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This may sound counterintuitive as we navigate the economic impact of a pandemic. However, I’ve recently reported that the Saskatoon industrial vacancy rate actually dropped during Q3 2020, demonstrating the economic resilience of this asset class.
Two industrial properties I recently brought to the market sold within one week.
One was an investment property with a four-year under-market lease in place, and one was sold vacant to an owner-occupant.
The sweet spot from owner-occupants appears to be in the 6,000 – 9,000-square-foot range; preferably with a larger-than-typical land-to-building ratio.
The range is much more broad for industrial investment and not tied to specific size.
Leveraging capital
With historically low interest rates and with reasonably healthy industrial vacancy rates, investors are seeking assets with functional design, industry standard land-to-building ratio, lease term and tenant covenant in place.
The demand is coming from individual and institutional investors and therefore the price range is wide.
This market presents an opportunity for owner-occupant businesses to raise expansion capital through a sale leaseback of their property.
Many businesses could realize a greater return on investment by turning sale proceeds back into their own operations.
As strong as the demand is for specific industrial property, however, the interest in buildings that are either functionally obsolescent or specialized in design seems to be very tepid.
Inventory will tighten
A report issued by the City of Saskatoon earlier this month indicated that only two building permits had been issued in the Marquis Industrial area year-to-date in 2020.
It’s interesting to note that one was for 6,000 square feet on 1.63 acres and one was for 8,000 square feet on 2.3 acres.
I’d guess they are very likely owner-occupants who were unable to find an existing building in the market to purchase.
The lack of new speculative construction will result in continued absorption of any existing inventory and place more pressure on the existing vacancy rate.
If you own an industrial building and are curious what it may be worth, now may be the time to call your commercial real estate broker and determine its value.
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