When we compare Canada’s industrial property market to the other commercial asset classes through 2020, it’s clear industrial land and buildings maintained a steadiness not seen in other sectors during this pandemic.
Industrial land is still trading at record prices, developers continue to break new ground, new leases are being signed and renewals are being completed.
The overall national industrial average vacancy rate at the end of 2020 was a low 2.2 per cent across the country, according to Colliers’ latest national market snapshot report.
Despite a slight pause at the beginning of the second quarter of 2020 as the pandemic befell us all, things got back up and running quickly in the industrial market. But that show of strength also contributes to the pain; vacancy rates remain critically low in most of our big cities, while lease rates, land prices and construction costs climb.
Here are five things we should all be watching for in the Canadian industrial market as 2021 unfolds.
Soaring online shopping will intensify demand for warehousing and distribution space
The most significant impact on industrial real estate has been the dramatic shift by consumers to online purchasing during the pandemic. All the products we’ve been buying online need a place to be shipped to, stored at and distributed from.
This is a particular area of opportunity for markets across Canada and will prove to be the real winner among the many downsides of the pandemic — if you happen to own or hold plenty of warehouse and distribution space.
But it also means demand for storage, coordination and fulfillment space in the e-commerce market is becoming more competitive than ever across the country, resulting in higher lease rates and tighter vacancy — even as industrial developers work to build more space.
Continued shortage of industrial space in metropolitan centres pushes business to smaller cities
This is not a new trend, but it is intensifying. The lack of available industrial land and building space in Canada’s major markets has added pressure on our cities and started to push industrial business into outlying areas or smaller cities.
Rapidly increasing lease rates are a result and it is common for tenants to see their rents double when renewing leases in our larger markets. Now, more than any other time, owners, occupiers and developers are looking at markets beyond our urban cores which still have available options.
Labour shortage continues in the industrial sector
Not only are we seeing an extreme shortage of industrial space in our major markets, but we are also seeing a major lack of the labour required to operate businesses in this sector.
This year it will become increasingly tough for industrial occupiers to attract skilled workers in our major cities and that could create certain bottlenecks and inefficiencies in commercial activity.
Will there be a PPE hangover?
One of the biggest surprises in our market last year was the sudden and extreme need for personal protective equipment (PPE). A year ago, everyone was focused on how or if Canadian companies could create or ramp up national production of PPE to help curb COVID-19.
PPE manufacturing and distribution operators leased more than 1,000,000 square feet of space in Canada last year from Colliers alone — taking yet another bite out of a leasing market that was already extremely tight.
In most cases, these were typical, long-term leases — so it will be interesting to see how these operators respond if and when the need for PPE recedes as vaccinations ramp up and we approach the end of the pandemic.
What happens when (if) the economy comes roaring back?
It’s easy to treat Amazon as the harbinger of e-commerce. Amazon already has more than a dozen large distribution centres operational, and rumour has it there are more planned for the Toronto, Vancouver, Calgary, Edmonton and Ottawa areas.
The e-commerce giant also recently announced plans for a major Montreal expansion that will add hundreds of thousands of square feet to its Canadian footprint.
If the world’s leading e-commerce company sees potential here, what will the future hold for competing demand in an already competitive industrial market?
If our post-pandemic economy takes off like a rocket ship, like many are predicting, increased demand for industrial space would only exacerbate the challenges we’re already facing.
That’s a good thing for current industrial owners and occupiers, but presents a major challenge for companies needing room to launch, or grow.
Peter Garrigan is the senior managing director of the industrial practice group at Colliers International in Toronto.