Navigating the Industrial Site Selection Process
April 9th, 2021
Right now, the entire world is going through a period of transition. Everything that seemed to be fastened in the halls of tradition has been thrown up in the air.
Whether it be cultural norms, the debate regarding cryptocurrency, e-commerce’s proliferation, working from home, a roaring stock market, material and labour shortages, or inflation in general… many Parties are betting on a lot of vastly different outcomes; some of which may or may not come to pass.
Indeed, we are living in the strangest of times.
In any event, individuals and organizations are scanning the information in front of them to compile a risk profile to make – in their minds – the best possible decisions.
Similarly, Investors and Occupiers of industrial real estate are stacking and placing their chips, too.
Some are adamant that the frothiness will settle down or that a bubble will burst, leaving them with opportunities to find distressed assets on the cheap. Meanwhile, others are worried that inflation will erode their purchasing power and are – thus – going all in on real assets, while they can…
Seen through the lens of industrial real estate, a few usual suspects are driving the market; along with some young bucks entering the play. E-commerce is continuing to absorb warehousing and distribution space at a torrid pace while cold storage – and even film production space – is beginning to be in demand as a result of online grocery sales, ‘just in case’ inventories, and gargantuan content budgets.
These requirements are no issue under normal circumstances.
However, the present constraints pose quite a challenge. Soaring land values, hefty development charges, and now, expensive construction costs driven by material and labour shortages are putting in jeopardy the feasibility of many projects and pursuits within the Greater Toronto Area.
Running a formal “Industrial Site Selection” process has often been thought of as necessary for complex requirements such as consolidating multiple facilities or expanding a portfolio across various markets or within a complicated supply chain. Simply put, it may be overkill in situations where a broker may only need to generate a shortlist of options within a few submarkets.
Nevertheless, in said market with 0.5% to 1.5% availabilities, little available land, and an expensive and delayed development process, it may be prudent to formally go through the site selection exercise to:
- Ensure you are 100% certain of your decision; and
- That you absolutely cannot solve your operational problems within your current footprint.
While most brokers can help with the former, every business owner should be sure of the latter. As they say, avoiding a loss can impact your bottom line more than generating a win, and with less risk. So if you can streamline your operations’ processes or improve throughput within your existing facility, you can save yourself the headache of having to look elsewhere.
With that said, we will be taking a closer look at how an Investor or Occupier of industrial real estate can select the right site given their organizational objectives, as well as the constraints on hand.
Criteria Often Used to Select the Right Facility
Below is a comprehensive, but not exhaustive, list of site selection criteria that an Investor or Occupier may consider when going about the process. The list covers general criteria regarding the local market and surrounding region, the site’s ability to source skilled labour, as well as the challenges involved with finding the right location and building upon it.
General Criteria – Geographic Region/Municipality
- Quality of life
- Cost of living
- Tax incentives and other cost off-sets
- Reputation and efficiency of local authorities
- Level of political interference in business
- Recurring costs (State and local taxes, wages, payroll taxes, utilities, etc.)
- Legal, financial, and marketing considerations
- Proximity to labour
- Labor costs
- Workforce and labour skill requirements
- Training strategies and requirements
Identifying the Right Location
- Proximity to customer base
- Proximity to vendors and suppliers
- Proximity to competitors
- Proximity to transportation infrastructure
- Telecommunication infrastructure
- Land requirements for initial project and future expansions
- Availability of construction land
- Cost of construction land
- Availability of raw materials and intermediate goods
- Licensing and permitting procedures for the land
Identifying the Right Industrial Facility
- Site assessment – potential sitework, demolition, grading, etc.
- Building condition report
- Environmental report
- Property spec requirements – zoning, size, access, shipping, clear height, frontage, parking, etc.
- Architectural, engineering, or development plans, if appropriate
- Utility requirements (water, sewer, gas, electricity) and costs
- Availability and cost of business premises
When you are able to confidently answer and account for the above criteria, you can pre-emptively avoid any potential issues down the road. There are important reasons why organizations go through strategic planning processes such as site selection. One key aspect of this is to ensure that things are done right the first time.
Benefits of Site Selection
Finally, let’s quickly run through a number of the benefits of implementing a thorough site selection process:
- Your organization will be fully prepared and on the same page.
- You will be able to create an effective short-list of candidates, allowing you to make a final decision quickly.
- You will consider most potential issues in advance, saving you time, energy, and money.
- You will ensure proximity to skilled labour, crucial for continuity of operations.
- You will ensure proximity to vendors, consumers, and transportation networks.
- You will be able to keep the asset for the long-term and minimize opportunity and moving costs.
- You may be able to take advantage of local tax incentives.
- The ideal facility will allow your operations will have room to grow for the long-run, minimizing operational risk and allowing you the freedom to expand.
- The ideal facility should also provide your business with optimal function across all potential needs while building in redundancies and/or mitigating risk.
- Finally, you can, generally, mitigate risks and increase chances for long-term success, whatever your organizational and project objective is.
Overall, when your options are constrained by the market and you are embarking on a potential multi-year project worth tens of millions of dollars… you need to ensure you are doing your due diligence when selecting the appropriate site.
Some real estate decisions may not be as dramatic or as impactful. However, even a small amount of time and effort invested prior to execution can not only save significant amounts of time and money later on, but can result in the acquisition, development, or occupancy of an industrial facility much better suited to your needs.
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 25 years.
Goran Brelih is a Senior Vice President for Cushman & Wakefield ULC in the Greater Toronto Area.
Over the past 27 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.
Goran is currently serving as Immediate Past President of the SIOR ‐ Society of Industrial and Office Realtors, Central Canadian Chapter.
Industrial Real Estate Sales and Leasing, Investment Sales, Design-Build and Land Development
About Cushman & Wakefield ULC.
Cushman & Wakefield is a leading global real estate services firm that delivers exceptional value by putting ideas into action for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with 48,000 employees in approximately 400 offices and 70 countries.
In 2017, the firm had revenue of $6.9 billion across core services of property, facilities and project management, leasing, capital markets, advisory, and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.
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 firstname.lastname@example.org, or visit www.goranbrelih.com.
Connect with Me Here! – Goran Brelih’s Linkedin Profile: https://ca.linkedin.com/in/goranbrelih
Goran Brelih, SIOR
Senior Vice President, Broker
Cushman & Wakefield ULC, Brokerage.
Immediate Past President, SIOR – Central Canada Chapter