Economic and trade uncertainties provide leverage for trucking real estate buyers

As the industrial real estate landscape shifts, both buyers and lessees are gaining unexpected advantages in a market that has not seen vacancy rates this high for years. With increasing economic uncertainties, the dynamics of leasing and purchasing industrial properties are evolving, providing new opportunities for companies operating in this sector.

This article explores the current state of the industrial real estate market, the effects of trade policies, and the strategic decisions that companies must navigate in these changing times.

Trade tensions reshaping the industrial real estate landscape

The ongoing trade war has had profound implications for the industrial real estate market, particularly affecting trucking companies and third-party logistics providers. With the introduction of tariffs by the U.S., many businesses are reassessing their real estate needs amid fluctuating demand.

“There’s a significant desire for short-term leases,” notes Matt Albertine, a senior vice-president at Colliers International. He emphasizes that uncertainty is a recurring theme in discussions among industry professionals. Companies are hesitant to commit long-term when trade policies remain unpredictable.

For many businesses, the decision to lease space is heavily influenced by the current economic climate. The volatility in trade agreements makes it challenging for companies to project their future needs, prompting many to seek flexibility in lease terms. Here are some key insights from industry experts:

• Short-term leases are becoming more common as businesses adapt to a fluctuating market.
• Companies are consolidating operations to reduce costs associated with multiple locations.
• Tariffs are driving a more cautious approach to new investments in real estate.

Justin Zarnowski, general counsel at Shindico, reinforces that the demand for high-quality industrial assets persists. However, the current market is characterized by a reluctance to invest in new properties due to the uncertainty surrounding tariffs and trade policies. “Investments in real estate are significant capital expenditures, and businesses are being more conservative,” he adds.

Emerging opportunities in a changing market

Despite the challenges, the industrial real estate market is far from stagnant. Companies are actively seeking new opportunities to streamline their operations or expand strategically. Some are even looking beyond Canada to the U.S. and Mexico for new acquisitions.

In the transportation and logistics sectors, consolidation is a growing trend. Instead of maintaining multiple warehouses, companies are recognizing the benefits of centralizing their operations. Albertine points out, “Why maintain four yards when you can operate from one?” This shift not only reduces operational costs but also enhances efficiency.

The demand for outdoor storage and truck parking remains robust, particularly in regions like Ontario, where the trucking industry is thriving. Companies are increasingly seeking:

• Outdoor yards for truck and trailer parking.
• Properties with existing structures to bypass lengthy permitting processes.
• Strategic locations near major transportation routes.

Mexico's industrial real estate market on the rise

Shifting trade patterns have also led to a surge in demand for industrial real estate in Mexico. As companies follow the movement of automotive plants and other industries, the rental rates in Mexico are becoming comparably high to those in major U.S. markets.

“The interest from trucking and logistics companies in Mexico is growing,” says Albertine, highlighting that location remains a crucial factor. Companies are increasingly looking for properties situated near ports and rail yards, where logistical efficiency can be maximized.

Existing structures are particularly sought after, as they allow companies to avoid the lengthy permitting processes associated with new construction in Canada. Albertine notes, “High-demand sites are often those with existing buildings, especially along strategic routes like Hwy. 401.”

While the market is experiencing fluctuations, he does not foresee an impending crash in industrial real estate. The sustained demand from institutional investors for industrial outdoor storage (IOS) suggests a continued interest in this sector. “Smart money is still flowing into industrial properties,” he states, although he anticipates a further drop in prices due to the struggles of transportation companies.

Unlisted deals: uncovering hidden opportunities

For potential buyers, it's important to recognize that some of the most lucrative industrial properties may never reach the public market. Sellers facing financial challenges often prefer to keep their listings discreet to avoid drawing attention to their situations.

Albertine advises prospective buyers to leverage their industry connections to uncover these hidden opportunities. “Many of the best deals are off-market,” he explains, emphasizing the advantage of having a well-connected broker who can guide you to properties that are not publicly listed.

Weighing the options: buying versus leasing

With new opportunities surfacing in the industrial real estate market, companies must evaluate whether buying or leasing is the best option for their needs. Purchasing property can be advantageous, providing a tangible asset that appreciates over time and offering protection from rising rental rates.

“For years, stagnant market rents made purchasing less urgent,” Zarnowski notes. However, as rental prices increase, owning property becomes increasingly appealing. Leasing, on the other hand, offers flexibility, allowing businesses to adapt to changing demand without being locked into long-term commitments. This flexibility can be crucial in a rapidly evolving market.

When considering the long-term implications, owning real estate can enhance a company’s valuation during mergers and acquisitions (M&A). Peter Stefanovich, president of M&A advisors Left Lane Associates, emphasizes that real estate ownership adds value to a transportation business. “A company that owns land is more attractive to buyers, as it allows them to leverage that property for financing during acquisitions,” he states.

Ultimately, the decision to buy or lease should align with a company’s strategic goals and market conditions. The current landscape presents unique opportunities, whether for those looking to purchase their own property or for businesses seeking flexible leasing arrangements.

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