How Much Is Your Building Really Worth?

Establishing True Valuations Across Differing Markets 

Q1 2020 Insight, Toronto-West Markets

May 29th, 2020

This year started off extremely strong with vacancy rates hitting historically low levels and net rental rates increasing in excess of 20% year over year. Everyone was struggling to find the right property to lease and/or purchase as the economy was firing on all cylinders. 

And then the COVID-19 pandemic hit… 

It is too early to say but one thing is for sure, the lockdown and shutting down of businesses will have a long-lasting impact on our economy and the real estate market as well.

The GTA West Industrial Markets are by far the largest industrial markets in the GTA, representing about 45% of the GTA’s Industrial Inventory, or about 363,000,000 SF. The GTA West Markets were very active this quarter, with more than 7,253,000 SF under construction and a few large lease and sale transactions completed; bringing vacancy rates down to historically low levels. 

Key Takeaways from Q1 2020

• Strong demand and brisk leasing of available space pushed the overall availability rate down to just 1.5% in the GTA-West Markets in Q1 2020, with 1.4% available for lease and 0.2% available for purchase;
• Currently, there is about 7,253,000 SF under construction in the GTA-West Markets;
• The City of Mississauga Leasing Market achieved the highest net rental rates at $9.79 PSF, followed by City of Brampton with $9.62 PSF.
• With all of this activity and demand, and existing inventory being reduced to a historically new record of 1.5% of overall inventory across GTA, the weighted average net rental rates reached $9.41 per SF;  the second-highest in the GTA Industrial markets, behind the Toronto-North Markets, while the weighted average sale price was $216.51 per SF.

So, you may be wondering…

“How much is my property really worth?” 

What rental rate can I expect? How much $/PSF would I be able to get if I sold my building?

These questions are being asked all the time.

The answer to this will depend on a range of factors, including: 

• the age and size of the building, 
• lot size, 
• ceiling height, 
• office component, 
• parking, 
• trucking access, 
• truck parking if available, etc….

In order to get to the truth, we need to dig a bit deeper…

This week we are covering the Toronto-West Markets (Mississauga, Brampton, Milton, Caledon, Oakville & Burlington)

Statistical Summary – GTA Industrial Market – Q1 2020

GTA Industrial Market Overview – Q1 2020 – Source: Cushman & Wakefield ULC

Statistical Summary – GTA-West Markets – Q1 2020 (Mississauga, Brampton, Milton, Caledon, Oakville & Burlington)

Q1 2020 GTA Industrial Market Statistics – Source: Cushman & Wakefield ULC 

So, let’s take a closer look at how the different Toronto West Markets performed during Q1 2020…

GTA West Markets (Mississauga)
Properties Sold between January 2020 – March 2020, from 20,000 SF plus 

In Q1 2020, a total of 8 properties were sold in Mississauga. The prices achieved were in the range of $164 – $242 PSF, with an average building size of 31,249 SF and an average price of $209.25 PSF.

GTA West Markets (Mississauga) – Other Transactions
Properties Sold between January 2020 – March 2020, from 20,000 SF plus

1. Rental Rates: Currently at $9.41 per SF, the net rental rates are trailing behind the GTA-North Markets ($10.63 per SF) and GTA-Central Markets ($9.07 per SF). I expect the rental rates to remain at the same level or move slightly higher in the next quarter. The reason being, there is continued demand for large modern warehouse distribution space – which is being constructed in Toronto West Markets. Further, demand for small- and mid-bay product is also strong and rates continue to increase.
2. Property Values: The weighted average asking average sale price is about $216.51 per SF which is considerably lower than in the GTA-North Markets (which trade at a weighted average of $348.88). I expect these prices to remain stable or to show a slight increase… 
3. Development Opportunities: The GTA West Markets will continue to be the most active as far as development is concerned… in this quarter alone we had over 7,253,000 SF under development… 

A few important takeaways with respect to construction activity in GTA:

• New, modern, large, industrial, E-commerce space is in demand;
• There is serious interest for most of the speculative large box buildings from E-commerce and food-related companies;
• We are experiencing delays in the permitting process, inspections, and construction itself. Productivity is down as well (with fewer workers on projects, practicing social distancing);
• There are issues with some materials, specifically steel and concrete, and with more demand, prices are going up;
• It is predicted that costs will increase by at least 10% (for both labour and materials) and that projects will take 10% longer to construct; and
• It is a safe bet that the building of the future will be E-commerce facilities with 40’ clearance and with lots of parking for both cars and trailers…

Conclusion

So, how much is your property really worth?

What rental rate can you expect or how much per SF would you be able to get if you sell your building? How much can we compress CAP rates to create even greater value?

Well, the answers to these questions will depend on a variety of factors, many of which we can quickly uncover in an assessment of your situation. 

And whether you are an Investor or Occupier or Lender we understand that the impact of the COVID-19 pandemic on your business may be significant. All parties involved have keen issues they are focused on and potentially different priorities at this moment. Proper and transparent communication is what will sustain and strengthen the relationships that will get us to the other side… Just remember…

We are all in this together…

DISCLAIMER: All information herein is for informational purposes only. This is not intended as professional legal, tax or accounting advice. We are not liable for any damages, real or perceived, as a result of you receiving or consuming this information. Please consult your attorney, accountant, or other counsel prior to making any decisions… 

Goran Brelih, SIOR

Senior Vice President, Broker
Cushman & Wakefield ULC, Brokerage.
www.cushmanwakefield.com
Immediate Past President, SIOR – Central Canada Chapter
www.siorccc.org

Office: 416-756-5456
Mobile: 416-458-4264
Mail: goran.brelih@cushwake.com
Website: www.goranbrelih.com