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Tips for industrial real estate investing

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Tenant demand in the GTA’s industrial sector is scorching, and while that makes entry difficult for investors, there are still ways to get in and capitalize on the boom.

For example, cannabis companies, perhaps because of the larger industry’s nascence, aren’t regarded as desirable tenants and that makes securing tenancy challenging. However, for landlords in the industrial space, that spells opportunity.

“Cannabis groups will pay a premium because a lot of landlords don’t want that kind of use in their buildings,” said Diana Hoang, an industrial specialist with Colliers based in Toronto. “For most landlords, they want good tenants with strong financials and they look for tenants with long-term stability. [Cannabis companies are] not as stable but they want to get in the game and establish a location, and landlords force them to pay the premium because they know not a lot other groups of investors are taking them in.”

Hoang recommends that landlords, upon establishing which asset class they’d like to invest in, seek out vacant warehouse distribution buildings that they could fill with tenants during the rezoning process for a conversion, which can take between 12 and 24 months. In the interim, landlords can earn rental income.

“Target typical industrial users, which are your warehouses for e-commerce or warehousing for trades in the area,” said Hoang, adding that the most desirable buildings have 20-foot clearing heights and shipping aprons, and they can command $1.00-1.50 psf in additional rent.

Demand for those facilities has been robust through the COVID-19 pandemic because of the outsized growth of e-commerce, which had already steadily eaten away at the retail sector for years. And while the office and retail sectors have languished since the pandemic struck in March 2020, industrial real estate is riding a tidal wave.

“Tailwinds from e-commerce and rising product inventories appear to be offsetting sectors negatively impacted by the pandemic, including those with integrated global supply chains or those more sensitive to local economic activity,” said a report from GWL Realty Advisors.

But with the increased competition for limited vacancies, finding the right facilities could prove difficult. In the GTA, bidding wars are commonplace, but Hoang advises not to let that cloud one’s judgement.

“Word of mouth and testimonials are important, and talk to groups that have already used the facilities services,” she said.

Although the immediate GTA is lacking in inventory, areas to the north, while not exactly brimming with facilities, often don’t charge maintenance fees, which can at least partially offset some of the trucking expenses. Moreover, Hoang says that borrowing power is the ultimate determinant.

“Buying power is No. 1; understand the magnitude of your line of credit. Even the big players have to understand where the value is. They’re not only competing with newbies but established investors too because investor groups are looking for products to purchase. They’re looking for this asset because it’s more stable than even the stock market.”

About the Author

Neil Sharma is the Editor-In-Chief of Canadian Real Estate Wealth and Real Estate Professional. As a journalist, he has covered Canada’s housing market for the Toronto Star, Toronto Sun, National Post, and other publications, specializing in everything from market trends to mortgage and investment advice. He can be reached at neil@crewmedia.ca.

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