How Much Is Your Building Really Worth?

Establishing True Valuations Across Differing Markets 

Q2 2020 Insight, Toronto-North Markets

August 21st, 2020

This has been the first full quarter operating under COVID-19 and the resulting economic shutdowns. Obviously, events had a big impact on commercial real estate across the board, but it looks like, on the surface, that it wasn’t as tough on industrial. That being said, in order to understand what’s really going on, we need to go deeper and examine the various types of industrial real estate.

In the second quarter of 2020, the City of Vaughan’s Industrial Market was once again the most active among the GTA-North Markets, with more than 370,807 SF transacted, leased, or sold.

The GTA North Industrial Leasing Markets achieved the highest net rental rates among all markets across GTA at $10.48 PSF, with the City of Vaughan leading the pack with $11.00 PSF followed by Richmond Hill with $10.39 PSF.

On the sale side, the Markham and Richmond Hill Industrial Markets had the highest weighted average asking sale price with $378 PSF and $356 PSF, respectively.

Key Takeaways from Q2 2020

• Availability rate remained at 1.50 % in the GTA-North Markets in Q2 2020, with 1.5% available for lease and 0.2% available for purchase;
• Absorption this quarter was 559,493 SF;
• Currently, there is about 665,900 SF under construction in the GTA-North Markets;
• With existing inventory of 0.9% availability rate, the weighted average net rental rates reached $10.48 per SF;  still the highest in the GTA Industrial markets, while the weighted average sale price was $319.38 per SF, also the highest among GTA Industrial Markets.

Interesting Announcement this Quarter 

New distribution centre for Walmart in Vaughan

Walmart has announced a fifth distribution centre in the Greater Toronto Area as part of a $3.5-billion commitment to its Canadian operations during the next five years. In Vaughan, just north of Toronto, a next-generation 550,000-square-foot distribution centre will be constructed at 11110 Jane St. (near Hwy. 400 and Teston Road), slated to open in 2024. The facility will incorporate next-generation automation and technology working with Vanderlande, a material handling and logistics automation company based in the Netherlands.

So, if you are an Investor, Landlord, or Owner-Occupier 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-North Markets (Vaughan, Markham, Richmond Hill, Newmarket & Aurora)

Statistical Summary – GTA Industrial Market – Q2 2020

Statistical Summary – GTA North Markets (Vaughan, Markham, Richmond Hill, Newmarket & Aurora) – Q2 2020  

So let’s take a closer look at how the different Toronto North Markets performed during Q2 2020…

GTA North Markets (Markham/Stouffville) 
Properties Sold between April 2020 – June 2020, from 20,000 SF plus 

In Q2 2020, a total of 2 properties (totaling 188,450 SF) were sold. The prices achieved were in the range of $61 – $210 PSF, with an average building size of 94,225 SF and an average price of $136 PSF. Both transactions were investment sales.

GTA North Markets (Markham)
Properties Leased between April 2020 – June 2020, from 20,000 SF plus

On the leasing side, 1 property of 22,607 SF was leased.

GTA North Markets (Vaughan) 
Properties Sold between April 2020 – June 2020, from 20,000 SF plus

In Q2 2020, a total of 5 properties (totaling 152,275 SF) were sold. The prices achieved were in the range of $197 – $337 PSF, with an average building size of 30,515 SF and an average price of $252 PSF. Three were investment sale and two were user sale. 

GTA North Markets (Vaughan)
Properties Leased between April 2020 – June 2020, from 20,000 SF plus

On the leasing side, a total of 7 properties (totaling 198,832 SF) were leased. The net rental rates achieved were from $8.25 – $18.50 PSF, with an average building size of 28,405 SF and an average net rental rate of $10.57 PSF.

GTA North Markets (Newmarket) 
Properties Sold between April 2020 – June 2020, from 20,000 SF plus 

In Q2 2020, a total of 2 properties (totaling 152,275 SF) were sold. The prices achieved were in the range of $197 – $337 PSF, with an average building size of 30,515 SF and an average price of $252 PSF. Three were investment sale and two were user sales. 

1. Rental Rates: Not all real estate is created equal…. It is important to note that the Industrial asset class will weather this storm and come out strong, if not stronger than before… with the only exception potentially being small-bay properties. Increases in online retail sales, moving away from “just in time” inventory and relocating parts of manufacturing back to Canada from overseas (and including the production of PPE equipment) will continue to put pressure on industrial markets; keeping our rental rates steady and increasing, although maybe at a slower pace. Overall, we are still in a Landlord’s market and have a long way to go….

2. Property Values: Multi-tenant industrial properties that are owned by private equity funds (and are highly leveraged) may see some difficult days ahead… we may see vacancy rates increase and maybe even CAP rates as well…..  However, larger, single-tenant, logistics, warehouses and distribution facilities, and even manufacturing, should keep their values. A telling sign: those Landlords collected over 90% of their rents in April, May, and June 2020…

3. Development Opportunities: In addition to opportunities for development along the Highway 427 extension, a number of new blocks for industrial development will be released along Highway 50, as well as a new proposed industrial building of 320,000 SF in the Weston Road and Hwy #407 area in Vaughan.

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 with our vacancy rates, rental rates, and valuations having hit all-time highs right before COVID-19 took place, there may be plenty of opportunities to find creative solutions; whether it be through rightsizing, refinancing, bridge financing, sale-leasebacks, or otherwise.

While there may exist challenges in execution, Buyers are ever more hungry for product. Local, high-net-worth developers and investors are often active in bottom-of-market conditions. And well-capitalized institutional investors and pension funds are still willing to take a look at a deal if the numbers make sense.

Furthermore, a number of our clients are considering sale-leasebacks to re-capitalize their operations.

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.

Specialties:
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 goran.brelih@cushwake.com, 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.
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