A Detailed Analysis of the GTA Industrial Market
It has been said that money can buy anything. In the context of commercial real estate, that statement rings true, especially as we see record-breaking valuations, high watermark rental rates, and massive capital commitments to new developments from institutional investors, developers, and in some cases, tenants themselves.
In reality, these phenomena are a reflection of the market and what it takes to secure space. In a practical sense, however, stakeholders should always seek to minimize the real estate costs and risks associated. Anyone can throw cash at a deal and bully their way in. Yet, businesses often find themselves within many hard and soft constraints, such as time, terms, costs, availabilities, and operational requirements, making this approach unfeasible in the long run.
So far in our series, we have completed:
A detailed analysis of the GTA Industrial market and its values, rental rates, and availabilities;
A study of how labour, location, logistics, and other criteria can influence your site selection process.
Today, we will take a deeper dive into the process you can use to potentially save hundreds of thousands – or even millions - in real estate costs over the term of your lease. Not only that, but we will introduce a key strategy that every business should leverage in advance of a lease or acquisition to minimize the cost of financing; effectively allowing you to ‘upgrade’ to a better facility for free.
Leveraging Criteria in an Initial Search
As we described in detail in a previous issue, your initial search should be predicated on an understanding of the market, which include: values, rental rates, availabilities, and the supply of existing properties, new construction, and industrial land for various submarkets across the Greater Toronto Area. Next, you should be clear on the criteria as they pertain to your business or investment objectives.
Following this, with your requirements in hand, you should begin looking for opportunities, starting with the low-hanging fruit of on-market listings. If you were to engage a commercial broker to assist you, they would also reach out to their network of landlords, investors, and developers to see if there are any off-market plays. This additional step can be crucial in today’s market.
Once an initial list is put together, a broker would typically put out a request-for-proposal (RFP) to the landlords and collect feedback so as to understand what initial expectations would be in regards to rental rates, values, or terms.
Establishing Strategy and Narrowing Your Focus
Here’s where a professional can add tremendous value. For example, a company may wish to relocate to save on rent and goes out to the market. Typically, businesses who ‘do-it-themselves' deal directly with a short list of landlords to arrive at a final option. They often end up overpaying; leaving considerable money, tenant improvement (TI) allowances, and concessions, such as free rent, on the table.
Despite the fact that costs and terms could be further optimized, many people miss a step entirely: strategy.
Where a non-professional may assume that relocating – in this instance – is the natural solution, a broker would use that initial list to validate if moving really is in your best interests. Specifically, they may be able to renegotiate your existing lease at a rate where staying is not only cheaper, but will save you costly interruptions and moving expenses.
Or, they may widen your criteria to find a facility that could consolidate your operations, adding efficiencies and lowering your average rents. As a whole, narrowing your focus too soon can put phenomenal opportunities in your blind spot. This is just one example; however, a seasoned veteran will have many creative solutions up their sleeve.
Preparing Your Finances
Your average broker will generally not consider your financial constraints until due diligence, if at all. They’ll outsource this to the banks or lenders, or assume you will take care of it. A more experienced professional will likely verify your credit-worthiness in advance of doing an in-depth search to ensure you are able to complete the transaction. Broadly speaking, it isn’t the broker’s job to clean up your finances, although they can make or break any deal.
At a high level, cleaning up your balance sheet and reducing your existing borrowing costs can unlock tremendous cashflow; making your business much more attractive to lenders and financial institutions. As a result, you will be able to secure a much better facility – whether you are buying or leasing – and at a better rate.
That’s why we recommend working with a professional or team that understand both finance and commercial real estate. For more information on this, contact our Debt, Equity, and Corporate Finance team here.
Summary
Overall, many factors come into play when looking for commercial real estate to buy or lease, especially when taking into account the specific needs of your business’ operations, as well as the constraints placed by your finances and the market’s dynamics.
Each stage in the process can be challenging. Yet it also provides an opportunity to better position yourself. Having a clear plan in place – which include refined criteria, engaged Landlords, and optimized finances – will allow you the freedom and flexibility to pick the perfect property when the opportunity arises.
Yes, as it stands currently, you may have to actively wait for that chance. But being ready to pull the trigger at any moment is the least risky, least costly, and least stressful approach. For those with a looming deadline, we would advise you to immediately contact a professional with a deep understanding of the process and access to opportunity.
When executed properly, the steps outlined can help you gain leverage in a negotiation, secure the perfect facility, and realize significant cost savings, giving your business a boost to its bottom line and future growth potential.
On that note, if you would like guidance on your next renewal, relocation, or renegotiation, or for access to off-market opportunities, please contact our team today.
Corporate Real Estate best practices, local expertise, and market intelligence across North America.
Lee & Associates Corporate Real Estate Services - Portfolio Solutions group provides customers with a full range of commercial real estate services required for corporate investors and occupiers.
Having the right corporate real estate strategy in place – for individual locations as well as across an entire portfolio – is vital to occupiers and investors seeking to efficiently and effectively manage real estate holdings and take advantage of the opportunities being presented at each location.
Our North American network means we have on-the-ground experience of all regional submarkets. From transaction execution and portfolio management to lease administration and relocation coordination, our Portfolio Solutions team is uniquely positioned to assist you.
We Offer Solutions:
Transaction Management
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Mark Cascagnette, SIOR*
President, Managing Partner
markcas@lee-associates.com D 416.628.8146
Luis Almeida, SIOR*
Senior Vice President, Partner
D 416.628.8151
*Sales Representative