industrial real estate

St. Catharines Industrial Base Lease Rates Surpasses $8 per sq. ft.

If you’re an industrial tenant coming out of a long term lease wanting to know your relocation/expansion options, there is probably a bit of a shock when you check to see what’s out there and the price tag that comes with it. Not only has inventory dried up, but rental rates have risen drastically, by 30-40% in the last few years. What should you be expecting?

St. Catharines still with the highest demand now has industrial inventory leasing at least $8 per sq. ft. for a quality building. Other municipalities in the region have also had significant increases, so it’s not as if you can avoid new market rental rates. Some industrial buildings have achieved $10 per sq. ft. or higher if they are perceived to have premium location and features.

If you’re wondering if there will be an end in sight to these industrial market conditions, we aren’t seeing it at this time. In order for there to be relief in rental rates either something catastrophic needs to happen to the market that causes a lot of businesses to fold, or a significant amount of new inventory needs to be added. While there is turmoil in global markets due to the threat of trade wars we currently aren’t seeing activity that would be alarming to Niagara’s industrial real estate market. As for adding inventory it’s just not happening due to the current cost of construction. As costs for building continue to increase, it makes it more difficult to justify as the return on investment isn’t high enough to support it.

My advice to tenant’s concerned about these market conditions is to start looking at your relocation options early, with a local industrial real estate broker, and be prepared to act quickly.

Is HST Applicable to Commercial Real Estate Lease Rents in Ontario?

If you’re leasing for the first time you may not know the answer to this question. The short answer is yes, HST (Harmonized Sales Tax) is applicable on all commercial real estate rents in Ontario, Canada. If you have previously rented a residential apartment where HST is not added onto the rent this may be a bit of a surprise.

If you are leasing a commercial, industrial, or office building for the purposes of running your business, HST is applicable on all rents including additional rents such as TMI or CAM. You should expect that all advertisements and listings that show lease rates don’t have HST added yet, much like the prices advertised in retail stores are prices without tax added yet. When you want an agent to write an offer to lease, HST will be added then so you can see the big picture on rent.

Any confusions or questions about HST should be cleared up with your accountant or applicable government authority.

What type of heating is best for an industrial warehouse?

This blog will focus only on the most popular types of heating in my market and in the golden horseshoe of Southern Ontario, natural gas is often available in most industrial real estate buildings. With that in mind, natural gas is preferred over electric heat sources due to the cost factor. Considering warehouses are large open spaces, what is the ideal way to heat them?

The two primary types of natural gas heating I find in a warehouse are either forced air or radiant tube. Forced air heaters usually hang close to the ceiling and kind of look like a large metal box with vents that blow hot air into a warehouse. Radiant tubes also typically hang close to the ceiling and are in fact long tubes that radiate heat onto the surfaces around it. The primary difference between the two is that one heats the air and the other heats surfaces, so in warehouse setting which is best?

While the answer may ultimately be a matter of preference or a requirement depending the materials a business handles, radiant is often the preferred heat source in a warehouse setting for a couple reasons:

1) If a grade level door or loading dock is opened hot air would escape very quickly, but, considering a radiant heat tube heats surfaces instead of air, people and contents will be more comfortable. This is a common concern for industrial businesses because opening bay doors is a regular occurrence to run the business. Depending on construction materials surfaces often absorb and reflect heat as well, further adding to indoor comfort even when cold air is coming in.

2) For reasons stated above it is often more cost efficient. A forced air heater will run more and struggle to maintain temperature every time a door is opened, and in a warehouse you can imagine the large cubic volume of air that needs to be re-heated as it regularly escapes. Radiant heaters don’t have that struggle.

Ultimately you as a tenant will need to determine the best type of heat for your business, but for those that get frustrated with large bills to heat a warehouse it might be worth considering radiant heat instead if you’re running forced air. It may not be the solution for everyone but it’s definitely worth exploring. If you’re willing to sign a long term lease, some landlords may consider changing the heat type for the right tenant, this could ultimately be negotiated into the lease.

Industrial Building for Lease in St. Catharines - 101 Hannover Drive

Another rare listing of industrial space under 10,000 sq. ft. is officially on the market and available next month. 101 Hannover has 5600 sq. ft. of warehouse space coming available which can be combined with the office unit at the front of the building.

The building is located on Hannover Drive, just off of Martindale Road and QEW highway interchange for close highway access. The location is arguably the nicest business park in the city, offering convenience for many amenities an industrial tenant or its employees may need. The building is well constructed with brick and concrete block construction. Though the parking lot is currently adequate the landlord is prepared to expand it for uses that require additional parking spaces.

Inside the space is open concept with only one column approximately in the middle of the unit. Interior features consist of 18 ft. clear height, radiant heat, a grade level door, two washrooms, and an entrance area with window display.

This unit will not last long on the open market due to the demand for space this size. It would be wise to act quickly if you think this building can meet your criteria.

What is a rent free period in a commercial or industrial real estate lease and how do you achieve one?

A commonly requested or negotiated item in commercial real estate leases is a rent free period. Depending on market conditions for the type of space or building you’re looking to lease you may be able to achieve one.

A rent free period is a defined period where the tenant does not pay rent either prior to their lease term or at the start of their lease term. How much rent free to ask for is usually dependent on market conditions and the reasons for needing a rent free period. For Example, an office or industrial tenant looking to build out a new floor plan of offices might need 2 months to complete the work at their cost, and in turn would ask if they could achieve two months rent free to make the transition smoother. A landlord might see this as a reasonable request dependent on market conditions and the length of the lease term.

Speaking of the lease term, a rent free period is usually not considered unless you are signing a longer term lease, which in current market conditions is usually around 5 years depending on the landlord, property, and the reasoning. If you are not prepared to offer a lengthy commitment, it would be wise to not request a rent free period as you would be seen as unrealistic. It would also be wise to not request too much rent free period for the same reason unless it’s a very unique deal that warrants it.

There are also different options for a rent free period. In the situation of a triple net lease for example, some landlord’s may only agree to giving base rent free, meaning the tenant would still pay their proportionate share of property expenses through TMI, CAM, or additional rent depending how the lease is worded (this is common practice and considered a reasonable request).

There is also the option of having a rent free early occupancy period or a rent free period at the beginning of the lease term. If your lease starts February 1, 2019 and you have one month rent free early occupancy, your rent free period would be for the month of January before your lease starts. If it is rent free within the lease, it would likely make February the month you have free. What is agreed is usually a matter of preference between landlord and tenant. For landlord’s, it’s usually more of an advantage to have rent free early occupancy because if you have a 5 year lease, you still get the full 5 year term whereas with rent free within lease, the beginning of the term is eaten up with the free period.

A rent free period is a common negotiating tool for commercial, industrial, and office building leases, but it has its limitations in many markets and not all landlord’s consider it. Because it’s an incentive there may also be a claw back clause in the lease for that incentive in the event the tenant defaults. If the landlord agrees to a rent free period it’s because they feel there is a legitimate reason for the timing of the request and that it benefits their long term big picture of their investment property.

In the current Niagara industrial market, in particular St. Catharines, space is tight so rent free incentives usually aren’t very long if considered. Rent free on a commercial retail space is dependent on building and scenario and office buildings usually have consideration for it if the tenant intends to do their own improvements and alterations to the space.

To make sure you’re getting the best advice on rent free incentives, make sure you’re speaking with a knowledgable commercial real estate broker for the market that you are in.

Are you an industrial tenant that can't find a building in Niagara?

If you’re an industrial tenant in St. Catharines or Niagara looking on commercial listing websites and noticing nothing with your criteria is coming up or if you’re calling real estate offices with similar results, that’s likely because there aren’t any… at the moment.

The best thing you can do is speak with a reputable commercial real estate broker and let them know what you are looking for and how long you can wait for it. I have conversations daily with tenant’s expressing this frustration, but, sometimes there is a solution if you talk to the right people. I have a database of properties that have leases coming due on the regular. Sometimes I have a creative solution. A conversation with the right commercial real estate broker can make a difference.

I had a conversation with an industrial tenant the other day discussing their timing and expansion options. I happened to make them aware of a building we can pursue in a few months with expansion options a year from now, an option he wouldn’t know about unless that conversation happened.

Right now I’m keeping tabs on the tenant’s looking and when availabilities come up I like to make them aware of it. If you want to be one of the tenant’s that benefits from opportunities that can be created by a commercial broker, please contact me. Don’t expect residential Realtor’s to be of the same level of assistance, their knowledge is usually limited to what is available right now, which isn’t much.

The Industrial Business Parks of St. Catharines

Searching for industrial buildings for lease or sale in Niagara won’t provide you with many options in our current market, especially if you are looking in St. Catharines. It’s a market where you will need to act quick if you do happen to find industrial space for lease, but where should you focus your efforts in searching?

St. Catharines has five main industrial parks to look into, each with its own advantages. I separate each with the labels of the East End, West End, Port Weller, Hiscott, and Secord/Nihan. There are some pockets of industrial buildings that can be found throughout the city, however, the majority of industrial buildings and businesses can be found in these areas.

Arguably the largest industrial park in St. Catharines is the East End which is bordered by the canal to the East, Welland Avenue to the North, The service roads (Dieppe and Dunkirk) to the South, and it sort of sprawls West past Bunting along the highway and service roads and even a little past the other side of the highway on Welland Ave and and Berryman. The closest highway access point for this industrial business park is Niagara Street at QEW. The types of businesses in this area are a diverse mix and the street often has a reputation for catering to specific industries. Take Bunting Road for example, you will find a lot of showroom uses often catering to the home/building improvements, home and building decor, and furniture. The service roads, and Welland Avenue will offer some service based industries as well as warehouse, distribution, and manufacturing. Cushman Road and Seapark Drive attracts mostly warehouse and distribution with some heavier manufacturing uses mixed in. There seems to be quite a few cabinet makers in the area along with some automotive uses if the building allows for it. The advantage locating an industrial business in this area is that the rent is usually reasonable, and with being the largest industrial park there are often other businesses in close proximity you can create a working relationship with.

Depending on the type of business you operate, the West End industrial parks of St. Catharines have been growing rapidly and may be the most sought after location for cleaner industrial uses. This area is comprised of Vansickle Road to the West, Louth to the East, St. Paul West to the South, and Benfield to the North… and even though it’s a few minutes up Martindale, I classify the business park on Hannover Drive to be part of the West End industrial park because the types of buildings and businesses they attract are quite similar. As far as industrial real estate rents go, the West End tends to have the highest in the city, and because most of the buildings are newer and offer some different zoning options, the additional rents are often higher due to higher property tax. The advantage comes to those who want a building and location with a more prestigious look which mostly caters to the showroom, service, and distribution based businesses. While you can certainly find manufacturing in this area you definitely won’t notice dirty operations. The West End industrial business park of St. Catharines enjoys highway access from QEW at Martindale Road as well as Highway 406 at Fourth Ave.

Port Weller, in my opinion, is an unusual location for an industrial park. Back in the day some businesses may have set up shop here due to proximity to the canal and lake access, but it has grown and expanded beyond that. The area is setup with Lakeshore Road to the South, the canal to the West, Read Road to the East, Northrup to the North, and Keefer Road running down the middle. The advantage to being in this industrial park is that it usually has the lowest rents and sale prices in the city, but that comes at a cost. For an industrial park, Port Weller can be a bit isolating for multiple reasons, mostly to do with location. Industrial businesses tend to enjoy close highway access but in this park, it can often take 10 minutes or longer to get and from the highway, or much longer if the bridge is up. The other location disadvantage is that this area is on the other side of the canal from the rest of the city so in terms of access and amenities most things are on the other side of the canal bridge which goes up and down for ships most of the year. Not only is this area a considerable distance from the highway, employees and deliveries can be frequently delayed by the canal bridge. Speaking of employees they will need to have a car to reach this area of the city because the bus service ends on the other side of the canal. Businesses that are attracted to Port Weller due to the cost difference should definitely keep the location disadvantages in mind before committing your business to being there long term.

I consider both Hiscott and Secord/Nihan industrial parts to be small but centrally located with very quick highway access through QEW at Ontario Street or Lake Street interchanges. The buildings in these neighbourhoods often cater to smaller uses that are service, showroom, or distribution based. Rents in this area are fairly average but can easily be as high as the West End depending on the quality of building and location and vacancies are usually rare.

So there you have it, a simplified breakdown of the industrial neighbourhoods of St. Catharines. If you are having difficulty determining where is right for your business, don’t hesitate to contact me for more detailed insight.

Why don't I own commercial real estate and why does this benefit my clients?

Real estate agents are known to invest in real estate. For obvious reasons it’s familiar territory and if you work in the industry you will come across various commercial and residential real estate investment opportunities, and it’s hard not to consider the really attractive ones.

While it’s good to have the advice of an agent that is also a savvy investor you need to keep in mind they may not represent your interests very well. I have discovered that not owning a local real estate investment allows me to represent my clients better because I’m not competing with them.

Consider a scenario where I may own a commercial plaza or a multi-tenanted industrial building. I’m motivated to keep my buildings full with tenant’s just like any other investor. If I have listings for lease in my own buildings and listings with other landlord investors that have similar properties with vacancies, it would be wise to suspect that I’m most likely trying to push tenant’s into my own buildings before my other listings. Not only am I competing for tenant’s, I’m also competing for investment opportunities too. As a Realtor with my ear to my ground I’m likely to come across investment opportunities before the average person. Be sure to work with an agent that wants to share that opportunity with their clients rather than keep it for their own interests.

Also considering the scenario from the tenant’s perspective, how do you know that you are being shown all properties or the best properties that fit your criteria? It would be wise to suspect that the agent is trying to get you to focus on their own properties. If you find yourself in the position where you are only being shown options owned by the Realtor it might be good to get a second opinion.

To avoid this scenario it would be good to have this discussion with a Realtor you are thinking about working with. If they own commercial or industrial buildings in the area they are your potential competition if you are a landlord and they may not offer you all of your options as a tenant.

To avoid this conflict of interest I have a promise to my clients that I will not own commercial or industrial real estate in the Niagara Region. This way my landlord clients are assured that I am trying to put tenant’s in their buildings and my tenant clients are assured I’m not just showing them properties that I own.

What is TMI, CAM, and Additional Rent in Commercial Real Estate Leasing?

If you're new to commercial leasing you are likely surprised by the way most commercial, industrial, or office spaces are priced and marketed. Most commercial listings have the price broken down per sq. ft. and while that may be confusing in itself, what I find catches most people off guard is the mention of additional rent which is also commonly referred to as TMI (taxes, maintenance, insurance) or CAM (common area maintenance). It's often an overlooked detail in the hunt for commercial space because a new tenant may notice the base rent is within their budget but after discovering additional rent the space is not affordable.

So what is this additional rent? It's the landlord's expenses for the property.

What are the landlord's expenses? Property taxes are usually the most significant of this figure but it also includes but isn't limited to property insurance, landscaping, snow removal, waste removal, cleaning and maintaining common areas, building management and administration fees, and repair and maintenance for items like the roof, HVAC, etc.

Why is additional rent separated from the base rent? Keeping the base rent separated and priced per square foot makes it easy to compare against competing spaces to determine what is in line with market value, this benefits both landlord and tenant.

Why do tenants pay additional rent for the landlord's expenses? I've been asked this a few times as if this is a deceiving practice but it isn't. The tenant pays their proportionate share of the property expenses because it's the tenant's that use the property, not the landlord. The tenant's use the structure, the HVAC, the parking lot, the common areas etc. and those items need to be paid for and maintained. Logically it should be the party that uses it that pays for it and that is why the expenses to maintain the property paid for by the tenant usually through TMI.

How is TMI/additional rent calculated? In most scenarios the combined annual total for expenses is divided by the total number of square feet of the building. This provides the per square foot rate for expenses we call additional rent, AKA, TMI or CAM. This per sq. ft. figure is multiplied by the number of square feet that make up the tenant's premises and that is the annual total the tenant is responsible for paying as additional rent.

Does TMI change or increase? Yes. I mentioned above property taxes usually make up the bulk of additional rent and unfortunately property taxes have a tendency to increase regularly. In addition to this the cost of maintenance and repairs also change over time and will have an impact.

Is additional rent negotiable? No. Property expenses are not negotiable. They are what they are.

Have a question about additional rent that isn't in here? Let me know what it is.