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How industrial space saved the commercial real estate market in 2020

We talked last month about how the office space market is down, but the outlook remains positive....

We talked last month about how the office space market is down, but the outlook remains positive. With news of vaccines ready to ship, employees are likely even closer to going back to the office.

However, the office space market did suffer and one hero throughout COVID in commercial real estate has been the industrial market, especially warehouse space.

As retail locations temporarily shut down, it’s no surprise that consumers quickly shifted their dollars to e-commerce. What is shocking is how fast and how much they spent online. The gains in e-commerce occurred despite a record decline in overall retail sales.

When COVID was in full swing, retail sales dipped to $33.9 billion in April 2020, a 26.4 per cent decrease from April the previous year. E-commerce sales, however, increased 123.59 per cent in April year-over-year.

E-commerce drives industrial gains

With all those e-commerce sales, there had to be resources available to manage and store the inventory. That is where the industrial market stepped in.

“The Canadian industrial market hasn’t missed a beat. In fact, it has unprecedented momentum and is truly the rock star of the commercial real estate world right now,” said CBRE Canada vice-chairman Paul Morassutti.

“Investors, tenants and developers recognize that e-commerce and logistics demands are here to stay and they’re making big forward-looking industrial commitments.”

Owners of retail centres are evaluating the future of retail as well.

“Owners are now looking at retail centres and saying, ‘I can convert some of this into warehousing and lease it to industrial tenants’,” said CBRE executive vice-president Matt Brown. 

“Given where industrial lease rates are at and how valuable the buildings themselves are, industrial development could soon be seen as a viable alternative to preconceived highest and best uses in certain cases.”

Case in point is Amazon’s expansion of fulfillment centres and delivery stations in Ontario.

Amazon’s Canadian growth

Amazon Canada confirmed it is building two new fulfillment centres in Hamilton and Ajax and five new delivery stations in Kitchener, Stoney Creek, Vaughan, Etobicoke and Scarborough. 

These expansions will bring Amazon Canada’s total to 10 fulfillment centres in Ontario and 16 in Canada.

“We’re thrilled to continue expanding our operations in Ontario with our newest fulfillment centres in Hamilton and Ajax,” said Sumegha Kumar, director, Canadian customer fulfillment operations, Amazon Canada. 

“We’ve had great success with the talented workforce in Ontario and we look forward to creating an additional 2,500 full-time jobs.”

As jobs return and people head back to work, overall retail sales are likely to improve. What’s yet to be seen is if the e-commerce trend will become the new normal or if in-store sales will return to pre-COVID numbers.

It’s likely e-commerce will level off slightly but remain high as consumers have embraced online shopping convenience and ease.

The industrial real estate market is certainly an important one to keep tabs on to see what it will do next.

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