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Finding Industrial Units For Sale or Lease in the Toronto Area for Automotive - Why is it So Hard?

If you stumbled upon this blog post because you're currently looking to lease or purchase an industrial unit in the GTA for automotive use (auto mechanic, tire shop, etc), you're probably struggling. You're struggling for two reasons: 1) The inventory of industrial properties for sale and for lease - in general, for any use - is extremely low, and the demand for smaller spaces in the 1,000-5,000 sq ft range is higher than for any other size range. And 2) Automotive uses are restricted more than most other uses in terms of zoning, condo corp rules, and landlord preferences. We'll unpack all of that below.

Why Is It So Hard to Find Spaces for Automotive Uses?

I get this question often, usually by frustrated automotive business owners who need a new space and have tried to find it on their own or with another agent, usually without much luck. In order to answer it, it makes sense to look at the industrial real estate market in the Toronto/GTA area as a whole, not just for automotive uses but the entire asset class and for all uses. The market is extremely tight, with very low inventory both for lease and for sale. In fact lease vacancy rates are below 1% in all pockets of the GTA for industrial properties and rent rates have increased substantially in the last few years. The bottom line is that whenever a landlord puts a property on the market for lease, they're likely to get a ton of interest and quite often they'll receive several offers to lease. The rapid rise in interest rates we've seen over the last 12 months and the tapering off of the economy have both had very minimal effect on the industrial property market so far, especially on the leasing side (sales have slowed down a bit).

It's within that context above that we need to consider automotive uses on these properties. If landlords are getting a ton of interest on vacant properties and multiple offers, they can afford to be extremely picky with the type of tenant that they choose, and a big factor in that decision (right up there with covenant / financial strength) is the tenant's use. And frankly, landlord's don't love automotive uses. The reasons why vary, but in general it boils down to a few factors:

Environmental - Automotive uses natural involve fuels, chemicals, solvents and other products that can have an environmental impact, especially if spilled. The reality is that even if there is never a spill, and the automotive shop is extremely clean and diligent with avoiding any spills or contamination, any future Phase 1 Environmental Site Assessment (ESA) at that property (which would usually be required as part of a sale), and which primarily looks at the historical uses within the space and surrounding it, will flag a higher risk due to the fact that there was an automotive use present. That is often enough to require escalation to a Phase 2 ESA which involves more time and money and will often turn off many prospective buyers. So basically, an automotive use will increase the environmental risk and potential burden on the property, and potentially make it harder to sell in the future. Yes there will be buyers who specifically need an automotive use that will still be interested in purchasing the property, but that is a small slice among the larger pool of non-automotive potential buyers who may be turned off.

Parked Vehicles - Though not all automotive shops are guilty of this, some shops will have a plethora of cars parked outside surrounding the property, often in some state of disrepair. This is generally not something that landlords will permit officially, but some automotive tenants will do it anyway. It can clog up the property, potentially obstructing shipping pathways for trucks, and is likely to annoy fellow tenants in the complex.

Noise - Though this isn't often a major issue, there is a view that automotive uses can be noisy. Think compressors, hoists, and other equipment that can cause noise. Usually, when there are other automotive or manufacturing uses within a complex this not a major concern, but in quieter complexes with lighter uses, such noise can be seen as a nuisance.

Now, many automotive business owners may be reading this and saying "none of the above applies to us - we're very careful with environmental issues, we don't have cars parked all around our property, and our noise levels are not a nuisance". All of that may be true, but all that matters is the perception or perceived risk on the landlord's part, and when they have other offers on the space from "cleaner" uses that don't pose as much risk related to these items, landlords will naturally lean towards those.

The other major reason why it's hard to find spaces for automotive uses actually has nothing to do with landlords at all, but rather to zoning. Since automotive uses fall within a specific zoning criteria, this use is often only permitted on a subset of industrial properties within municipal zoning bylaws. Contrast this with something like warehousing, which is often permitted on all classes of industrial properties in zoning bylaws.

So we can sum things up by saying the following - the market is extremely tight and there aren't many industrial properties available for lease to begin with. When the zoning is factored in, there are even less available that will allow for an automotive use. Due to the lack of available properties for lease, when spaces are available the landlords can often choose from multiple interested prospective tenants with varying uses, and thus they can be picky. Lastly, they don't love automotive uses for the reasons laid out above and so they tend to go with other uses.

It should be noted that for automotive business owners who need a new space, many of the issues above can be eliminated if they pursue the purchase option rather than the lease option (assuming they have the cash or financing to be able to do so). The reason for this is that the purchase option removes the landlord from the equation altogether, and the only limiting factors will be finding appropriate properties (which is not easy since inventory is also low for properties that are available for purchase) and the zoning, which applies in all cases.

Even given everything I've laid out above, I am happy to say that I've been able to help many clients with automotive uses successfully secure properties both as leases and purchases over the years. There are a few key components that I believe give my team an advantage in securing such spaces: We scour the market daily and we jump on opportunities before anyone else, we know exactly what the landlord's concerns are with such properties and hence we can be strategic in allaying those concerns, we know our markets extremely well - Vaughan, Toronto, Mississauga, and other markets we specialize in - both in terms of being very familiar with the stock of properties that may work for automotive as well as having great relationships with the landlords in those areas, and finally we're zoning experts who are quickly able to decipher the various municipal bylaws to determine if the space will work for automotive or not. All of these things allow us to be agile and move quickly with offers (to lease or purchase) before others have a chance to submit.

If you need some help with finding automotive property to lease or purchase in the GTA, don't hesitate to reach out. It won't be easy, but we'll get it done!

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