How Much Is Your Building Really Worth?

Establishing True Valuations Across Differing Markets 

Q2 2020 Insight, Toronto-West Markets

August 28th, 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.

The GTA West Industrial Markets are by far the largest industrial markets in the GTA, representing about 45% of the GTA 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 Q2 2020

• The overall availability rate in the GTA-West Markets in Q2 2020 was 2.1%, up from 1.4% in Q2 2019;
• Currently, there is about 6,200,000 SF under construction in the GTA-West Markets;
• The GTA West markets delivered 2.6M SF of new space to the market in Q2 2020;
• Given all the shutdowns and restrictions imposed by the Government, sales and leasing activity went down 79% and 57% from Q1 2020, respectively;
• The City of Brampton Leasing Market achieved the highest net rental rates at $10.12 PSF followed by City of Oakville with $10.05 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 the GTA, the weighted average net rental rates reached $9.77 per SF;  the second-highest in the GTA Industrial markets, behind only the Toronto North Markets, while the weighted average sale price was $219.86 per SF.

Interesting Announcement this Quarter 

Amazon continued its expansion across the GTA and leased two properties in Brampton, located at 3389 Steeles Avenue East (292,950 SF) and 3495 Steeles Avenue East (160,347 SF) for a total of 453,297 SF. 

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-West Markets (Mississauga, Brampton, Milton, Caledon, Oakville & Burlington)

Statistical Summary – GTA Industrial Market – Q2 2020

Statistical Summary – GTA West Markets (Mississauga, Brampton, Milton, Caledon, Oakville & Burlington) – Q2 2020  

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

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

A total of 2 properties were sold in Mississauga. The prices achieved were in the range of $138 PSF –  $299 PSF, with an average building size of 65,918 SF and an average price of $219 PSF.

1. Rental Rates: Currently at $9.77 per SF, the net rental rates are trailing behind the GTA-North Markets ($10.48 per SF). I expect these 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. That being said, we did see an increase in vacancy rates last quarter, which was mainly in the small to mid-bay market. And given the fact that small- and mid-size businesses were hit hard by the pandemic, this should not greatly impact rental rates since we are still in a Landlord’s market.

2. Property Values: The weighted average asking sale price is about $219.86 per SF, which is considerably lower than in the GTA-North Markets (which trade at a weighted average of $319.38). I expect these prices to remain stable or to slightly 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 2.6 MSF completed. A few important takeaways with respect to construction activity in GTA:
   • New, modern, large, industrial, E-commerce space is in demand;
   • 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…
   • Costs are predicted to increase by at least 10% (for both labour and materials) and projects are expected to take 10% longer to construct…
   • There are issues with sourcing some materials, specifically steel and concrete, and with more demand prices are going up;
   • 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 is serious interest for most of the speculative large box buildings from E-commerce and food-related companies.

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