Property Biz Canada
Standard Life makes Ottawa’s largest industrial park buy
Property Biz Canada
Tue Sep 25 2012
Standard Life Investments (Real Estate) Inc. just made its biggest purchase yet in Ottawa, buying an industrial park for $78.8 million in what’s believed to be the largest transaction of its kind in the city’s history.
The property in question is the Innes Business Park, which features about 670,000 square feet of one- and two-storey structures over 36 acres (14 hectares), in an area about 10 kilometres southeast of the national capital’s downtown core. It includes six buildings that are 100 per cent leased with more than 50 tenants.
“To our knowledge, it’s the single largest industrial portfolio offering (ever) in this market,” said Nico Zentil, an Ottawa-based sales associate with CBRE Ltd., which handled the transaction on behalf of the seller, Sun Life Assurance Co. of Canada. “As for price per foot, total deal value and size, we didn’t find anything that traded that was as large in a single offering in Ottawa.”
Single-tenant industrial turned into multiple tenancy
Blair McCreadie, head of Canadian real estate for Standard Life Investments, said: “The reason we like this real estate is because it’s a product that’s very expensive to build today.” He cited construction costs as the main reason.
“To put up a single-tenant industrial box is fairly inexpensive,” he said. “But when you want to demise it for multiple tenancy that means you have to have demising walls, separate electrical, separate heating, separate offices. It gets to be very expensive.”
For Ottawa specifically, he added that there is a lack of availability of suitable land for new industrial use largely because of the Greenbelt, which is about 20,000 hectares of farms, forests and wetlands surrounding the main part of the city that is preserved by the National Capital Commission.
“If you were to build it today, you wouldn’t make enough rent to make it financially viable,” he said. “So there hasn’t been a lot of this product built.”
McCreadie would not hazard a guess as to how much it would cost to build an industrial park like this from scratch but said it would definitely be more than the resell price Standard Life paid for it.
Buying for the income
He said the Innes Business Park was bought mainly for the immediate money that can be made from rent rather than its value-growth potential.
“We buy primarily for income, not necessarily for growth,” said McCreadie. “These buildings are 100 per cent leased and their tenants are all paying rent, so it delivers return to our investors. That’s the number one reason why we would buy something – If we can get some growth, even better.”
Zentil said the business park’s characteristics in terms of its occupancy were a primary selling point. “It was 100 per cent leased. It doesn’t get better than that,” he said.
Zentil added that the largest tenant, the federal government, accounts for less than 14 per cent of the property, and the below-average rents being charged mean there’s room for increases. A profile of the property from CBRE said the average rent there is about $7 per square foot, which is around 20 per cent less than competitors’ rates.
Ottawa's premiere industrial park
Zentil said the property is located close to the bulk of Ottawa’s industrial activity and also near major highways — including the 417 — and arterial roads for convenient access to other parts of the Ottawa and Montreal.
CBRE’s profile for the property says it is the only industrial park in Ottawa that has never seen a vacancy rate greater than three per cent, and its average occupancy is 99 per cent. Of the six buildings on the property, two were built in the 1970s, two in the 1980s and two are less than a decade old.
Taken all together, Zentil said the Innes Business Park is seen as “the premiere industrial park in the city.”
Standard Life Investments’ activity in Ottawa also includes the recent purchase of a 120,000 square foot office and manufacturing facility for $22.5 million in the west-end suburb of Kanata. Its other Ottawa holdings include office and industrial space the east end and downtown.
McCreadie said it’s likely Standard Life Investments will make further investments in the Ottawa market, and it could involve office, retail or industrial properties. However, he said further purchases would be “selective” given the nature of the Ottawa market.
“There’s not huge demand,” he said. “It mostly comes from government, and governments right now are a bit constrained.”