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- 1. REAL ESTATE INTELLIGENCE www.LIDDRealEstate.ca GTA INDUSTRIAL REAL ESTATE LIDD Insights Q12020 MARKET FACTS 828 M Inventory SF 15.1 M Under Constr SF 6.6 M 12 Mo Net Absorp SF 1.2% Vacancy Rate $179 Market Sale Price/SF $10.81 Market Rent/SF 4.9% Market Cap Rate AT A GLANCE • The GTA industrial market has the lowest vacancy rate in Canada, at 1.2%. • This is the lowest vacancy among any North American metro with an industrial inventory over 200 million SF. • Vacancy is expected to stay below 2.0% until 2022 as new supply and demand remain balanced. • Tenant demand is strong and due to low vacancy and high demand, construction activity has picked up. Q1 2020
- 2. LESSON LEARNEDBY: JESSE MICAK CASE STUDY Earlier this year, we partnered with a 100,000 sq. ft. lawn and garden distributor to evaluate the merits of extending the lease in their current facility versus relocating to another. The requirements for this distributor were basic, and with some capital investment they could relocate without to much disruption. For LIDD, this assignment was straight-forward: • Analyze the DC to determine the optimal size • Evaluate relocation options vs. status quo • Determine the CapEx to relocate • Complete lease negations with a landlord to understand long-term rental rates • Make a decision to stay or go Following our analysis, we all agreed that the existing building was too large. In fact, through a warehouse reset, the tenant could eliminate up-to 16% of its existing square footage. At $10.00 per sq. ft. that would be a meaningful savings. By looking at the CapEx required to relocate and set-up at a new facility, we determined a rental rate threshold that could justify renewing the lease in the poorly sized building. Supported by facts and data, we began lease extension discussions with the existing landlord for a 7-year lease term. The landlord quickly demanded a take-it or leave-it increase of $1.00 per sq. ft. This was particularly concerning as our data model required rental relief, not a rate escalation. Unfortunately negotiations broke off. We were thrust into the marketplace and began to look seriously at new options. Since the tenant had taken a proactive approach to securing a lease, an appropriate building was easily sourced and the relocation was completed smoothly. While there is nothing unique about this series of events, it is a reminder of the benefits of beginning your leasing decisions early. A good rule of thumb is to imagine that you had to relocate your entire operation to another building within another city. Think of all the planning, construction, administrative and execution that would be required to seamlessly pull this off. Once you’ve road mapped this, allow yourself that much time plus an additional 6 months to successfully execute a reasonable lease agreement. Like the tenant above, you may begin your real estate assignment with a conceptual idea of how it will play out, but outside influences can always complicate the process. As consultants in Supply Chain Infrastructure, LIDD’s mandate is to help organizations make better decisions in their real estate, material handling & IT systems. As a licensed real estate brokerage, LIDD works exclusively with users of space to protect precious capital from going to waste. Company: The Supreme Cannabis Company (TSX:FIRE) provides premium cannabis products through operational excellence and product innovation. Their portfolio includes a wholly owned subsidiary branded as 7ACRES which is a cannabis growing operation that includes a 342,000 SF federally licensed facility in Kincardine, Ontario. Challenge: Following cannabis legalization, Supreme was committed to growing their presence and product line throughout Canada. As apart of this growth, Supreme wanted to expand their operations and secure an additonal facility in the outlying GTA region that would be used for large scale warehousing, packaging, fulfillment, and light processing of cannabis related products. Response: LIDD Toronto commenced a wide search for both on market and off market opportunities in the GTA and outlying GTA regions. Facilities that possessed existing GMP buildout, as well as compliance with Health Canada were pursued aggressively in the search. Concurrently, LIDD’s supply chain consulting team was introduced to ensure Supreme was selecting an optimal facility that would avoid operating penalties. Solution: LIDD Real Estate created a competitive environment, maximizing Supreme’s ability to negotiate concessions with the landlord community. After multiple rounds of negotiations, the result was Supreme securing tenancy at a 107,000 SF facility in Kitchener, Ontario. A significant amount of lease term flexibility and rent abatement was achieved in a facility that was already built out with clean rooms and lab space.
- 3. Q12020 Q1 2020 LEASE METRICS AVAILABILITY RATE VACANCY & MARKET RENT PER SF Q1 2020 INVENTORY METRICS AVAILABILITY INVENTORYMARKET MARKETNATIONAL INDEX NATIONAL INDEX Market Rent/SF Existing Buildings$10.81 17,073$10.61 38,988 Vacancy Rate Inventory SF1.2% 828 M2.7% 1.7 B Vacant SF Average Building SF12.2 M 48.5 K45 M 42.7 K Availability Rate Under Construction SF2.7% 13.8 M4.0% 24.1 M Available SF 12 Mo Delivered SF23 M 7 M68.3 M 17.6 M Sublet SF 1.8 M 6.2 M Months on Market 3.9 5.7
- 4. REAL ESTATE INTELLIGENCE LIDD SERVICES LIDD Toronto Brokerage 416.548.8659 1 Yonge Street, Suite 704 Toronto, ON M5E 1E5 jesse.micak@lidd.ca www.LIDDRealEstate.ca Jesse Micak Principal Broker Aaron Enriquez Senior Advisor Sales Representative Alex Kupisz Advisor Sales Representative Tenant Representation Lease Renewal & Facility Relocation Site Selection & Needs Analysis Supply Chain Strategy & Design