Overview Of The Toronto Area Industrial Market
Industrial real estate is broadly defined as property used for the processing and manufacturing of good. Industrial real estate includes all land and buildings, either utilized or suited for industrial purposes. While most registrants think of industrial property as specifically relating to manufacturing, the term has a much broader meaning that includes production, storage and distribution of tangible goods (as opposed to intangible goods; e.g., professional services). Traditional uses normally centered on manufacturing, warehousing or transportation. More recently, TORONTO industrial areas now contain business enterprises that involve a diversity of activities such as data processing, advanced computer technologies, communications, publishing/printing and a variety of support industries. This is particularily true in areas such as Mississauga, Markham, Vaughan and Etobicoke Ontario.
Investor and user perspectives
The industrial market, more so than any other market, represents an intense interplay of investors and users (whether as owners or lessees). Investors have long been attracted to industrial properties given the preponderance of large, creditworthy tenants and long terms leases. Users, on the converse, are typically committed to high capital cost relating to manufacturing needs and frequently seek investors to fund the real estate portion of their enterprises. The cost of a new building can be onerous when facing other capital requirements. This mutually beneficial relationship is no better evidenced than in sale/leasebacks. The user will often opt for this strategy when the use of a property has more value than the ownership of the site. Often, the leaseback is more economical than other forms of financing.
The market for industrial sites and structures, arising from specific demands for products and services, is often referenced as derived demand. In other words, the industrial activity and uses allocated to particular sites is derived from marketplace demands. Industrial layouts and site utilizations find their origins in market requirements and are distinctly fashioned by immediate needs.
Given this orientation, client requirements are largely dominated by specific functions. Distribution operations commonly focus on transportation corridors, time/distance factors and freight rates to major areas and customers. Manufacturers concentrate on distance to raw materials, availability and cost of energy to support manufacturing processes and the availability and cost of energy to support manufacturing processes and the availability/cost of skilled labour. Market oriented industries seek proximity to their customer base. After all, reduced costs for transportation can translate directly into bottom line benefits.
New Construction vs. Existing Structures
The demand-driven nature of the industrial markets can highlight new construction to the detriment of potential within existing structures. In today’s marketplace, many registrants provide a valuable service in the world of adaptive reuse. These projects involved rehabilitation of existing structures into altered uses; e.g., heavy industrial sites into smaller light industrial operations and warehousing facilities.Older properties can often be converted into incubator buildings consisting of small, low rent units designed for newer industrial tenants who will ultimately grow out of existing premises and move. The exodus of industries to suburban locations affords opportunities for conversions in older industrial districts. Many industrial locations in large urban centres are now home to power centres (grouping of big box retailers). Centrally-located loft-style building that housed traditional manufacturing facilities now provide the structure for vertical businesses and