Case Study – Plastics Manufacturing, Mississauga, Ontario

Is renewing always your best option as an occupier? As you may know, the answer to that question depends entirely on the situation, the people involved, and their objectives.

One thing is for certain; when renegotiating your lease, sudden rent increases can create pressures on the business and impact your bottom line.

It would be easy if you could simply extend and maintain the deal you’ve grown comfortable with and go on with your day. However, forces outside of our control – as well as the established norms of leasing cycles – often dictate the rates and prices that landlords can push for. Therefore, it is necessary to conduct a professional analysis and identify the best strategy for your specific situation.

The Challenge

Team Toronto Industrial was tasked with renewing the tenant’s lease while mitigating any rental rate hikes as much as possible. One of the biggest issues at the forefront of this negotiation was the sensitivity to the change in fixed cost (rent) while being averse to moving due to other hard and soft costs. In order to meet their operational requirements, their facilities are laid out for specific functions and possess different characteristics than a typical warehouse.

Features:

  • Approximately 275,000 SF
  • E3 Industrial Zoning
  • 24′ Clear Height
  • Truck Level and Drive-In Doors
  • Heavy Power

Transaction

In order to conduct this analysis, establish our strategy, and determine what we could negotiate, we compiled a detailed list of similar manufacturing properties across the Greater Toronto Area, along with their respective tenants, expiries, and rents.

This process also identified potential opportunities should the tenant decide to relocate. A key aspect here is being extremely well-informed before going to the table with a Landlord, as they know exactly what they can concede to get the deal done and avoid having to look for a new tenant.

Results

We successfully renewed the tenant’s lease long term at rates that included additional building upgrades provided by the Landlord. This was accomplished through the repositioning and reframing of the strategy to asset- and use-based, as opposed to a “simple” geographic-based valuation of comparables.

As we mentioned earlier, most manufacturers have extremely bespoke and customized operations with expensive setup costs, making them extremely sensitive to changes in their bottom line. However, within this context, it was evident that reaching a mutually acceptable deal would be more beneficial than both Parties having to look for other options.

If you are moving closer toward the expiry of your current lease, please give us a call and we would be happy to discuss your unique situation.

Daniel Smith is the Vice President and Principal of Lee & Associates Toronto, specializing in the acquisition, disposition, and leasing of industrial properties, as well as providing clients such as local and national corporations, landlords, and developers with a full range of real estate services.

ABOUT LEE & ASSOCIATES

Lee & Associates is a commercial real estate brokerage, management and appraisal services firm. Established in 1979, Lee & Associates has grown its service platform to include offices in the United States and Canada.

Lee & Associates provides superior market intelligence in office, industrial, retail, investment, and appraisal to meet the specialized needs of our clients. For the latest news from Lee & Associates, visit leetoronto.wpengine.com.

To get clarity and direction when looking for space or going through a lease renewal, or to discuss any other real estate needs, please contact Daniel at 416.628.8173, email at dansmith@lee-associates.com, or visit www.leetoronto.com.