June 29, 2025 • 19 mins
Today's show is a talk that I gave last month at the Ottawa Real Estate Investors Organization on Small Bay Industrial. This is a segment that our firm is active in and one that we see as having structural shortages in many major markets across North America.
------------------
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:01):
Welcome to the Wheel Estate Especial podcast, your morning
shot of what's new in the world of real estate investing.
I'm your host, Victor Minash. This is the WEEKEND edition.
We've got a very special show for you today.
On today's show, I'm coming to you live from the Ottawa Real
Estate Investors Organization where I'm giving a talk on small
Bay Industrial. Enjoy today's talk on Small Bay
Industrial. Well, good evening and welcome
(00:31):
to Oreo. I'm Victor Minash, President
here at Oreo, and we're going tobe talking tonight about Small
Bay Industrial. But first, let me give you just
a little bit of background on myself and my team.
I'm the host of the Real Estate Espresso podcast Daily Show
seven days a week. If you're not already a
listener, I'll put up, put up your hands if you already
(00:54):
subscribe to the show. Awesome.
Well, thanks for listening. And for those who are not part
of the show, it's a Daily Show, seven days a week.
Just coming up on episode 2700. So been doing this a little
while. And over here on the right hand
side is photograph of partners in our team at Y St.
Capital. We're development firm based
here in Ottawa, split between Ottawa and the US.
(01:16):
Probably the majority of the work that we do is US based.
We do a little bit here in Canada.
This is a rendering of a projectthat we're looking to pull out
of the ground later this year inWestboro.
And this is an image of actuallyjust from this morning of a
project up at Mount Trombolone. This is a workforce housing
project at Mount Trombolone thatthe community's been looking for
(01:36):
for a long time. We're going to talk about small
Bay industrial today, and in fact, this is an article from
the Ottawa Business Journal. It's actually kind of funny that
the picture on the headline of the article is actually a large
Bay product that was just built in Canada.
Even though the articles is talking about small Bay, they
got the picture wrong. But the point is the same, that
(01:59):
small Bay industrial is continuing to be a segment
that's in hot demand. So let's start by actually
defining what it is, who uses it, who are The Who are the
customers for this product? It's your traditional small
commercial trades, the plumbers,electricians, landscaping
companies, mechanical contractor, siding contractors,
(02:20):
all of those sorts of folks. There's even some auto repair
parts fulfillment. These are the typical things
that you find in a small Bay industrial.
We're starting to see some unconventional uses.
A new one lately is actually pickleball courts.
You often see these being used as small offices for retail for
folks that don't want to pay theexorbitant cost of pure retail,
(02:42):
pure retail space. There are now CrossFit gyms that
are coming into space into this and then high value storage,
which is kind of an interesting segment.
And I'll get to that in a moment.
If you're looking at small Bay industrial, well, let's start by
just talking a little bit about what the typical format is.
The there's typically what looksa little bit like a retail
(03:03):
storefront with a commercial door and maybe a window.
And then at the back there'll bea roll up door to an open space.
Some of the older product are single story buildings.
Generally these are single storybuildings.
But ceiling height matters. The newer product is typically
going to have a 20 foot ceiling height.
Some of the older product that isn't that might be 1012 foot
(03:24):
ceiling height in my opinion is functionally obsolete.
You're not going to get as much use out of that shorter ceiling
height. And you'd say, well, why is
that? It doesn't matter.
I mean, people are only 6 feet tall.
Why do you need that much ceiling height?
And it has to do with storage. It has to do with the
possibility of building a mezzanine level above the front
(03:44):
office so that you can get additional functionality.
A lot of folks are looking for that.
And if you're going to be storing product, getting that
additional height matters. When you look at the way these
buildings are built, they're typically built slab on grade.
So you're going to build a foundation down to the footings
and then you're going to be there's going to be a concrete
slab. These buildings have no
basement. And so typically if you look at
(04:06):
the cost of industrial, any kindof industrial product, anywhere
between 25 to 30% of the cost ofthe build is actually going to
go into the concrete slab. If you're building something
that's got significant height, that's got to carry loads, of
course the concrete slab is going to be thicker and that's
going to cost more. But generally speaking, the
concrete slab is the number one cost associated with these
(04:26):
buildings. If we start to think about
comparing small Bay and large Bay in even in large Bay, large
Bay height matters a lot. Used to be the 27 foot was the
standard, than 35 feet became the standard.
Now a lot of brand new buildingsare being built with a 40 foot
standard. In fact, today many of the
(04:48):
buildings have the rack and stack system associated with
carrying pallets that sometimes go up 567 levels.
And the rack itself forms part of the structure of the
building. They don't support the ceiling
on columns anymore, They support, they support the
ceiling on the racking that would also support the product.
So the way these buildings get put, get put together today is
(05:12):
significantly changed over the last few years.
And if you've ever walked into one of these facilities and seen
a forklift pulling down a palletthat's 35 feet in the air and
it's swaying in the wind, it is a precarious looking thing.
It's amazing that there aren't any injuries, but that's how
they do it. This is where they're really
maximizing the the density per square foot by getting
(05:35):
additional height because again,it's that concrete slab that is
the number one cost. So building additional wall
height, additional height in theracks actually doesn't cost you
that much. You get a more efficient product
with greater ceiling height. So as you're evaluating, if
you're looking at large Bay, recognize that a 20 foot ceiling
height, a 27 foot ceiling heightand a 40 foot ceiling height are
(05:57):
not the same product. They would be valued very
differently. And when people in this space
start quoting rent per square foot metrics, you need to
normalize it based on the ceiling height.
You can't just look at rent per square foot.
Increasingly a lot of the smaller a product is being used
for last mile logistics. Not everything that is delivered
through e-commerce gets delivered through the Amazon
(06:17):
channel. These are typically inside the
urban center. It's a small warehouse.
You've got to have excellent access to highways and freeways
and it's got to be low cost. If the goal is to minimize the
time to placing an order to fulfillment those last mile
logistics, the location really, really matters.
And they don't necessarily need a massive warehouse.
They just need proximity at a low cost.
(06:40):
Another use for this product is what I call the man cave.
The picture here shows a couple of cars with a with an
entertainment area and informal space for business meetings and
for those who are into collecting cars.
They usually collect one too many and the wife says get it
out of here, we don't have room and they will go either purchase
(07:02):
or rent a space in a small Bay industrial and create an
entertainment area and a storagearea for their vehicles.
It is really a thing now. We see it in Vegas, we see it in
Phoenix, we see it in a lot of major cities now where folks
that do own exotic vehicles are looking for a place to store
their vehicles and have a place to show them off.
(07:24):
Sometimes they're kidding out these places to be really well,
well finished. In fact, my son who does some of
this kind of work in Calgary, one of his clients owns a
Ferrari. The Ferrari is in the garage on
a turntable so you can look at the car from all angles and my
son spray painted the subwoofer for the entertainment area to
match the same Ferrari red so that all everything tied
(07:47):
together. So this is a segment that really
is getting some attention. If you're playing, if you're
looking to play in small Bay industrial, you don't
necessarily have to start with actually building a building.
You could go with a phased approach that might consist of a
covered land play consisting of industrial outdoor storage as
phase one and then later down the road maybe adding the
(08:10):
vertical construction component to add the actual buildings
whose demand for this product nationwide.
The picture I'm showing you hereis from down on Bank Street in
Ottawa. We just completed construction
of one in Winter Haven, FL that's in the lease up process
right now and we're about to getstarted on another one in
Bradenton, FL, which is just right next to Sarasota in that
(08:34):
particular area. This particular site it, it's an
interesting site because it started out as a charter school.
It's a 35 acre site and the dealis we're going to be skinning
down that site and restricting the charter school down to 11
acres. And the remaining acreage is
actually going to be, you know, built out for industrial
purposes. And we looked at a whole bunch
(08:55):
of different products that couldgo on this acreage including
multi family apartments and a luxury RV park and all kinds of
different things. And of all of the different
uses, believe it or not, the highest and best use was
actually industrial outdoor storage that gave us the best
yield on a dollar per square foot basis with the minimum
investment and fastest time to revenue.
(09:18):
And as it turns out, in this particular area of Florida,
there's a shortage of industrialland.
So the rents that we can get on a per square foot basis are
actually off the charts comparedto what they might be on a
national average basis. OK, let's go back to Ottawa and
look at the Ottawa context. Ottawa, like many cities, has a
shortage of land that is zoned industrial.
(09:39):
The rents that they're getting are incredibly high right now,
averaging $16.90 per square footon a triple net basis.
That is way above national averages.
That's a very high number. We're starting to see large bait
moving outside the city just because there isn't that much
space within the city boundary that's owned industrial.
(10:00):
For example, Ford Motor Company built a distribution warehouse
for parts just outside Castleman.
That's a, it's a big facility. I think it's a couple 100,000
square feet. It's quite large.
And then if you're looking to dosomething within the city, there
are 4 zonings that would be candidates for this type of
product. There is what's called light
industrial, there's general industrial, there's business
(10:22):
park and rural industrial. Those four.
I'm going to share with you somemetrics.
These are more, I'll say, North America wide numbers.
This is not a very scientific survey.
It's just my observation of whatI'm seeing across a breadth of
different markets. We typically see large Bay
industrial renting anywhere between 4:00 to $8 per square
(10:42):
foot on a triple net basis. Some of the newer product is a
little bit higher, especially ifit's got the the ceiling height.
Industrial outdoor storage is renting these days for about
$3.60 gross per square foot per year.
And it's a little more in some areas, a little less than
others, but that seems to be about the range.
But then you're not building a ton of buildings for industrial
(11:03):
Electro storage. You're, you're building a
product that is really suited for that particular customer
base. It's fenced yards, it's
security, it's electricity, it's, you know, proper drainage,
all of those sorts of things. But it's not a very high cost
product to deliver. There's a new category called
Warehouse on wheels. I'll talk about that in a
moment. In fact, just interviewed
(11:24):
someone on the podcast who is the owner of a company that
specializes in this. If you look at office, for those
that are looking to use Small Bay Industrial, office is
renting 25 to $30 a square foot on a triple net basis.
Small Bay Industrial is going tobe much less expensive.
So a lot of folks are looking atSmall Bay for that purpose.
(11:45):
And then of course, retail isn'tanywhere in the 30 to $55 per
square foot on a triple net basis.
Small Bay, by comparison, historically it's been around $8
per square foot. So it's been much less
expensive. It's more than large Bay, but it
is less than office and retail. Today, with the shortage in
small Bay that we're seeing in across most markets in North
(12:07):
America, we're starting to see rents pushing up around that
$14.00 per square foot on a triple net basis.
So it's still at a discount compared with office and retail,
but it's starting to be a littlebit of a premium compared with
large bases. It's an interesting segment.
It's filling a gap in the marketplace for those that are
looking to flex space. There is the warehouse on
(12:27):
wheels. In fact, this is an opportunity
for things that don't have to benecessarily climate controlled
to expand storage capacity. Of course, you know a trailer on
your property doesn't impact your property taxes.
These are typically a 30 day commitment.
So you rent these on a 30 day basis, you load them up or you
(12:47):
back them up to the loading dock, get the contents in and
out with a forklift truck. So it's relatively easy to
manage the contents of these trailers and it's actually
better than a shipping containerbecause it's at the height of
the loading dock where is a shipping container on the ground
is much more difficult to get the contents in and out of.
You going to have to do that manually versus what you might
(13:08):
be doing with a forklift truck. So most flex space, in fact some
major auto manufacturers, you will look at one of their
industrial facilities and you'llsee dozens if not hundreds of
trailers against the rear fence and they're holding parts,
they're holding inventory and doing it in a very low cost way
without having necessarily to build buildings.
(13:30):
This is a segment, it's not wellpublicized, but is one that from
a practical standpoint, the folks that are actually in this
business are using it effectively to keep their costs
down. Let me share with you a real
development example. This is a 21 acre site that we
are developing in Brigham City, UT.
This is just north of Salt Lake City and take you here to the
(13:54):
map to Orient you a little bit. We have a number of projects
that we're doing in this particular area.
We have one that well in the whole Pacific Northwest.
We have projects up in Boise andPocatello in Logan and Ogden in
a suburb of Salt Lake called to Willa.
We're in Grand Junction and of course we have our mega project
in Colorado Springs. So in in the immediate Salt Lake
(14:18):
area, we have the project in Logan, we have the one in
Brigham City, we have the one inTooele and then another one in
Grantsville. So we have a few within that
radius of Salt Lake City. And Salt Lake is a fast growing
area. It's an area that's interesting
from a number of standpoints, starting to see data centers
opening up there, although thereis pushback from the community,
(14:38):
in particular from the electric utilities who don't want to
necessarily be forced to upgradetheir infrastructure for for
data centers at the expense of the population.
But there is definitely a lot ofgrowth in this particular area.
One of the key things is something called the inland
port. And if you might remember back
during the pandemic, there was alot of congestion in the port of
(15:01):
Long Beach in the port of LA. And those ports are pretty big.
You know, Long Beach, like over 3000 acres.
And you would think that's a pretty big port and it is, but
it's just not big enough. I think they can hold like, I
don't know, 85 ships at one timeor something like that.
It's a huge port. The problem is that when the
port gets congested, if you needto get the container that's at
(15:24):
the bottom of a stack of six, you got to, you got to find the
space to put the other five containers so you can get the
one on the bottom. It just takes a long time.
It's very slow. So with the this innovation
called the inland port, the the port is actually no longer in
the Los Angeles area. Under the new process, what
happens is a container comes offthe ship, it goes immediately on
(15:46):
a rail car, and it gets shipped to Utah and that's where the
port is, where there's 16,000 acres.
And then from there it gets sorted and then distributed to
various parts of the country, wherever its final destination
may be. So the inland port is an area
that's driving a lot of investment, a lot of jobs coming
into the immediate area. That's one of many reasons that
we happen to be invested in thisparticular area.
(16:10):
Our property in Brigham City also is benefiting from some of
this infrastructure investment. So let's dive into the
particular property itself. You can see a little bit of a
site plan here. You got a Marriott Hotel in the
middle at the bottom there. That's going to be a template
suites hotel. At the top there's 104
townhouses. And then on the left hand side
(16:32):
on the West side there you see about 60,000 square feet of flex
multi tenant industrial. And so that's we're building
this product in Brigham City on one of our own properties.
This is an area where we've seenmassive rent growth, huge income
growth between 21 and 2022 that was almost 30% year over year
(16:55):
rent growth nationwide. It's starting to slow and level
out a bit. You're not going to see those
types of increases forever. On an annualized basis between
2023 and 2024, the rent growth average around 12%.
And then so far in the first quarter of this year, we've seen
2 1/2% rent growth. If I look at that, that's US
(17:16):
average. If I look at it in the Ottawa
context, we saw about 1010% rentgrowth in 2022.
We saw 29% rent growth in 2023 and 4.7% growth last year.
In 2024, there's a whole bunch of value add strategies that are
(17:36):
possible. You can buy existing and
increase the value by renewing the leases.
You can take some of the existing ones that have small
Bay offices and market that to office clients that are looking
to downsize from other offices. You could remove the offices and
return it to an open Bay and go after a different tenant.
(17:57):
You can look at tenants that need more space and try and
consolidate space that. You could look at outdoor
storage. You can look for retail for
small to medium sized business and then another one that's
emerging quickly is medical. We're starting to see a medical
imaging, dialysis labs, testing labs, things like that looking
(18:19):
to occupy this sort of space. That type of business does not
need to be on a Main Street or in a retail space.
Someone who's going to do that for an appointment as long as
they can get there relatively easily, as long as they can get
perhaps public transit to it, aslong as the location is good, it
(18:40):
can doesn't have to be in the most expensive real estate.
And that's, that makes this product ideal for that sort of
thing. So it's small Bay is one of
these products that's in tremendous demand.
It fits a a gap in the marketplace and it's one that
we're actively pursuing within our company.
It's one that I think is an opportunity for investors as
(19:00):
well. And it's one that we've not
talked an awful lot about at Oreo where, you know, folks tend
to be more focused on residential, residential,
multifamily. This is a segment that I think
is not getting enough attention.So with that, I'll bring it to a
close and we'll open it to questions.
Welcome to the Wheel Estate Especial podcast, your morning
shot of what's new in the world of real estate investing.
I'm your host, Victor Minash. This is the WEEKEND edition.
We've got a very special show for you today.
On today's show, I'm coming to you live from the Ottawa Real
Estate Investors Organization where I'm giving a talk on small
Bay Industrial. Enjoy today's talk on Small Bay
Industrial. Well, good evening and welcome
(00:31):
to Oreo. I'm Victor Minash, President
here at Oreo, and we're going tobe talking tonight about Small
Bay Industrial. But first, let me give you just
a little bit of background on myself and my team.
I'm the host of the Real Estate Espresso podcast Daily Show
seven days a week. If you're not already a
listener, I'll put up, put up your hands if you already
(00:54):
subscribe to the show. Awesome.
Well, thanks for listening. And for those who are not part
of the show, it's a Daily Show, seven days a week.
Just coming up on episode 2700. So been doing this a little
while. And over here on the right hand
side is photograph of partners in our team at Y St.
Capital. We're development firm based
here in Ottawa, split between Ottawa and the US.
(01:16):
Probably the majority of the work that we do is US based.
We do a little bit here in Canada.
This is a rendering of a projectthat we're looking to pull out
of the ground later this year inWestboro.
And this is an image of actuallyjust from this morning of a
project up at Mount Trombolone. This is a workforce housing
project at Mount Trombolone thatthe community's been looking for
(01:36):
for a long time. We're going to talk about small
Bay industrial today, and in fact, this is an article from
the Ottawa Business Journal. It's actually kind of funny that
the picture on the headline of the article is actually a large
Bay product that was just built in Canada.
Even though the articles is talking about small Bay, they
got the picture wrong. But the point is the same, that
(01:59):
small Bay industrial is continuing to be a segment
that's in hot demand. So let's start by actually
defining what it is, who uses it, who are The Who are the
customers for this product? It's your traditional small
commercial trades, the plumbers,electricians, landscaping
companies, mechanical contractor, siding contractors,
(02:20):
all of those sorts of folks. There's even some auto repair
parts fulfillment. These are the typical things
that you find in a small Bay industrial.
We're starting to see some unconventional uses.
A new one lately is actually pickleball courts.
You often see these being used as small offices for retail for
folks that don't want to pay theexorbitant cost of pure retail,
(02:42):
pure retail space. There are now CrossFit gyms that
are coming into space into this and then high value storage,
which is kind of an interesting segment.
And I'll get to that in a moment.
If you're looking at small Bay industrial, well, let's start by
just talking a little bit about what the typical format is.
The there's typically what looksa little bit like a retail
(03:03):
storefront with a commercial door and maybe a window.
And then at the back there'll bea roll up door to an open space.
Some of the older product are single story buildings.
Generally these are single storybuildings.
But ceiling height matters. The newer product is typically
going to have a 20 foot ceiling height.
Some of the older product that isn't that might be 1012 foot
(03:24):
ceiling height in my opinion is functionally obsolete.
You're not going to get as much use out of that shorter ceiling
height. And you'd say, well, why is
that? It doesn't matter.
I mean, people are only 6 feet tall.
Why do you need that much ceiling height?
And it has to do with storage. It has to do with the
possibility of building a mezzanine level above the front
(03:44):
office so that you can get additional functionality.
A lot of folks are looking for that.
And if you're going to be storing product, getting that
additional height matters. When you look at the way these
buildings are built, they're typically built slab on grade.
So you're going to build a foundation down to the footings
and then you're going to be there's going to be a concrete
slab. These buildings have no
basement. And so typically if you look at
(04:06):
the cost of industrial, any kindof industrial product, anywhere
between 25 to 30% of the cost ofthe build is actually going to
go into the concrete slab. If you're building something
that's got significant height, that's got to carry loads, of
course the concrete slab is going to be thicker and that's
going to cost more. But generally speaking, the
concrete slab is the number one cost associated with these
(04:26):
buildings. If we start to think about
comparing small Bay and large Bay in even in large Bay, large
Bay height matters a lot. Used to be the 27 foot was the
standard, than 35 feet became the standard.
Now a lot of brand new buildingsare being built with a 40 foot
standard. In fact, today many of the
(04:48):
buildings have the rack and stack system associated with
carrying pallets that sometimes go up 567 levels.
And the rack itself forms part of the structure of the
building. They don't support the ceiling
on columns anymore, They support, they support the
ceiling on the racking that would also support the product.
So the way these buildings get put, get put together today is
(05:12):
significantly changed over the last few years.
And if you've ever walked into one of these facilities and seen
a forklift pulling down a palletthat's 35 feet in the air and
it's swaying in the wind, it is a precarious looking thing.
It's amazing that there aren't any injuries, but that's how
they do it. This is where they're really
maximizing the the density per square foot by getting
(05:35):
additional height because again,it's that concrete slab that is
the number one cost. So building additional wall
height, additional height in theracks actually doesn't cost you
that much. You get a more efficient product
with greater ceiling height. So as you're evaluating, if
you're looking at large Bay, recognize that a 20 foot ceiling
height, a 27 foot ceiling heightand a 40 foot ceiling height are
(05:57):
not the same product. They would be valued very
differently. And when people in this space
start quoting rent per square foot metrics, you need to
normalize it based on the ceiling height.
You can't just look at rent per square foot.
Increasingly a lot of the smaller a product is being used
for last mile logistics. Not everything that is delivered
through e-commerce gets delivered through the Amazon
(06:17):
channel. These are typically inside the
urban center. It's a small warehouse.
You've got to have excellent access to highways and freeways
and it's got to be low cost. If the goal is to minimize the
time to placing an order to fulfillment those last mile
logistics, the location really, really matters.
And they don't necessarily need a massive warehouse.
They just need proximity at a low cost.
(06:40):
Another use for this product is what I call the man cave.
The picture here shows a couple of cars with a with an
entertainment area and informal space for business meetings and
for those who are into collecting cars.
They usually collect one too many and the wife says get it
out of here, we don't have room and they will go either purchase
(07:02):
or rent a space in a small Bay industrial and create an
entertainment area and a storagearea for their vehicles.
It is really a thing now. We see it in Vegas, we see it in
Phoenix, we see it in a lot of major cities now where folks
that do own exotic vehicles are looking for a place to store
their vehicles and have a place to show them off.
(07:24):
Sometimes they're kidding out these places to be really well,
well finished. In fact, my son who does some of
this kind of work in Calgary, one of his clients owns a
Ferrari. The Ferrari is in the garage on
a turntable so you can look at the car from all angles and my
son spray painted the subwoofer for the entertainment area to
match the same Ferrari red so that all everything tied
(07:47):
together. So this is a segment that really
is getting some attention. If you're playing, if you're
looking to play in small Bay industrial, you don't
necessarily have to start with actually building a building.
You could go with a phased approach that might consist of a
covered land play consisting of industrial outdoor storage as
phase one and then later down the road maybe adding the
(08:10):
vertical construction component to add the actual buildings
whose demand for this product nationwide.
The picture I'm showing you hereis from down on Bank Street in
Ottawa. We just completed construction
of one in Winter Haven, FL that's in the lease up process
right now and we're about to getstarted on another one in
Bradenton, FL, which is just right next to Sarasota in that
(08:34):
particular area. This particular site it, it's an
interesting site because it started out as a charter school.
It's a 35 acre site and the dealis we're going to be skinning
down that site and restricting the charter school down to 11
acres. And the remaining acreage is
actually going to be, you know, built out for industrial
purposes. And we looked at a whole bunch
(08:55):
of different products that couldgo on this acreage including
multi family apartments and a luxury RV park and all kinds of
different things. And of all of the different
uses, believe it or not, the highest and best use was
actually industrial outdoor storage that gave us the best
yield on a dollar per square foot basis with the minimum
investment and fastest time to revenue.
(09:18):
And as it turns out, in this particular area of Florida,
there's a shortage of industrialland.
So the rents that we can get on a per square foot basis are
actually off the charts comparedto what they might be on a
national average basis. OK, let's go back to Ottawa and
look at the Ottawa context. Ottawa, like many cities, has a
shortage of land that is zoned industrial.
(09:39):
The rents that they're getting are incredibly high right now,
averaging $16.90 per square footon a triple net basis.
That is way above national averages.
That's a very high number. We're starting to see large bait
moving outside the city just because there isn't that much
space within the city boundary that's owned industrial.
(10:00):
For example, Ford Motor Company built a distribution warehouse
for parts just outside Castleman.
That's a, it's a big facility. I think it's a couple 100,000
square feet. It's quite large.
And then if you're looking to dosomething within the city, there
are 4 zonings that would be candidates for this type of
product. There is what's called light
industrial, there's general industrial, there's business
(10:22):
park and rural industrial. Those four.
I'm going to share with you somemetrics.
These are more, I'll say, North America wide numbers.
This is not a very scientific survey.
It's just my observation of whatI'm seeing across a breadth of
different markets. We typically see large Bay
industrial renting anywhere between 4:00 to $8 per square
(10:42):
foot on a triple net basis. Some of the newer product is a
little bit higher, especially ifit's got the the ceiling height.
Industrial outdoor storage is renting these days for about
$3.60 gross per square foot per year.
And it's a little more in some areas, a little less than
others, but that seems to be about the range.
But then you're not building a ton of buildings for industrial
(11:03):
Electro storage. You're, you're building a
product that is really suited for that particular customer
base. It's fenced yards, it's
security, it's electricity, it's, you know, proper drainage,
all of those sorts of things. But it's not a very high cost
product to deliver. There's a new category called
Warehouse on wheels. I'll talk about that in a
moment. In fact, just interviewed
(11:24):
someone on the podcast who is the owner of a company that
specializes in this. If you look at office, for those
that are looking to use Small Bay Industrial, office is
renting 25 to $30 a square foot on a triple net basis.
Small Bay Industrial is going tobe much less expensive.
So a lot of folks are looking atSmall Bay for that purpose.
(11:45):
And then of course, retail isn'tanywhere in the 30 to $55 per
square foot on a triple net basis.
Small Bay, by comparison, historically it's been around $8
per square foot. So it's been much less
expensive. It's more than large Bay, but it
is less than office and retail. Today, with the shortage in
small Bay that we're seeing in across most markets in North
(12:07):
America, we're starting to see rents pushing up around that
$14.00 per square foot on a triple net basis.
So it's still at a discount compared with office and retail,
but it's starting to be a littlebit of a premium compared with
large bases. It's an interesting segment.
It's filling a gap in the marketplace for those that are
looking to flex space. There is the warehouse on
(12:27):
wheels. In fact, this is an opportunity
for things that don't have to benecessarily climate controlled
to expand storage capacity. Of course, you know a trailer on
your property doesn't impact your property taxes.
These are typically a 30 day commitment.
So you rent these on a 30 day basis, you load them up or you
(12:47):
back them up to the loading dock, get the contents in and
out with a forklift truck. So it's relatively easy to
manage the contents of these trailers and it's actually
better than a shipping containerbecause it's at the height of
the loading dock where is a shipping container on the ground
is much more difficult to get the contents in and out of.
You going to have to do that manually versus what you might
(13:08):
be doing with a forklift truck. So most flex space, in fact some
major auto manufacturers, you will look at one of their
industrial facilities and you'llsee dozens if not hundreds of
trailers against the rear fence and they're holding parts,
they're holding inventory and doing it in a very low cost way
without having necessarily to build buildings.
(13:30):
This is a segment, it's not wellpublicized, but is one that from
a practical standpoint, the folks that are actually in this
business are using it effectively to keep their costs
down. Let me share with you a real
development example. This is a 21 acre site that we
are developing in Brigham City, UT.
This is just north of Salt Lake City and take you here to the
(13:54):
map to Orient you a little bit. We have a number of projects
that we're doing in this particular area.
We have one that well in the whole Pacific Northwest.
We have projects up in Boise andPocatello in Logan and Ogden in
a suburb of Salt Lake called to Willa.
We're in Grand Junction and of course we have our mega project
in Colorado Springs. So in in the immediate Salt Lake
(14:18):
area, we have the project in Logan, we have the one in
Brigham City, we have the one inTooele and then another one in
Grantsville. So we have a few within that
radius of Salt Lake City. And Salt Lake is a fast growing
area. It's an area that's interesting
from a number of standpoints, starting to see data centers
opening up there, although thereis pushback from the community,
(14:38):
in particular from the electric utilities who don't want to
necessarily be forced to upgradetheir infrastructure for for
data centers at the expense of the population.
But there is definitely a lot ofgrowth in this particular area.
One of the key things is something called the inland
port. And if you might remember back
during the pandemic, there was alot of congestion in the port of
(15:01):
Long Beach in the port of LA. And those ports are pretty big.
You know, Long Beach, like over 3000 acres.
And you would think that's a pretty big port and it is, but
it's just not big enough. I think they can hold like, I
don't know, 85 ships at one timeor something like that.
It's a huge port. The problem is that when the
port gets congested, if you needto get the container that's at
(15:24):
the bottom of a stack of six, you got to, you got to find the
space to put the other five containers so you can get the
one on the bottom. It just takes a long time.
It's very slow. So with the this innovation
called the inland port, the the port is actually no longer in
the Los Angeles area. Under the new process, what
happens is a container comes offthe ship, it goes immediately on
(15:46):
a rail car, and it gets shipped to Utah and that's where the
port is, where there's 16,000 acres.
And then from there it gets sorted and then distributed to
various parts of the country, wherever its final destination
may be. So the inland port is an area
that's driving a lot of investment, a lot of jobs coming
into the immediate area. That's one of many reasons that
we happen to be invested in thisparticular area.
(16:10):
Our property in Brigham City also is benefiting from some of
this infrastructure investment. So let's dive into the
particular property itself. You can see a little bit of a
site plan here. You got a Marriott Hotel in the
middle at the bottom there. That's going to be a template
suites hotel. At the top there's 104
townhouses. And then on the left hand side
(16:32):
on the West side there you see about 60,000 square feet of flex
multi tenant industrial. And so that's we're building
this product in Brigham City on one of our own properties.
This is an area where we've seenmassive rent growth, huge income
growth between 21 and 2022 that was almost 30% year over year
(16:55):
rent growth nationwide. It's starting to slow and level
out a bit. You're not going to see those
types of increases forever. On an annualized basis between
2023 and 2024, the rent growth average around 12%.
And then so far in the first quarter of this year, we've seen
2 1/2% rent growth. If I look at that, that's US
(17:16):
average. If I look at it in the Ottawa
context, we saw about 1010% rentgrowth in 2022.
We saw 29% rent growth in 2023 and 4.7% growth last year.
In 2024, there's a whole bunch of value add strategies that are
(17:36):
possible. You can buy existing and
increase the value by renewing the leases.
You can take some of the existing ones that have small
Bay offices and market that to office clients that are looking
to downsize from other offices. You could remove the offices and
return it to an open Bay and go after a different tenant.
(17:57):
You can look at tenants that need more space and try and
consolidate space that. You could look at outdoor
storage. You can look for retail for
small to medium sized business and then another one that's
emerging quickly is medical. We're starting to see a medical
imaging, dialysis labs, testing labs, things like that looking
(18:19):
to occupy this sort of space. That type of business does not
need to be on a Main Street or in a retail space.
Someone who's going to do that for an appointment as long as
they can get there relatively easily, as long as they can get
perhaps public transit to it, aslong as the location is good, it
(18:40):
can doesn't have to be in the most expensive real estate.
And that's, that makes this product ideal for that sort of
thing. So it's small Bay is one of
these products that's in tremendous demand.
It fits a a gap in the marketplace and it's one that
we're actively pursuing within our company.
It's one that I think is an opportunity for investors as
(19:00):
well. And it's one that we've not
talked an awful lot about at Oreo where, you know, folks tend
to be more focused on residential, residential,
multifamily. This is a segment that I think
is not getting enough attention.So with that, I'll bring it to a
close and we'll open it to questions.
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