Does size matter when it comes to the cost of an industrial condominium unit?
Generally, the real estate industry accepts that there are benefits which can be accrued through economies of scale. As properties get larger, there are typically fewer purchasers, and builders can often achieve lower costs. But how far does this discount go? And when is it applicable for industrial properties who are designed for smaller users, that often grow to require larger units with space for equipment and the movement of materials?
To answer these questions, we’ve analyzed over 1,000 condo sales from within Edmonton up to 20,000 sq. ft. in size.
Generally speaking, the overall chart suggests that the smallest properties have the highest average price per sq. ft., with the trend line moving down as the size of properties gets larger.
When smaller units between 500 sq. ft. and 1,500 sq. ft. are isolated, the average price paid historically in Edmonton has declined at a rapid pace by $.02 per increase in each sq. ft. PLEASE NOTE, this is a historical average and not directly applicable to the value of a specific property.
However, when the size of unit under analysis is increased to between 1,000 sq. ft. and 10,000 sq. ft., the historical average price difference reduces considerably to only $0.005 per sq. ft. of increased size.
The tipping point appears to be around 2,000 sq. ft. At this point, the trend line is essentially flat, and the historical average price paid decrease by only $0.0002 per increase in sq. ft. in unit size.
In addition to the information above, it is important to remember that smaller units, although zoned for industrial use, are typically occupied for commercial retail or office purposes, while larger units are more often utilized for warehousing and storage with fewer interior improvements. As such, the details of each property under analysis must be carefully considered by an experienced appraiser before any definitive conclusions can be drawn when comparing one property to another of a different size.
Overall, the evidence suggests that significant attention should be paid when comparing smaller units of various sizes to ensure an accurate like-for-like comparison is being made. Further, as properties get larger, the difference in the historical price achieved by difference property sizes reduces significantly, suggesting fewer benefits of economies of scale are available to be achieved in industrial condominium units over a unit size of 2,000 sq. ft.
For more information, analysis, or any questions you may have on this, please contact Mark Poechman at (780) 470-8056.