions. This analysis notes that, in addition to the sector approach, it would be valuable to view location decisions in the context of common parameters that identify the specific needs of each business. The first part of this section provides an overview of the economic landscape of the GGH in relation to location selection factors, as well as localized differences within Halton, both of which are relevant to identifying Halton s competitiveness in the GGH. The second part of this section elaborates on the relative positioning of financial and non-financial factors by businesses making location selection decisions. Financial Factors Capital Costs Cost of Land Construction Cost DCs Operating Costs Tax Rates Utility Rates Rental Rates Labour Costs Financing Financial Incentives from Government Non-Financial Factors (some factors have an indirect influence on cost) Proximity to Suppliers, Customers, and Major Markets Transportation Infrastructure Land Availability Lack of Congestion Labour Availability Industry-specific Requirements Building configuration Historical Reasons Government Strategy and Municipal Assistance Quality of life criteria This discussion is followed by an evaluation of GGH Regions and Halton Region municipalities based on critical location factors for industrial and office development. The fourth and final part of this section explores the location preferences of companies in greater depth and discusses five other parameters that affect location decisions to a great extent, both within and across distinct sectors. These are: Sector and Type of Activity Reason for New Investment Size of Facility Labour Composition Land Tenure (Ownership vs. Lease) 4.1 The Economic Region: Halton in the Greater Golden Horseshoe 26 Halton Region - Competitiveness Study of Office and Industrial Development

2 This discussion of Halton s location attributes focuses on business perspectives of the area, because the business profiles of companies attracted to Halton could prove valuable to identifying location priorities. To identify Halton s appeal to businesses, location attributes were examined at two levels. At the first level, from the perspective of international companies that are new to Canada or Ontario, Halton is part of the GGH and thus shares in many of the general attributes and perceptions of the GGH. An internationally-positioned company may compare the GGH s attributes against other North American or international alternatives. At the second level, for companies already based in Ontario and even elsewhere in the GGH, Halton s location appeal may be compared more specifically to other municipalities in the GGH. For the regionally or locally-based company, specific attributes of Halton might gain prominence, such as its geographical proximity to the airport, the distribution and availability of land near the 400 series highways, the clustering of logistics firms in Milton or the presence of office uses in Burlington and Oakville. Even in the eight case studies that were conducted as part of the scope of this 2007 Analysis, the concerns of foreign manufacturers were found to differ from businesses that restricted their investment to Ontario or businesses that confined their location search to the west GTA. International Appeal From the business perspective, Halton when seen at the GGH scale is considerably different than when viewed at the North American or global level. At the global level, sector based research has demonstrated that before the Canadian dollar reached parity with the US dollar, the after-tax cost of starting up and operating a business in Canada was the lowest amongst G7 nations. On an area competitive basis, research also shows that industrial land has been found to be generally less expensive in Canada than in the United States. 9 Ontario s overall level of competitiveness in North America is identifiable through studies such as a 2006 sector based assessment of 15 cities conducted by KPMG in the Northeast US and Canada region, which indicated that six Canadian cities stood out for their overall low costs to establish and begin operating businesses Sherbrooke, Quebec City, and Montreal in Quebec, and Waterloo, Toronto, and Ottawa in Ontario. The study showed that Waterloo was more costeffective than Toronto, marginally so for manufacturing, but more clearly for software development and R&D, thus supporting that overall cost effectiveness rankings for an area are very likely more representative of some sectors than others. Sale prices for industrial land reflect significant disparity in land values, indicating success for areas that are strategically located and perhaps have managed to offer businesses a combination of desirable location factors. Highway distribution is commonly regarded as a critical location consideration in the GGH with one reason being that road freight is the primary mode of transportation between Canada and the United States. Halton s geographic location in the west GTA is a natural advantage that the Region could better harness, both in terms of its favourable highway connectivity across the GTA and to the US, as well as access to the extensive labour pool of the GTA. Regional Appeal Location factors shape the distribution of the dominant business clusters visible across the GGH. Auto-parts manufacturing which comprises approximately 20% of Ontario s GDP is dominant in many areas, including Durham Region, in Oakville, Burlington, Milton, and Mississauga, and Cambridge and Kitchener in Waterloo Region. Another widely quoted clustering success is that of the Waterloo-Kitchener-Cambridge-Guelph region with its clustering of technology firms. The City 9 KPMG, Competitive Alternatives Report, 2006 Halton Region - Competitiveness Study of Office and Industrial Development 27

3 of Waterloo is one instance where the influence of universities and availability of skilled labour has led to a concentration of service, professional, and R&D sectors (in contrast with many GGH municipalities, here the manufacturing sector comprises approximately 13% of total business activity). As discussed in Section 2, the noticeable growth in warehousing, distribution, and logistics activities is considered to be a dominant driver for the industrial market in the west GTA, including Milton. Ontario s trend of exports targeted at the US and the availability of land and transportation infrastructure in the west GTA are acknowledged as factors that have attributed to the extensive industrial and office growth in regions such as Peel and Halton. Much of the GTA s new industrial supply is noted to be developing in these areas, as well as in the central GTA (including York, Etobicoke, and Toronto). As land supply near uncongested highways in neighbouring municipalities is absorbed, Halton s strategic importance becomes more pronounced, in terms of capitalization on its location and proximity to major highways. The need for prime highway locations is supported by the development of major industrial parks further north and west in the GTA, such as the Vaughan west enterprise zone along the extension to Highway 427 and the Mayfield West industrial area in Caledon. Nevertheless, the phenomenon of industrial growth spurred by proximity and access to major markets is hardly uncommon. Interviews with companies that considered locating in Halton indicated that proximity to customers can be a primary consideration of businesses making location decisions. However, the case studies were not a statistically significant sample and larger surveys have shown that companies may prioritize factors including labour costs, highway accessibility, and tax exemptions, or at least consider them as important as proximity to markets. In Halton, the 401- Steeles Industrial Corridor that connects Milton and Halton Hills supports a variety of different sectors, including food processing, aircraft parts manufacturing and distribution and warehousing. The specific needs of various sectors, such as those seen along this corridor, create different priorities in location selection. 4.2 Location Factors The following discussion of non-financial and financial factors highlights the core concerns of businesses during location selection, as well as the varying degrees of importance of these factors to different sectors. The importance of these factors is supported by the case study interviews, which offer an in-depth look at the requirements of sample businesses (Appendix B). Non-Financial Factors Proximity to customers, highway access, and lack of congestion. The west GTA is characterized by sectors including auto-parts manufacturing and warehousing and logistics firms whose operating model is based on just-in-time product delivery to clients. Many of these businesses are representative of cross-overs between manufacturing and logistics activities, or are singularly supply-chain management companies to whom manufacturers have outsourced product warehousing and distribution. Their location selection criteria reflect the importance of access to markets for sectors that are geared to provide customer service. For example, discussions with an auto-parts manufacturer indicated that proximity to the auto-assembly plant of a customer and uncongested highway access were the company s overarching considerations in selecting its Oakville location, even though the company found suitable sites in Burlington and Mississauga. In this case, the focus on the customer also remained dominant because unskilled labour availability and labour costs were comparatively similar between comparison areas. The company s decision to construct a new building was driven by the lack of existing warehouses with an appropriate building configuration, i.e., high ceilings, a trend which is seen to be of increasing importance as companies strive to remain competitive and ensure that new technologies can be accommodated 28 Halton Region - Competitiveness Study of Office and Industrial Development

4 in the building configuration available for warehousing and distribution operations. Overall, sector specific requirements and the competitive labour and cost climate in the larger area of the west GTA both influenced this auto-parts manufacturer s location decision. Labour Availability. In the absence of an overall labour shortage, localized differences in labour may influence location selection. For new operations requiring largely unskilled labour, the relatively pronounced presence of labour unions further east towards Oshawa could act as an incentive to attract workers, while simultaneously making industries aware of the need to satisfy such unions. On the other hand, businesses that require skilled labour would logically be more concerned with the proximity of their new facility to related activities such as educational facilities. One of the basic location considerations of a high-tech manufacturer that preceded any type of cost analysis was the presence of universities with chemistry and engineering graduates, and proximity to its research centre for employee training. Municipal Assistance. The case studies revealed that companies had varying perceptions of Halton municipalities with regard to municipal assistance. While some firms expected municipal and provincial governments to be more aggressive in terms of assistance (both financial and otherwise), several also mentioned the municipality s assistance in meeting their deadlines. Although the extent to which municipal visibility and recruiting activity influences location decisions is not determined, current corporate surveys rank government incentives as one of the top ten location criteria, 10 and foreign companies indicated that their perception of an area s overall attractiveness could be shaped favourably by more active recruiting on the part of local government. Compared to American cities and states, Ontario municipalities and provinces are limited by legislative constraints in terms of their ability to offer incentives to corporations. However, there have been recent changes in legislation, to date only for the City of Toronto, which has under the City of Toronto Act the ability to create a wider range of incentives. Industry-Specific Requirements. Typically, all sectors have some industry-specific requirements, but while sectors can afford to be flexible about some particular needs, they cannot compromise on others. Businesses involved in rapid goods movement by road usually cannot compromise on factors including proximity to highways and traffic congestion. Similarly, the interviews revealed that manufacturers in the food-processing sector had few reservations considering the purchase of sites that were not already serviced with the natural gas they needed for the production process, but were more likely to eliminate the option of an old building that did not have the level of drainage required to meet mandatory health standards. Land Availability and Building Configuration. Both these factors are critical influences on location decisions: the relative lack of land in Mississauga when compared to Halton is an important influence to consider when assessing the overall attraction of businesses to the Region. It is only in situations where there is next to no vacant land in the larger region that businesses may begin scaling down their local operations. Similarly, building configuration is a relevant factor in the location decision of warehousing companies and food processing facilities, which may require specific ceiling heights, loading and unloading docks, or drainage facilities. Historical Reasons. Historical reasons for existing companies in a municipality to expand in that area only are commonly led directly by financial concerns. Several companies expressed dissatisfaction with the added cost of DCs, but the decision to expand in their respective existing municipal locations was a financial one, based on it being calculated to be more cost-effective for their overall business than moving facilities, resources, equipment, and labour elsewhere. Cost continues to be a critical underlying concern guiding indirect financial factors for any competitive business. 10 Area Development, 22nd Annual Corporate Study Halton Region - Competitiveness Study of Office and Industrial Development 29

5 In summary, land availability, building configuration, proximity to customers and markets, transportation infrastructure and existing facilities, and labour availability are location-relevant factors that most businesses consider in the initial stages of location selection. Although widely regarded as non-financial factors, issues such as customer location, transportation infrastructure, land and labour availability have substantial effects on the efficiency of the business activity as well as on the overall competitiveness and performance of the business in its sector. From this view, they should be regarded as indirect financial factors that precede direct cost considerations. Non-financial factors include concerns such as municipal assistance and aggressiveness towards attracting businesses or quality of life criteria (educational institution ranking, low crime rates, cultural amenities, climate, etc). Three companies in the case studies considered quality-of-life factors, citing such factors as a small-town atmosphere, the presence of Lake Ontario, and friendly people. More than one firm in the case studies also mentioned the location of senior executives and employees homes when their locations were chosen. In this regard, the size and organizational structure of a business could also impact location decisions, albeit to different degrees. Financial Factors Within the local context, direct costs and other non-cost factors gain significance. A business s approach to location selection can be pre-determined by the value of the investment and its purpose in relation to the business. Weighing less significant costs against larger costs is part of most business evaluation processes. For instance, in a case study where overall capital investment was substantial, factors such as DCs did not comprise a significant proportion of total capital cost of subject investment, and alone were not seen to be material enough to impact project viability. One such firm focused on accumulating financial incentives from governments, finally choosing the location that offered it the maximum value. The lack of financial incentives in most of GGH municipalities was mentioned by most companies in the interviews, and they indicated that even a minor level of government support could help offset some costs, or at least project that the municipality was dedicated to assisting companies (which also relates to the earlier discussion of overall municipal assistance). DCs and DC discounts can be seen therefore as a perception issue that may be of greater significance than the actual cost savings the discounts can be seen as a sign of a welcoming climate for business. Direct costs are commonly distinguished into capital cost and operating costs. Capital costs include the cost of land, construction costs, and other municipal fees and levies (including DCs). These are most relevant to parties buying land and undertaking construction themselves. In cases where the process is contracted to a developer, costs such as DCs and building permits transfer to the developer s overall capital cost, which would be capitalized and likely be serviced through debt service costs, or if not recovered through such costs, would reduce the developer s overall profit margin (since the tenant, in such a situation, would typically pay market-based rent). Operating costs typically include taxes, utility charges, labour costs, and long-term financing. Taxes, utilities and labour costs are borne by any business, but their degree of importance varies with organizational requirements, such as extraordinary hydro requirements for manufacturers with power-intensive processes, or not considering labour issues as particularly pressing where workforces are small. Other cost factors may also gain prominence depending on business perspectives and requirements. Property tax in Ontario, as compared to the U.S., was a critical factor that was 30 Halton Region - Competitiveness Study of Office and Industrial Development

6 mentioned by one foreign firm. Cost assessors indicate 11 that construction costs and financing options typically do not differ substantially within the GGH. The case studies indicated that the eight companies interviewed did not take utility rates into consideration when selecting a location either, although this may be a consideration for firms with unique utility needs. Cost of Land. The low flexibility regarding several indirect cost factors (such as the need for a site near the highway) and cost factors such as construction costs (which are similar across the GGH) increase the importance of the cost of land as a factor that businesses can lever to their benefit by locating their facilities at the lowest priced option. The significance of land cost to a location decision is well documented by previous surveys across North America. 12 Cost of land was also noted in the case studies as the main criterion when choosing between two locations that were comparable in terms of industry-specific requirements. In the GGH, land is most expensive in Mississauga, Brampton, and the urban municipalities in York Region, with Halton prices slightly lower and consistent with the smaller cities in the northern area of York Region. Property Tax. Many of the municipalities mentioned above offset their high land costs with other substantial cost incentives. Property taxes are lowest in municipalities in York and Halton Regions, moderately higher in Peel and substantially higher further west towards Hamilton, Waterloo, Cambridge, and Kitchener. However, as previously mentioned, a high-tech firm that settles in Canada s Technology Triangle may find the competitive edge it gains from a substantial supply of skilled labour to be worth the higher tax rates (salaries and worker productivity are a much greater impact on the bottom line than property tax rates). On the other hand, areas such as Brantford, where land is lower priced, continue to benefit from this low cost factor. DCs. Businesses weigh different cost factors against each other to select a location that suits their purposes. The case study of a food supplier supports that a business with long-term expansion plans in the area may prioritize tax rates as compared to DCs, given that tax rates will be an annual expense over the long term. As in the case of a construction material manufacturer in Halton Hills, existing companies might already own land in the municipality, making the DCs a prominent capital cost during expansion. Although previous studies for Halton Region have indicated that, at their present rates, DCs do not impact economic development, the case studies suggest that DCs might influence the expansion plans of existing businesses negatively, although this finding is based on case studies of a very small number of firms. 4.3 The Competitive Landscape: Ranking the Municipalities by Location Factors This sub-section compares competitor regions in the GGH as well as municipalities within Halton itself on the basis of the factors discussed above, addressing both industrial and commercial development. Industrial Development Table 4.1(a) displays a qualitative ranking of Halton s attractiveness for industrial development in the GGH. The ranking illustrates that Halton s immediate competitors are Peel and York Regions, which are widely comparable to the region in terms of available land as well as connectivity to the 400-series of highways, major airports, and intermodal facilities. Compared to the other three GTA regions, the lack of congestion in the north Halton municipalities of Milton and Halton Hills presents a significant advantage to the developing logistics sector and other manufacturers requiring rapid goods movement. In terms of unskilled labour, Peel Region and Hamilton appear to have a larger share of unskilled labour than Halton. 11 RS Means is generally considered the definitive guide to construction costing. Their adjustment factors for the GGH include Kitchener, Toronto, and Oshawa rates, none of which vary by more than 8%. In general construction costs do not vary significantly for similar sites in different areas of the GGH 12 Area Development, 3rd Annual Consultants Survey; 22nd Annual Corporate Study Halton Region - Competitiveness Study of Office and Industrial Development 31

7 Overall, these attributes make Halton, Peel, and York Regions the strongest overall environments for industrial development. Although costs are consistently high in these three regions when compared to areas such as Durham, Brantford and Guelph, their location in the west GTA makes them attractive to industrial developers. Land cost is a significant capital cost and amongst these three regions, Halton is at an advantage with York and Peel (York Region s lease rates are also significantly higher). However, this advantage is negated to a degree by Halton Region s DC rates and industrial property tax rates. These are the two areas where Halton is considered to be at a disadvantage (discussed further in Section 5). A company s specific needs will determine which cost factors are prioritized or balanced - cost-sensitive companies with relatively tight capital budgets (which may be attracted to Halton because of low land prices) would likely consider Halton s DCs as a deterrent, and the high industrial tax rates would influence long-term businesses that evaluate areas based on such criteria. Table 4.1 (b) ranks the four Halton municipalities by location factors, and illustrates that the main differences within the Region relate to land availability, road congestion, DCs, land costs, and labour availability. At the moment, the northern areas of Halton Region appear to have an advantage over south Halton as a prospective location for industry, based on unskilled labour, DCs, land costs, and road congestion. Table 4.1(a) Industrial Development: Municipal Ranking by Location Factors Regional municipalities and Outer Ring urban centres are ranked in three ranges - Good, Fair, and Poor- based on relative strength versus other GGH municipalities. Municipality HR Logistics Land Operating Considerations Cost Unskilled Labour Availability* Skilled Labour Availibility** Proximity to Supply Proximity to Customer Land Availability - Constraints on Supply Number of 400 Highways Proximity to Major Airport (Waterloo Rgnl, Munro, Pearson) Region of Halton Poor Fair Good Good Good Good Fair Fair Poor Fair Region of Peel Fair Fair Good Good Good Good Poor Poor Poor Good Region of York Poor Good Good Good Good Good Poor Poor Poor Good City of Toronto Fair Good Poor Fair Good Good Poor Fair Good Poor Relatively constant Region of Durham Fair Poor Good Fair Fair Fair Fair Good Good Poor throughout the Region of Waterloo Good Fair Good Poor Good Fair Good Fair Fair Poor GGH City of Hamilton Good Poor Fair Fair Good Fair Good Good Good Poor City of Brantford Good Poor Fair Fair Fair Poor Good Good Poor Poor City of Guelph Poor Good Fair Poor Good Fair Good Good Good Poor City of Barrie Good Poor Fair Fair Fair Fair Good Fair Fair Fair Proximity to Intermodal Facilities Road Congestion Land Cost Development Charges Industrial Property Tax Rate *Based on percentage of population without education beyond high school, Statistics Canada, 2001 Table 4.1(b) Industrial Development: Ranking Halton Municipalities by Location Factors Oakville Fair Fair Good Good Good Good Fair Fair Poor Poor Relatively constant Burlington Poor Fair Fair Good Good Good Fair Good Fair Poor throughout Halton Milton Fair Poor Good Good Good Good Good Good Poor Poor Region Halton Hills Fair Poor Poor Good Good Good Good Good Fair Poor Note: While for the purpose of consistency, the ranking of Halton municipalities is also categorised as Good, Fair, and Poor, it would be inaccurate to compare this ranking with regional rankings (which consider broader data ranges). Office Development The non-financial factors affecting industrial development are generally applicable to office uses, as illustrated in Table 4.2 (a) & (b). The main criterion that changes when considering office development is the commercial property tax rate. Halton s commercial tax rates are more 32 Halton Region - Competitiveness Study of Office and Industrial Development

8 competitive than its industrial rates, similar between the four municipalities, and they position Halton as a relatively attractive cost region when compared to York and Peel Regions. To a degree, concentration of skilled labour in particular regions may also influence the location choices of certain office development. York Region, the City of Toronto, Waterloo Region, and the City of Guelph have the benefit of one or more universities and a correspondingly higher concentration of residents with post-secondary education. However, the net impact in terms of office development is minimal, as the pattern of office development outside of the City of Toronto has not demonstrably favoured more highly-educated regions. Table 4.2(a) Commercial Office Development: Municipal Ranking by Location Factors Municipality HR Logistics Land Operating Considerations Cost Skilled Labour Availibility* Overall Labour availability Proximity to Supply Proximity to Customer Land Availability - Constraints on Supply Number of 400 Highways Proximity to Major Airport (Waterloo Rgnl, Munro, Pearson) Region of Halton Fair Good Good Good Good Fair Fair Poor Good Region of Peel Fair Good Good Good Good Poor Poor Poor Good Region of York Good Good Good Good Good Poor Poor Fair Good City of Toronto Good Poor Fair Good Good Poor Fair Good Poor Region of Durham Poor Relatively constant Good Fair Fair Fair Fair Good Good Fair Region of Waterloo Fair throughout the GGH Good Poor Good Fair Good Fair Good Poor City of Hamilton Poor Fair Fair Good Fair Good Good Good Fair City of Brantford Poor Fair Fair Fair Poor Good Good Poor Poor City of Guelph Good Fair Poor Good Fair Good Good Good Fair City of Barrie Poor Fair Fair Fair Fair Good Fair Fair Fair Proximity to Intermodal Facilities Road Congestion Land Cost Development Charges Office Property Tax Rate Approach: Regional municipalities are ranked in three ranges - Good, Fair, and Poor- based on their relative ranking in the GGH. Table 4.2(b) Commercial Office Development: Ranking Halton Municipalities by Location Factors Oakville Fair Good Good Good Good Fair Fair Poor Good Relatively constant Burlington Fair Fair Good Good Good Fair Good Fair Good throughout Halton Milton Poor Good Good Good Good Good Good Poor Good Region Halton Hills Poor Poor Good Good Good Good Good Poor Good Note: While for the purpose of consistency, the ranking of Halton municipalities is also categorised as Good, Fair, and Poor, it would be inaccurate to compare this ranking with overall regional rankings (which consider broader data ranges). Competitiveness Indicators: Economic Strategies and Land Supply Cost is a major criterion that businesses seek to reduce while selecting location. Several municipalities in the GGH have instituted discounts or waivers on DCs in recent years. York Region discounted its DCs (lower by 38.6% from full cost recovery) in 2003, while Caledon reduced DCs and exempted the Bolton Business Improvement Area and Caledon East Commercial Core Area from these in Strategies vary from municipality to municipality - no DCs are levied by the cities of Toronto, Brock, Uxbridge and Scugog; Brantford waived DCs until 2005 in order to attract businesses to the area, and the City of Cambridge levies no DCs on citybought industrial land. Halton Region - Competitiveness Study of Office and Industrial Development 33

9 Of most current relevance however, are York Region, Peel Region, and the City of Hamilton s 2007 decisions to increase DCs (York Region and Hamilton s increases are to be carried out in a phased manner, a de facto form of discounting). In the immediate context of the west and north GTA, these changes will narrow the difference in DCs between Halton Region and its competitors, bringing Halton more at par with these areas, especially for industry sectors with tighter budgets (discussed further in Section 5). Land availability also remains a primary factor influencing choice of location and Peel, Halton and York Regions and Hamilton all have a significant amount of vacant land. However, as discussed in Section 6, the supply of lands in many areas is constrained by issues such as parcel fragmentation and/or servicing constraints. 4.4 Relevant Dimensions: Differentiating between Businesses Previous studies for Halton Region, as well as company and consultant surveys reviewed for this 2007 Analysis regarding location factors in North America, have found that factors including highway access, proximity to customers, taxes, labour and land cost, road congestion and historical reasons, are all given high priority by companies during location decisions, though factors may vary in importance by sector. 13 Such analysis and some other sector based international studies (that divide broad industries such as manufacturing, research and development, corporate services, and software into more specialized categories) emphasize the need to further organize these sectors by type of operation. Such research has found that operations such as electronics assembly, metal machining, and biomedical R&D are applicable to sectors other than those they are traditionally associated with. Although different sectors have unique industry-specific needs, they also share fundamental needs that characterize and at times explain sector priorities. In addition to the sector-specific requirements discussed in the preceding section, this section elaborates on the following five parameters that underlie location selection within each sector. Type of Activity/Sector Reason for Investment Size of Facility Labour Composition Land Tenure (Ownership/Lease of Land) These parameters are valuable because they not only characterize sector priorities, but often precede them. For instance, regardless of sector, a production facility s concerns will typically include availability of raw materials whereas transportation will remain a primary need for distributors. The influence of these considerations on location decisions is substantial, and satisfying them can yield significant cumulative benefits to both public and private sectors. Considering such additional criteria could focus Halton Region s efforts to attract the non-retail non-residential sector and compete with other municipalities in the GGH in this regard. These factors are discussed below. Sector and Type of Activity Non-retail non-residential development may be broadly divided into industrial and office uses. Industrial activity could logically be differentiated into manufacturing, research and development, software, and corporate services. In the GGH as well as internationally, industrial development has been further delineated by sub-sectors that include auto-parts manufacturing, pharmaceuticals, telecommunications, food processing, aerospace, plastics, etc. 13 Hemson Consulting, Economic Study for Halton; Area Development, 22nd Annual Corporate Study, and 3rd Annual Consultants Survey 34 Halton Region - Competitiveness Study of Office and Industrial Development

10 Although these sectors have different requirements, often the factors that influence location decisions may not be sufficiently identified by sector alone. The case study conducted of a multinational pharmaceutical company revealed that the company s decision to locate its first Canadian operation in Burlington was driven by its need for a sales and marketing office, and not its sector. Although the company falls within the pharmaceutical sector, the skilled labour requirements traditionally associated with R&D facilities and the extra utilities that are often required for bio-tech manufacturing, were not applicable when assessing the firm s needs for its new facility. Instead, its requirements were for a suite in a business centre that had sufficient office space per worker, and room for prospective expansion. Similarly, the benchmark of an auto-parts manufacturer s work was logistics and warehousing the company delivers just-in-time products to automobile manufacturers and its primary concerns were proximity to the client and highways, and uncongested highway access, which would likely not be the priority if the firm were singularly a manufacturer. Taking into account the operation of the specific facility - for instance, production, distribution, warehousing, corporate affairs and administration, or sales and marketing would allow the Region and a municipality to identify the requirements of new companies exploring options in Halton. A similar approach to viewing the type of activity in established local sectors, would increase the likeliness of retaining existing businesses and would also encourage local business expansion in the long-term. Reason for Investment Common across sectors, a guiding element in location selection is the purpose of the venture, which may be differentiated into start-up, expansion, or relocation. The purpose of a new facility could determine some significant location requirements. For instance, Ontario-based manufacturers in food supplies and construction materials indicated that it was most costeffective for them to expand nearest to their existing facilities, whereas new firms pursued shortterm leases in more readily available or temporary locations. It is important therefore, to distinguish between businesses on the basis of whether they are new ventures to the Region or already located in Halton, in order to effectively ensure that their needs are appropriately addressed. This approach could also guide existing resident companies in Halton to continue to operate and grow, and also attract new businesses that consider start-ups in, or relocation to, the Region. Size of Facility An even more specific derivative of the type of activity and purpose of the venture is the size of a business s prospective facility. The size of the facility relates directly to land availability, and is usually tied to the type of activity and its related purpose. It is after considering a prospective size that businesses usually explore location options. While the business may be able to compromise on cost and some other factors, the case studies support that they might eliminate municipalities where sufficient land is not available, not only for current operations but for future growth. This is most obvious when companies explore existing sites to set up new facilities. For companies exploring existing sites, building configuration is also an important factor usually considered alongside the size of the facility, excepting cases where a company is solely interested in new construction. For some sectors, building configuration and land availability are core to site location decisions. The emerging trend in logistics and warehousing for instance, reveals that many manufacturers are choosing to outsource distribution and supply-chain management to third-party logistics providers, whose main concerns are efficient customer service as opposed to low land costs. With logistics and distribution companies scattered across Halton Region - Competitiveness Study of Office and Industrial Development 35

11 Halton, and with specific reference to their concentration in the Town of Milton, it would be useful to understand this sector s land requirements and building configuration needs. Logistics and distribution companies typically handle large volumes of product and have substantial land requirements. They are commonly found to require buildings with specific ceiling heights and docks for product loading and unloading, and specific needs in terms of utilities may arise depending on the products being handled. Since expedited on-time customer service is a priority, with emergency shipments being a common need, logistics firms find it most competitive to locate new facilities near the customers they are servicing, at sites with quick access to uncongested transportation facilities. As shown in the case studies and other research, land availability influences business locations, with parcel size, building configuration, and other site attributes influencing different sectors to varying degrees. Localized land availability is an important factor that can shape industrial clusters, because of differences in suitable land requirements for different operations and activities. The overall size of land transactions in and around the GTA reveals significant variation between municipalities in this regard. Labour Composition Labour availability is an often-used measure of where the business will locate. However, the type of activity the particular facility requires will largely determine its labour requirements, which may not be identical to the overall sector that the business falls within. A pharmaceutical company s commercial office for instance requires a very different workforce from the better-known R&D operations of the pharmaceutical. Labour composition and workforce size is also found to influence other location factors, such as preferences to locate in a particular region. Many professional services and other office-based firms consider their workforce s location as being a prime or primary concern when locating or relocating facilities. Land Tenure (Ownership/Lease of Land) The buy versus lease analysis is a complex one involving both financial considerations (the availability of capital and operating cash flow impacts) as well as the establishment of an approach to business growth requirements. This is often seen in the auto-parts manufacturing sector where companies are engaged in contractual work, and move locations frequently, often setting up new facilities to serve a particular client. It is also often visible with start-up operations that prefer to establish their operations at a certain level before investing in land. The buy versus lease decision should be viewed as a component of overall organizational and long-range strategies of companies, especially with reference to large-scale organizations and the distribution sector, where distribution models are more frequently reviewed and adjusted to meet customer needs and changing technologies, to achieve higher efficiency and therefore competitiveness within the sector concerned. The owner-renter distinction exists for different business within different industrial and office sectors, and accounting for related needs and preferences could also serve to attract a range of sectors to the Region, both in the short and long term. The location requirements of businesses are interrelated with the five parameters discussed, and in particular, are influenced substantially by the purpose of the new facility and the type of activity it is intended to accommodate, both of which define the nature of the operation. Table 4.3 illustrates the location factors that may be prioritized by companies depending on the nature of the operation. 36 Halton Region - Competitiveness Study of Office and Industrial Development

12 Table Relative Ranking of Organizational Attributes affecting Location Requirements HR Logistics Operating EnviroCost Others Considerations within Sector Labour availability Proximity to Supply Proximity to Customer Proximity to Existing Facility Land Availability Building configuration Transportation Infrastructure Transportation Congestion Extraordinary Utility Requirements Capital - Land Capital - Building Capital - Development Charges Operating - Taxes, Utilities, etc Operating - Rent Tax Rebates and Incentives Government assistance Quality of Life Type of Activity Production Prerequisite Distribution and Warehousing Corporate and Administrative Secondary Concern Sales and Marketing Reason for Facility Start-up Expansion Relocation Summary The review of location factors produced several key findings: Transportation access is a key issue for firms in all sectors. Halton is still perceived as having convenient transportation access, as congestion on Highways 407 and 401 is not yet a major constraint. However, traffic congestion on the QEW is perceived as a constraint and there is growing concern about congestion on Highway 401. Supply relationships and distribution models are strong determinants of location often overruling cost factors. An auto parts plant, for example, must locate close enough to its assembly plant client(s) to ensure timely delivery of products. Warehouses need to be both geographically central to the geographic area they are serving, and in some cases physically close to reliable transportation links to intermodal facilities. Some businesses are locating in Halton for these reasons, and some would not consider Halton for these reasons (e.g., a parts facility is unlikely to locate in Burlington if its products must arrive in an auto assembly plant in Oshawa in a timely manner). Halton is relatively well positioned on other cost factors. Although DCs are high, there is still a land price differential between Halton and competing areas in Peel and York Regions. Cost factors will be examined in detail in the next of the report section. DCs were not a significant factor in most location selection decisions, as they are generally a small part of the overall cost of development and most firms do not separate out this component of the location cost. However, in that higher DCs reduce Halton s cost advantage, they can be considered to affect overall competitiveness. Also, it is worth noting that despite the partial exemption for expansions of existing industrial facilities in Halton Region, the few firms that were interviewed who are located in the Region and are planning expansions, did indicate that the DCs affected their plans. The importance of sector-specific considerations and common operating parameters both should be recognized in the specific attempt to identify an organization s location priorities with regard to attracting businesses in the overall sense, as well as to be able to forecast which sectors are Halton Region - Competitiveness Study of Office and Industrial Development 37

13 likely to grow and how to meet the needs of such growth sectors over the medium and long-term. Common parameters such as activity, purpose, size of facility, labour composition, and land tenure are essential considerations when assessing a business s location decisions because they identify to a broad extent, the specific characteristics of the business which predetermine the relative importance of indirect financial costs, financial costs, and non-cost factors, therefore resulting in different business decisions regarding the same location. 38 Halton Region - Competitiveness Study of Office and Industrial Development