What is a Commercial Real Estate Lease Assignment?

Yesterday I wrote a blog about subleasing in commercial real estate which is usually the most common option when the space or unit is no longer needed by the tenant for various reasons. Today I want to touch on the other option which is commonly referred to as a lease assignment.

If you read my blog on subleasing you would notice that I mention that the original tenant still remains on the hook to fulfill obligations of the original lease in that the sub-tenant pays the tenant and the tenant still pays the landlord in addition to fulfilling other obligations in the document. The difference with a lease assignment is that it usually releases the original tenant from its obligations to the lease. While this may sound like the more attractive option from the tenant’s perspective, it’s not always an option on the table and it’s often not the preference of the landlord. In the lease assignment one tenant assigns all responsibilities of the lease to the new tenant, letting the original tenant off the hook. The new tenant would have a direct relationship with landlord going forward.

So what are some reasons that a lease assignment would be preferred over a sublease? As mentioned above the first choice and sometimes the only option a landlord wants to give is the option to sublease. In the eyes of the landlord they have an existing relationship with the current tenant so they may not feel comfortable working with a lease assignment. Reasons for a landlord to consider a lease assignment instead of a sublease is because there may be an opportunity to achieve higher rents with the newer tenant, or the newer tenant may appear to have a more solid financial backing (such as a well known national franchise) vs. a mom and pop business that is going out of business. It’s obvious the landlord would want to form a direct relationship with a tenant they perceive to be a better fit for the building and their investment goals.

If you’re a landlord or tenant who has encountered this situation and don’t know what’s best, weigh the pros and cons of either and it should be clear what is best for the scenario.

What is a Commercial Real Estate Sublease?

Sometimes a tenant can’t fulfill its obligations to complete its lease term. The reasons a company could entertain subleasing their space is they may have outgrown it and needed to relocate, there may be cutbacks and a need to downsize, Corporate office may decide that a location is no longer needed or it needs to be relocated, or the tenant may be going out of business. Regardless of the reason, most leases contain an option to sublease, also known as sublet.

What is a sublease? Subleasing allows the tenant to lease to a sub-tenant for some or the remainder of the lease term to reduce the financial burden of paying rent on a space that is not being used. With the options mentioned above a company or an individual that signs a lease is obligated to fulfill it to the end of its term. For example, if a tenant signs a 5 year lease and can’t fulfill beyond 3 years, they could opt to sublease the unit for the remaining two years.

There are some things to keep in mind when subleasing so it’s best to read your lease and know what your options are. The positives of subleasing are obvious in that you can relieve financial burden on paying for a space that isn’t needed anymore. Some of the negatives are finding a sub-tenant which is not always quick or guaranteed, not being offered the full rent by a sub-tenant, being potentially responsible or liable for the sub-tenant, and in most cases you are still on the hook to fulfill your obligations of the lease even though someone else is using the space now. That last point is of particular concern because the original tenant may not realize its subleasing obligations under the lease. Even though there is a new tenant using the space, that new tenant pays you rent, you in turn are still obligated to pay the landlord your rent and you are still obligated to ensure the lease is complied with.

There are many more aspects to subleasing and if it becomes an option you want to consider, be sure to connect with a knowledgable commercial real estate broker in your market to ensure you know your options.

In some situations there may be potential to assign your lease instead of subleasing but I’ll be covering that in another blog. Keep in mind a sublease can be entertained on just about any commercial property whether it be office, industrial, retail, medical, etc.

2019 Industrial Lease Rates for St. Catharines

In the last year industrial lease rates have once again soared past expectations. This is what happens when business is good and there aren’t enough buildings to house everyone.

For those curious, this is a very general approach to industrial building lease rates in St. Catharines. In the East end of the city, quality B class buildings will start around $6.50 per sq. ft. for base rent, $7+ per sq. ft. or higher can be justified for A class. For the West end of the city B class would start around $7 base rent and A class industrial buildings are now achieving over $8 per sq. ft. and might creep closer towards $10 if things continue at the rate they do.

To ensure that you are paying market rental rates it would be wise to enlist the services of a commercial real estate broker that not only possesses that knowledge, but also knows when and where to find the building or space you need for your business.

Niagara Spring 2019 Industrial Market Update - There is no small space

Industrial Warehouse

Industrial Warehouse

As vacancy shrinks and rental rates rise in this crazy industrial market, it’s important to keep these conditions in mind as you search for industrial buildings or space for lease for your business. This blog applies to all of Niagara, especially St. Catharines.

If you’re looking for something under 10,000 sq. ft. start looking very early and be patient. Speak with knowledgable industrial brokers with their ear to the ground and may be able to make you aware of a coming vacancy months in advance.

If you’re looking for a space under 5000 sq. ft… good luck. At the moment there is either none or very few viable options available. You will need to be patient, and, if a vacancy comes on the market be sure to jump on it as soon as possible assuming you will have competition. Don’t assume there’s desperation from the landlord, there isn’t. It’s a landlord’s market so be sure to approach the situation in that way.

For tenant’s looking to get on a wait list for listings as they come available, please contact me to see what your options are.

What expenses can be used in TMI, CAM, or Additional Rent in a commercial real estate lease?

What should be used as a TMI expense is dependent upon how the lease is written, but, the vast majority of the time I write triple net leases and I know most commercial and industrial landlords and practitioners prefer triple net leases where they can be applied, The list below is based on a triple net scenario and isn’t limited to what is listed:

1) Landscaping - The property needs to look well maintained to make a good first impression in a business situation. Lawn cutting, gardening, weeding, tree and bush trimming, litter pick up, and so on can be a landscaping expense.

2) Snow Removal - If you live in a province or state that gets snow, snow removal contracts are a necessity for commercial and industrial properties to ensure businesses and customers have a place to park. Salting and Sanding also falls into this category.

3) Parking Lot Repairs - Parking lots function and look best when the pavement is smooth and free of potholes.

4) Roof Repairs and Maintenance - There are various things that can cause a leak in the roof but leaks tend to occur most towards the end of the roof life. Fortunately repairs can be made and the roof can often be functional for years longer with proper maintenance. There will reach a point where repairs won’t work and a full replacement will be necessary.

5) HVAC Maintenance and Repairs - To ensure the longest life and most efficiency of your HVAC units you should have a regular maintenance contract. A few visits a year from an HVAC technician to keep the unit clean and running smoothly is a wise idea.

6) Outdoor and Common Area Lighting Costs - Tenant’s and Customers definitely appreciate it when coming and going during darker hours of the day, and, having a lit building is a bonus security feature.

7) Property Management and Administration Costs - Property management takes time and money. It would be rare to see management fees higher than 15% of the property expenses but this depends on the landlord and management company.

8) Elevator Maintenance - Elevators require monthly maintenance contracts to remain operation.

9) Waste Removal - If you have common waste, recycling, or compost bins for tenant use.

10) Outdoor/Common Walkways, Ramps, or Stairs - Need to be maintained to code for safety.

11) Fire Prevention - For buildings with sprinkler systems, common area alarms/detectors, these are items that have maintenance costs. Depending on the situation, most times tenant’s would have alarms/detectors in their own units at their own expense.

12) Security Systems - For common areas only. Tenant’s should do their own monitoring for their own unit.

13) Electrical - Maintenance of the electrical room or main transformer.

14) Water - Most units of commercial and industrial buildings don’t have a separate water meter. Water costs should be added to the TMI in this situation, except if there is evidently a tenant that uses more than the others, a fair approach to billing should be made.

15 Insurance - For building and land. Tenant’s should be providing their own content and liability insurance as per the lease.

16) Property Taxes - The largest and most obvious expense.

This list can and will be more extensive in the future, but for now this is a good base guide.

Depending on the wording of your lease you may be able to amortize capital improvements over a longer term. The default wording of my lease allows for roof, HVAC, and parking lot replacement costs to amortized over 10 years but this isn’t used in all documents.

If you’re a client of mine that needs some assistance with best TMI practices I have no problem offering that help. Make sure you work with a Realtor that knows all of the expenses that need to be accounted for.

How to Calculate TMI ,CAM, or Additional Rent on Commercial and Industrial Buildings

This blog is targeting commercial and industrial buildings that have little or no common area. Most commercial retail plazas and most industrial buildings will fall into this category. Office buildings, or buildings with an abundance of common area would usually take a different approach which I plan to cover in another blog. If you’re new to this TMI, CAM (common area maintenance), and additional rent are industry phrases to represent the expenses for the property, and whatever phrase is used is usually a matter of preference but TMI is most common.

T.M.I. stands for taxes, maintenance, and insurance so the first place to start is adding together your property taxes, all of your maintenance and repair costs on the property, and your insurance costs for the most recent year. That makes up your combined annual total of property expenses. You simply need to divide that total by the total number of square feet that make up the building. You then have your per. sq. ft. rate for TMI.

A simplified formula: (Property Taxes + Maintenance + Insurance) ÷ total square feet = per sq. ft. TMI rate

If you’re looking for information on what TMI is (also known as CAM or Additional Rent), you may want to visit my other blog post with that explanation here https://www.stevendavidson.ca/blog/2018/8/13/what-is-tmi-cam-and-additional-rent-in-commercial-real-estate-leasing

For information on how often your TMI should be calculated I have a post about that here: https://www.stevendavidson.ca/blog/2019/2/12/how-often-is-tmi-cam-or-additional-rent-updated-in-a-commercial-real-estate-lease

If you were looking for information on how to calculate month rent instead of TMI I have information on how to do that here: https://www.stevendavidson.ca/blog/2019/2/22/how-to-calculate-monthly-rent-for-commercial-real-estate-lease-listings

The industrial Real Estate Business Parks in Fort Erie

Fort Erie is in the bottom right corner of the Niagara Region and last stop in Canada before the USA by the Peace Bridge border crossing. This border crossing gives Fort Erie unique opportunities for industrial businesses regularly importing or exporting from the United States.

Businesses that are keen on having close proximity to the border take note; there is an industrial park Located just off of the Gilmore Road exit of the QEW highway. That’s less than 10 minutes from the United States (granted you have a quick and smooth border crossing). The industrial park is visible from the highway. Most buildings are located on Pettit Road, just off of Gilmore Road.

For industrial businesses looking for buildings with a convenient border crossing, you will want to check out Fort Erie. Lease rates in this area can also be a little lower when compared to larger municipalities in Niagara, such as St. Catharines, Niagara on the Lake, and Niagara Falls.

The Tourist Commercial Real Estate Areas of Niagara Falls

Niagara Falls is a landmark known by most of the world, and as such, there is obviously tourism around it.

One of the most well known commercial real estate areas for tourism is Clifton Hil, a short street that connects Victoria Ave to Falls Ave/Niagara Parkway. Clifton Hill is known for its over the top architecture, large colourful displays, funhouses, entertainment, and food. In peak season Clifton Hill is crowded with vehicle traffic and pedestrians traffic. At the bottom of Clifton Hill is Falls Ave. and Niagara Parkway which are a short distance from the Horseshoe Falls viewing areas, you’re also right next to the Rainbow Bridge to cross into the United States.

The tourist district expands Southwest from Clifton Hill up Victoria Avenue and although Stanley Avenue sort of acts as a border to the West, Victoria Avenue clearly has businesses that look to draw in tourist traffic past that, up Ferry Street, and even a considerable distance down Lundy’s Lane.

The Tourist Area travels some distance to the South Along Fallsview Blvd and Stanley Ave but it tapers off once you pass the Fallsview Casino and the falls itself.

The rents in the prime Tourist areas surrounding Clifton Hill are not a reflection of commercial real estate rents elsewhere in the city. Tourist area rental rates are usually AT LEAST triple compared to most areas, for the obvious reason of catering to high traffic tourism.

If you think your business might be a good fit for the prime tourist areas of Niagara Falls, be sure to connect with a commercial real estate broker who is knowledgable with the area and can act quickly as vacancies are rare.

12 important things to consider when you search for industrial real estate for lease

Industrial Warehouse

Industrial Warehouse

Searching for the ideal industrial building for your business goes beyond finding something that is the ideal size and budget. There are a number of features to consider in your search for industrial space for lease to ensure your term in the building is a comfortable one. Below are important criteria to keep and mind and consider in your search for industrial property, none of these are in any particular order.

1) Clear Height - Having a space that is an adequate size in footprint is useless if it doesn’t have an adequate clear height to rack your inventory high enough that you won’t run out of space. Generally speaking, if you’re a warehouse and distribution tenant, having more height allows you to rack higher and save on the number of square feet you occupy. Higher clear height often creates an opportunity to use your space more efficiently by racking up rather than expanding outward.

2) Power Supply - If you manufacture or use a lot of computers and equipment to run your operation you will want to ensure the space you are planning to lease has an adequate power supply. If your business has a requirement for 3 phase power you will want to make sure the unit is equipped with it.

3) Loading Docks - Another popular feature among warehouse and distribution tenant’s is loading docks. Loading docks are truck trailer height and allow for easy movement of inventory on and off of trucks. Unfortunately not all industrial buildings in Niagara have loading docks, in fact we likely have a shortage in comparison to other areas of the province and country. It can take a bit longer to source a building with loading docks, especially if you’re looking for something under 10,000 sq. ft. in St. Catharines or the Niagara Region. If you’re looking to relocate soon and loading docks are a priority, you may want to start your search earlier just in case.

4) Grade Level Doors - Unlike loading docks, grade level doors open at ground level, not truck trailer level. These doors are more common than loading docks and most industrial buildings have them. These doors are used by most industrial businesses however shipping and receiving inventory through them isn’t nearly as easy as using a loading dock. It’s important to make note of the sizes of grade level doors if you have larger items coming and going.

5) Location - Most industrial operations ship and receive goods by transport trucks so a location with close proximity to the highway is usually preferred. Ensuring the location is easy to get to for trucks is important. If you have a lot of employees you may want to locate somewhere with access to public transit. Some operations may prefer to have a rail spur or access to a waterway for shipping. Some industrial businesses are noisy or produce a strong odour which would be a good reason to locate somewhere a little isolated away from housing and other businesses. These are items to consider based on the demands of your business and a good industrial agent can help you find what’s best.

6) Truck Access - Further to the point above you need to ensure the property itself can allow for the proper flow of trucks to ensure shipments and deliveries come and go as you expect them to. There are some poorly designed properties that make it very difficult for trucks to come and go as they should and those properties should be avoided.

7) Type of Heating - The two most common forms of heating in industrial buildings is either forced air gas or radiant tube. Usually it’s a matter of preference but there are some businesses that can’t work with one or the other for various reasons. In terms of efficiency, in a warehouse setting many operations tend to have a preference for radiant heat as it heats the surfaces and not the air, that way when someone opens a grade level door you don’t lose all your heat.

8) Parking - If you have a lot of employees and a good portion of them own vehicles, you need to ensure the building you have selected has enough parking capacity, otherwise you can run into an issue.

9) Office Space - Most industrial businesses have some requirement for office but not all. For those that do, the space space is rarely more than 10-20% of the total size of the unit. You won’t find exactly what you’re looking for so it’s best to keep the big picture in mind and ensure the industrial/warehouse portion of the space meets your needs more than the office. The office is an after thought that can be modified if necessary.

10) Column Spacing - Depending on your equipment, the flow of your manufacturing, the type of racking you have etc., you may need to keep the distance between columns in mind. For example, if you need to fit a 25 foot machine in between columns that are only 20 feet apart, you have a problem. It’s important to share minimum column spacing requirements with you Realtor to keep note of in the hunt for space.

11) Plumbing and Drainage - Aside from needing a washroom and a kitchen, some industrial operations require additional plumbing and drains throughout their unit. Make sure the buildings you have focused on can have plumbing and drains where needed for your business to function as it should.

12) Work with a Commercial Real Estate Agent - I’ve complained about this in other blogs and I can’t state it enough, now is not the time to hire the agent that sold your house. If you expect knowledge and competence when making a major commitment to a long term lease, you want to ensure your requirements are fulfilled and you want your interests protected. The best way to do this is to hire a commercial real estate agent who has the knowledge, skills, and experience in industrial real estate leasing to help you pull that off. Using an agent that sells houses and doesn’t possess those qualities can create a lot of headaches and unwanted problems during the process and well after the move.

If you want to know more about finding the ideal industrial building please don’t hesitate to reach out and ask questions.

The Industrial Real Estate Business Parks of Niagara Falls

While it may be known for its tourism, Niagara Falls is the second largest city in the Niagara Region and has a healthy amount of industry in their commercial real estate sector. An attractive feature about being in Niagara Falls is that it has its own border crossing at the Rainbow bridge, convenient for businesses that export to the United States. While Niagara Falls may have industrial properties throughout various areas of the city I’ll make mention of the commonly known ones below.

On the West side of the QEW highway and filling out to Montrose Road is a strip that runs through most of the city which is made up of mostly industrial properties, some with highway visibility. Conveniently located with easy access to the highway, this business park is great for truck access.

In the South East end of the city there is another major industrial park off Stanley Avenue which spans closer to the highway and Dorchester Road. While it may be more tucked away than the industrial park on Montrose, this location of the city is still accessible for trucks but a bit removed from the highway so lease rates may be a bit more competitive in comparison.

Like Niagara on the Lake, Niagara Falls is also close by alternative market to St. Catharines for industrial operations, depending on your needs. To ensure you’re getting the best opportunity for industrial leasing in Niagara Falls, be sure to work with an agent that has extensive knowledge and experience in industrial real estate for the area.

The Industrial Real Estate Business Parks of Niagara on the Lake

Niagara on the Lake (NOTL) may be known for it’s wineries and boutique tourist retail, but it’s also home to some of Niagara’s nicest industrial parks.

Located just over Home bridge to cross the canal from East St. Catharines industrial business park, you gradually enter into the NOTL’s industrial business park via York Road. The business park spans to Queenston Road, Airport Road, and Townline Road. This industrial park is conveniently located along the highway at the QEW / Glendale Avenue interchange for easy and quick truck access. Most of the industrial buildings in this area appear newer than most of the industrial buildings in the Niagara Region and are usually constructed to demand a more prestigious/stylish presence than typical industrial architecture. The municipality of Niagara on the Lake enforces strict standards for aesthetic appeal of their buildings, industrial buildings are no exception here. One notable disadvantage to this location is that it lacks some commercial amenities that might be appreciated such as banks and a nearby grocery store, but, it is possible to find a place to eat and you are close to amenities in East St. Catharines. Base rents in this industrial park usually start around $7 per sq. ft.

A second smaller industrial park can be found in Virgil on Henegan Road and Walker Road. With similar aesthetic standards the buildings in this park also look good but this location is a bit removed from the highway and often caters to businesses with a more local focus.

If you’re an industrial business interested in the pro’s and con’s of leasing industrial space in Niagara on the Lake, don’t hesitate to reach out to discover available opportunities.

The Industrial Real Estate Business Parks of Beamsville

If you’re an industrial business that gets a lot of business from Niagara and Hamilton, you may want to consider Beamsville as a good location due to its unique proximity to both central Niagara and Hamilton business communities. Being just down the QEW highway from both St. Catharines and Hamilton, Beamsville’s industrial park is conveniently located right by the highway for easy and quick truck access into their business park.

The industrial business park of Beamsville is bordered by the QEW highway with South Service Road to the North, Ontario Street to the West which is the QEW interchange to access the park, Bartlett Road to the East, and Union Road to the South with Christie Drive in the middle. There are other spots of industrial facilities here and there throughout the municipality, but the bulk concentration is in or near this neighbourhood. As for leasing or buying industrial buildings in this neighbourhood the lease rates and sale prices are often reasonable in comparison to the larger municipalities nearby, but like other municipalities, opportunities and vacancies are rare in our current market.

Aside from being conveniently located between two large regions in Southern Ontario I would say Beamsville did some good planning for its industrial sector by conveniently locating this business park right next to an easily accessible highway interchange. Not only is there easy highway access but there are just enough commercial amenities within a few blocks for food, banking, groceries, etc. to service employees and other functions of the business.

If you’re looking to discuss leasing, buying, or selling industrial real estate in Beamsville, be sure to connect with an agent who knows its industrial market well.

How to Calculate Monthly Rent for Commercial Real Estate Lease Listings

If you want the shortcut formula look to the bolded text a few paragraphs down. If that doesn’t make sense or you need explanation read on and even reach out if you have any questions.

If you’re looking to lease a commercial, industrial, or office property, you have probably noticed that most listings are priced per sq. ft. often separating base and additional rents. If this is a new concept to you, I bet it can be a little confusing. One of the most common questions I receive from newer business owners is, “What does that work out to monthly?” Below is a simple guide to calculating commercial real estate rents for the majority of listings that are out there.

Step One, add the per square foot base rent and additional rent together. The base rent can often be referred to as net or triple net rent, additional rent can also be commonly known as CAM or TMI. If you have a base rent of $10 per sq. ft. and additional rent of $5 per sq. ft., that is a combined total of $15 per sq. ft.

Step Two, multiply the combined total above by the number of square feet that make up the premises to get the total annual rent. If we are looking at a 1000 sq. ft. commercial unit, that would be $15 multiplied by 1000 for a total of $15,000 annual rent.

Step Three, divide the annual total rent by 12 to discover the total monthly rent. Taking the example above, $15,000 divided by 12 is $1,250.00 monthly. Keep in mind that commercial rents in most states and provinces in the United States and Canada have taxes applicable to commercial rents. In the province of Ontario commercial real estate rents are subject to 13% HST (Harmonized Sales Tax) which gets added to the total. In this situation 13% of $1,250 is $162.50 for a total monthly rent of $1,412.50 including applicable taxes.

For those looking for a mathematical equation the simplest version would look like this:

((Base Rent + Additional Rent) x Square Footage) ÷ 12 = Total Monthly Rent, before applicable taxes.

Other Factors? Aside from any applicable taxes it should be noted that most commercial rents do not include utilities so it would be good to clarify that with a the listing agent if it’s not clear in the advertising. If you come across a listing advertising gross rent instead of base/additional, it usually means that is number is the combined total of base and additional rent already calculated for you.

If you’re looking to lease commercial space, please make sure you are working with an agent that clearly demonstrates knowledge of how to calculate total monthly rents to prevent upsetting surprises.

The Prime Commercial Real Estate Areas of St. Catharines

Most main artery roads in St. Catharines have commercial retail plazas but if you’re looking for the most prime, high traffic areas you will want to consider one of the areas below or close proximity.

1) Fourth Avenue - Located just off of Highway 406 where Welland Avenue from central St. Catharines turns into 4th Ave. and continues into the West end of the city with new plazas and the hospital. This stretch is arguably one of the highest traffic areas of the city, it’s also an area of the city that is still growing (to an extent). You can find most retail amenities in this area of the city with big box stores in the Smart Centres developments, medical buildings around the hospital, and other retail buildings that house a mix of local and franchise tenant’s. A great deal of benefit can be had to locating in this area but it comes at a price with base rental rates usually starting around $18 per sq. ft.

2) Glendale Avenue (Penn Centre area) - The stretch of Glendale that runs from Merritt Street , under Highway 406 and ends after the Penn Centre is another commercial district that is incredibly high traffic. There is a mix of new buildings, old buildings, and even some nice redeveloped buildings such as where The Keg and Johnny Rocco’s, as well as the city’s largest shopping mall the Penn Centre. With a diverse mix of retailers, food options, and even government services such as the passport office, it’s no wonder Glendale Avenue is packed with traffic during business hours. You might be able to find base rents as low as $16 per sq. ft. in older buildings but you will likely be paying over $20 in most areas.

3) YMCA Drive / Fairview Mall - This is actually a large block of big box retailers and a shopping mall located next to the QEW highway. It is bordered by Lake Street to the West, the QEW to the South and Geneva Street to the East. The Fairview Mall is actually quite small but has some notable tenant’s such as Chapters, Ikea, LCBO and grocery stores such as Zerhs and Food Basics. One of the largest traffic draws in this block is Costco which is connected off YMCA Drive along with Home Depot, Pet’s Mart, and a YMCA. This is retail area may be the most central in the city and there is quite a bit of plaza development and traffic in the surrounding neighbourhoods as a result.

Other notable high traffic commercial retail areas would be Ontario Street from Calrton to the QEW, Lake Street from the QEW to Lakeport, Lakeshore Road from Lakeport to Geneva, Scott Street from Vine to Niagara, Welland Ave from Grantham to Bunting, Hartzel Road from Queenston to Merritt, Port Dalhousie, and downtown.

The Office Building Parks of St. Catharines

St. Catharines has historically been a blue collar town, and while there have been some changes in industry, especially since the 90's, it still very much holds it's blue collar feel. With that in mind, we have a relatively small office building market to tap into.

The most prominent and accessible area for office space can be seen from the QEW as you pass through the Martindale Road area. Here there is a mix of low and mediums rise office structures that line Martindale and Hannover Drive. Base rental rates to lease in this neighbourhood start around $12 per sq ft but if you are looking to get into a newer building, you can easily start over $20 per sq ft.  This is often seen as the most desired area for office space in the city.

 The second most known office market in St. Catharines is downtown, which in recent years has had quite a face lift with infrastructure, a new arena, and a Centre for the Arts. Downtown has proven itself to be a good source for food and entertainment but with its mostly outdated office towers and lack of convenient and cheap parking it has gained little traction to attract and retain office/commerce businesses. Office space for lease in this neighbourhood can be found with base rents as low as $8 per sq ft, averaging around $12, and some planned developments are offering space over $30. There are plans for multiple developments involving office towers but time will tell if these buildings ever fill up. In my opinion downtown could/should transform some of it's outdated office structures into non-student housing to mix up some of the demographic living and working in the city core.

 The last known office market is on Queenston which has been quiet in recent years as the hospital relocated from this area to the West end. Back in the day this is where nearly all of the city's medical practitioners were located but it's currently a depressed neighborhood in the starting stages of redevelopment, likely to affordable housing and mixed uses.

 It's important when searching for office space in this city that you select from a building and location that is suitable for your business and your employees. Be sure to enlist the services of a Realtor that has ample knowledge of the local office market to ensure you're making the right decision for your business.

How often is TMI (CAM or additional rent) updated in a commercial real estate lease?

Landlord’s should be in the habit of checking their TMI figures annually to make adjustments if necessary. This should either be done at the calendar year end or the landlord’s year end whichever the landlord prefers or is specified in the lease. If there is a difference in expenses, the tenant’s should be notified within a reasonable time of the year end, my lease states within 3 months.

What happens if there is an increase in the TMI? As mentioned above the tenant’s should be notified within a reasonable time frame specified in the lease document so that they can implement their increase starting the next rent cheque. If there is an increase the landlord will need to send out recovery statements for tenant’s to pay the balance of expenses that went over the previous TMI rate.

I like to make sure that my clients are properly updating and recovering their TMI’s to ensure their investments are operating as they should. If you’re a client of mine and need assistance updating your TMI’s I can provide helpful tips and advice when the time comes.

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.

What is an Option to Renew in a commercial real estate lease?

An option to renew allows the tenant to have the option to renew their lease before it expires. There is a time frame, a window of usually 3-12 months in which the tenant needs to exercise this option before their lease expires. If the option is not exercised within the specified time period, the landlord has the opportunity to entertain other tenant’s and/or put the unit back on the market.

Try not to think of the option to renew as a right to renew. Although it may give the existing tenant priority, it is usually dependent on agreeing on new rental rates for the future term and possibly negotiating some other terms. Generally speaking, if both landlord and tenant have realistic expectations of what market rents are and no other details need to change, an option to renew can be negotiated quickly. If there is disagreement on rent the tenant could feel compelled to relocate if they feel there is a better deal elsewhere, or the landlord could try to refuse to renew the lease if the rents are perceived to be below market value.

If you think your lease is expiring soon, it would be wise to have a look at it and see what your renewal options are, and when you need to have a new agreement by.

I do offer lease renewal writing and negotiations as part of my services. Involving a qualified commercial real estate broker in the lease renewal process ensures that both parties have a realistic expectation of market rents.

Industrial Market Update: Where can you find industrial space for lease?

If you are an industrial tenant in St. Catharines or the Niagara Region looking for space under 10,000 sq. ft., you have probably noticed there is little or nothing to pick from. We have reached a point in our market where if something comes available, tenant’s need to act quickly. This is especially true for quality industrial space which there is indeed a shortage of. I’m now in the habit of listing leasing opportunities well in advance of their occupancy date.

At the moment I have two great industrial spaces coming available in 2019 at 101 Hannover Drive in St. Catharines. The building is located in a professional business park very close to the QEW highway and Martindale Road, surrounded by plenty of amenities.

The first unit is 5600 sq. ft. and will be available in April or May. The unit features 18 ft. clear height and a grade level door. The space is still tenanted so interior photos will follow.

The second unit is 9300 sq. ft will be available at the end of 2019. and is equipped with a loading dock, grade level door, and 1-2 tonne cranes which is an incredibly rare find in this market. Interior photos will be posted shortly.

If you’re an industrial tenant in need of quality space in St. Catharines I would love to hear from you to see if this property or any others might be of interest.

Why do commercial tenant's need insurance if the landlord has it?

Full disclosure here, I’m not an insurance broker.

I’m writing this post because occasionally a new business will ask why they are providing insurance for commercial or industrial lease space if the landlord already has it.

It’s true that a landlord should have insurance to protect their property, but that is exactly what it is limited to, their property. The type of insurance that is usually being requested in a commercial lease is in addition to the landlord’s insurance, often called content and liability insurance.

As you suspect, content insurance is to protect the tenant’s contents in the event they are damaged or destroyed from various potential issues that could arise such as a building fire, a break in, a flood, etc. Seeing as the landlord’s insurance only covers the building this added insurance brings peace of mind to cover the tenant’s equipment and inventory. The liability aspect is protection from unfortunate events such as injuries, deaths, other types of damages, etc. that may occur in the tenant’s place of business. These are very shortened explanations of content and liability insurance so if you’re looking to know more details, it’s best to speak with your commercial insurance provider.

Content and liability insurance should be considered mandatory in a commercial real estate lease (it is in my lease) and if you are a landlord who has not implemented it, make it mandatory for your tenant’s as soon as possible. If you’re a tenant without this insurance, it would be risky to operate without it.