Last Friday, the REHSA and Jeff Miller of Oxford Properties organized a tour though Milton, Mississauga and area showing off what is special about industrial properties. This property type attracts less attention than residential or office, which is either a mistake or an opportunity for somebody.
For example, did you know that the GTA is the fourth largest industrial market in North America with about 800 million square feet under management? The area around Toronto airport is prime territory: one international airport, six 400-series highways (with its higher design and safety standards) and two intermodal railyards.
Ownership is dominated by institutional investors, but the user can be confusing to people who skim over details. The name of the tenant is not necessarily the name of the business which is active in the building. Often the tenant is a logistics firm, which is hired by a company like Canadian Tire or Winners, to move stuff from an original supplier to the final consumer.
Financially, industrial property is the “bond” within the real estate portfolio. Compared to other property types, it is very stable and, if well-managed, pumps out a steady income.
That fact reveals a lot about market forces. Usually, the most likely source of capital gains is improved transportation; but new highway connections or a new airport are never a surprise. Another common source of asset price increases is a sudden increase in demand; but it is common and relatively easy to build industrial facilities “on spec” or as needed.
Jeff was very clear that good management of the property is important: he oversees 14 million square feet of space with less than 20 people. Like many other parts of the real estate business, such responsibility is a great opportunity. It also illustrates another expectation that employers like about graduates from our program: prima donnas do not excel. As you can imagine, one person behaving badly in such a small group can be disastrous.
Thinking that “industrial”= “manufacturing” is outdated and fails to see the real opportunities. First, low-value/low-margin processing is vanishing in Ontario and is being replaced by exciting opportunities in high value manufacturing with high labour productivity, often involving robotics. Second, Canadian consumers are buying lots of stuff and space use is at the sharp edge of economic adjustments when balancing revenue and cost. So, while retailers worry about new ways of doing business, various sources say that e-commerce uses twice or thrice the space per dollar of revenue than regular retail. And many more SKUs are in available to consumers than a decade ago.
All in all, it was a thought-provoking tour. You can learn a lot by chatting with interesting people.
(Thank you to REHSA and to Jeff Miller for his help and commentary. Jeff is a friend of the program though REPAB. He has organized this kind of tour many times for NAIOP.)