Ottawa industrial rent: $16.71 quoted, about $25 paid

The number every industrial listing leads with

CBRE's second quarter read on Ottawa industrial landed on July 8. Availability fell from 4.4% to 4.1%, which is 156,000 square feet of positive net absorption, and net asking rent rose from $16.35 to $16.71 a foot. That $16.71 is the number you will hear from landlords, brokers and the press.

In August I wrote about why small bay space is so hard to find. Every tenant I talk to who is still looking is comparing buildings on the quoted rent. This post is about the other line on the listing, the one the headline never carries.

What five real listings charge on top

A few weeks ago I took the office numbers apart and found that additional rent was 51% of the gross cheque. I had no industrial version, because the brokerage tables do not publish an industrial gross column. So I went to the listings themselves. Five Ottawa industrial lease listings this week show both lines, net rent first and additional rent second.

A 3,254 to 6,519 foot space on Industrial Avenue: $16.25 and $8.23. Units 315 and 316 on Old Innes Road, 7,988 feet: $17 and $7.95. A 21,681 foot space on Old Innes: $17.00 and $8.14. A 2,500 foot unit on Humber Place: $18 and $8.00. A 16,074 foot space on Swansea Crescent: $17 and $8.22. Two of the net rents come from the Colliers listing pages and three from the MLS cards, which round to the dollar.

The median net rent is $17. The median additional rent is $8.14, and all five sit within 28 cents of each other, from $7.95 to $8.23. Median gross is $25.14. Additional rent is between 31% and 34% of the total on every one of them.

Put it on top of CBRE's number

Take the market average and add the median line: $16.71 plus $8.14 is $24.85. The additional rent is 49% on top of the quoted rent (8.14 divided by 16.71). In the office market the quoted rent is 49% of what you pay. In small bay industrial it is about 67% (16.71 divided by 24.85). Better than office, but a third of the cheque is still a line most people do not look at.

What that looks like on 4,000 feet

Take the tenant from my last industrial post, the one who needs 4,000 feet with a grade door. Quoted rent at $16.71 is $66,840 a year, or $5,570 a month. Additional rent at $8.14 is $32,560 a year, or $2,713 a month. Together that is $99,400 a year and $8,283 a month, before HST. With 13% HST it is $9,360 a month, and a registrant business claims that back.

Now look at what the headline celebrated. The quarterly rent move was 36 cents, from $16.35 to $16.71. On 4,000 feet that is $1,440 a year. The additional rent line is $32,560 a year, and nothing in a quarterly market report tracks it.

The $8 is an estimate, not a price

Additional rent is your proportionate share of the building's realty taxes, operating costs and insurance. The landlord estimates it, bills it monthly, and reconciles after year end. Your net rent is fixed or stepped for the term. This line resets.

Let it drift 3% a year on that 4,000 foot space. It starts at $8.14 and reaches $9.16 in year five. Over a five year term that drift costs $10,065 more than a flat $8.14 would have. For comparison, one dollar off the net rent is worth $20,000 over the same five years. So negotiate the net rent hard, and note that in industrial the drift is about half the size of a full dollar concession. In office I found the drift beat the dollar. Here it does not, and I would rather tell you that than force the same conclusion twice.

It is a small bay number

The listings show where the $8 does not apply. A stand-alone 25,036 foot industrial property on Russell Road lists additional rent of $2.98. A 25,000 foot space on Ages Drive lists $5.30. This next part is my read and not something the listings say. Smaller units in multi-tenant buildings share a roof, paving, snow clearing and insurance across more doors, and a stand-alone tenant carries less of that. Either way, the $8 lands on exactly the tenant I wrote about in August, the one with the fewest alternatives.

What to ask before you sign

Ask for the last three years of actual additional rent, not next year's estimate. A building that has run 4% a year will keep doing it. Ask what counts as an operating cost, and whether roof and paving replacement can be billed through it. Ask whether there is an administration fee on top, and for a cap on the controllable costs. Ask who pays heat and hydro, because at least one of the five listings above notes heat and electricity next to the additional rent line, and that can move the real number.

I sell real estate. I do not give legal or tax advice, so have a lawyer read the lease definitions before you sign, especially the operating cost clause.

The number to carry into the tour

Rebuild every listing to monthly gross for your actual square footage. If the landlord will not give you the additional rent, treat that as an answer.

If you are looking at industrial space and want the real monthly number, send me the listing and I will build it out with you before you tour. 613-262-6545 or fil@613realtor.ca. Or see what is on the market now.