As the holidays and another wave of frenzied online shopping approach, Canada is experiencing a commercial warehouse crunch. The creation of new available space just isn’t keeping pace with the e-commerce boom.
“The industrial market across the country is at record low vacancy and availability,” says Peter Garrigan, Toronto region managing director for industrial real estate at Colliers Canada.
“Any major city you want to go to, whether it be Toronto, Montreal, Calgary, Vancouver, it’s the lowest vacancy in history. Our construction just can’t keep up with demand.”
The Greater Toronto Area is especially experiencing the crunch. The region has a space portfolio of about 800 million square feet, similar to Dallas, Mr. Garrigan says. However, the Texas city added 20 million square feet this year, or considerably more than the four million Toronto managed.
The result isn’t just record low vacancy, but also rapidly increasing rental rates for retailers and other companies looking to use the warehouses.
The GTA has seen a 30-per-cent increase in industrial rent asking prices year over year, according to Colliers. The Toronto-based real-estate company expects such hikes to continue for at least the next two quarters, if not longer. Colliers alone has clients waiting on a total of six million square feet.
Mr. Garrigan attributes the lag in new construction in Canada to the lingering effects of the global recession in 2008 and 2009. A number of projects were put on hold then and have been slow to ramp back up.
Several Canadian cities, meanwhile, are also grappling with continuing land restrictions. Vancouver is ringed by water and mountains, while Toronto is surrounded by the Greenbelt, a permanently protected nature region stretching across Southern Ontario.
Warehouse construction in the GTA is thus having to move further afield, to nearby cities such as Bolton – where Amazon.com Inc. opened a 1.1-million-square-foot facility in August – and Hamilton, where several new developments are coming on line.
“That will alleviate some pressure on Toronto, but not all of it,” Mr. Garrigan says. “There is no fast way to solve the vacancy issue.”
On the demand side, accelerating e-commerce is driving more retailers into the market for space to store products. More than 60 per cent of Canadians will shop online in 2019, com-pared with 43 per cent in 2013, according to a report released earlier this year by the Business Development Bank of Canada.
Consumers also want faster delivery times, which means retailers are under growing pres-sure to improve logistics and find warehouse space close to major centres. Online shoppers were willing to wait 4.1 days for paid shipping deliveries in 2018, down from 5.4 days two years earlier, according to an e-commerce study by Canada Post.
Experts say Amazon, which is striving to capture market share from physical retailers across virtually every category of products, is driving these changes in expectations. The company is pushing toward shorter delivery windows – even same-day – to do so.
The key to that strategy is a plentitude of fulfillment centres, which the e-commerce giant is aggressively building. The company announced a one-million-square-foot fulfillment facility in Scarborough, in eastern Toronto, in September, and another warehouse in Lachine, Que., the following month.
Demand for warehouse space isn’t being driven just by direct competition with Amazon, though. Changing consumer expectations on pricing and convenience are also making the decision to implement e-commerce easier for many retailers.
When Amazon first came onto the scene, it captured consumers’ attention with lower prices. Now, many shoppers aren’t necessarily putting primacy on the lowest costs, but rather on convenience. Retailers, therefore, don’t have to lower profit margins as much when getting into online sales.
“It’s not so much for bargains anymore, it’s more for comfort. That’s the way of doing business today,” says Opher Baron, profes-sor of operations management at the University of Toronto’s Rotman School of Management.
“If the store price is $100, you don’t have to price it at $90,” he says. As long as a retailer can deliver a product quickly and conveniently, “they can price it at any price.”