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Commercial Real EstateFeasibility Analysis in Ontario.
A feasibility analysis answers one question: does this project make economic sense? This guide explains the key inputs, the metrics that matter, and the common errors that lead developers and investors to proceed with projects that should not have been started.
What Feasibility Actually Tests
Cost vs Value.
The Residual Land Test.
A commercial real estate feasibility analysis starts with a pro forma: estimated revenue (rental income or sale proceeds) minus total development costs (land, hard construction, soft costs, financing, profit margin) to determine whether the project generates a sufficient return.
The residual land value test works in reverse: starting with revenue expectations and subtracting all costs (including developer profit), the residual is what a developer can pay for land. If the residual is less than the asking price, the project does not work at that land price — regardless of what the developer wants the answer to be.
The Key Inputs and Where They Go Wrong
Construction Cost,
Absorption, and Timing.
Hard construction costs for industrial in Ontario ranged from $200–$280/SF in 2025 (excluding land and soft costs). Soft costs (architecture, engineering, permits, development charges) add 15–25%. Financing costs depend on structure and timeline.
Absorption — how long it takes to lease or sell the completed project — is the input developers most consistently underestimate. A 12-month absorption assumption that becomes 24 months doubles the carrying cost and can turn a profitable project into a marginal or losing one.
When to Stop
Negative Feasibility
Is Useful Information.
Many developers and investors over-invest in feasibility on projects that show negative results early — hoping the answer will change if they refine the inputs further. It usually does not. A project that does not work at the land ask, current construction costs, and realistic market rents is telling you to either negotiate the land price, find a different site, or wait for cost conditions to improve.
Lucero provides feasibility analysis and underwriting support for land acquisition, development and investment mandates across Ontario and Alberta. We do not tell clients what they want to hear — we tell them what the numbers say.