Amazon’s decision to close its Quebec warehouses will likely lead to a scenario in which some of its inventory is slowly absorbed by third-party logistics companies, with the remainder entering the sublet market in phases, according to CBRE's Louis Karam.

Karam, senior vice-president and managing director of CBRE’s Quebec offices, says the Amazon move is most likely to have a neutral long-term effect. He expects demand from Quebecers to order from the e-commerce giant and get their packages quickly will remain, meaning there is still a need to warehouse and distribute in the province.

“Therefore, I don’t expect that all the need for this warehousing space will just disappear,” he told RENX. “It will probably take time to transition. Some of (the space) will get absorbed right away by 3PLs; some will take a little bit longer.”  

Under what CBRE calls a neutral or hybrid model, the industrial availability rate in the Greater Montreal Area and Montérégie areas would increase slightly from the current 5.5 per cent to 5.8 per cent, assuming half of the Amazon inventory of about 2.25 million square feet of space enters the market throughout 2025.

Demand remains for quality, large bay industrial

Quality, big box spaces “typically get picked up fairly quickly,” Karam said. “Amazon occupies state-of-the-art space. We’re still seeing in the market a flight to quality on industrial spaces. Quality space doesn’t stay there for long.” 

Last week Amazon announced it will shut down its Quebec logistics operations, vacate seven properties and return to the third-party delivery model it used in the province prior to 2020.

About 240 Amazon workers at the company’s DXT4 warehouse at 5555 Ernest-Cormier in Laval unionized last May, becoming the first of its Canadian warehouses to unionize. Amazon denies the Quebec closure is due to the unionization, however.

In the wake of the Amazon move, CBRE released The Amazon Quebec Effect, a brief report that outlines optimistic, neutral and pessimistic outcomes for the Montreal-area industrial market as a result of the Amazon pullout.

Worst-case scenario sees 6.1% availability

Under the pessimistic model, Amazon’s 2.25 million square feet of space would be brought to the market altogether, bringing sublet space to a record four million square feet and transforming a tenant-leaning market to a tenant-dominant market.

This would boost the availability rate to 6.1 per cent, and sublets as a proportion of available space to 18.5 per cent. 

Such a move “would solidify a tenant-dominant market, especially for big box users and would nullify the positive momentum seen in Q4 2024,” the CBRE report states.

Under an optimistic scenario by CBRE, Amazon would lease its existing spaces in Quebec to 3PL companies it contracts, thus leaving vacancy, sublet and net absorption levels unchanged.

The e-commerce giant said it will shutter its warehouse facilities in Quebec by March, but that it will work with the landlords of its leased facilities.

The properties Amazon leases in Quebec

The Amazon facilities are:

• A QuadReal Property Group-owned 515,000 square foot facility at 80 Léon-Malouin St. in Coteau-du-Lac that it acquired from the property's developer, Broccolini, in 2022;
• 1200 and 1100 Norman in Lachine. QuadReal also owns the 363,000 square foot facility at 1200 Norman, which it acquired from Broccolini in 2022;
• 240,000 square feet at 5555 Ernest-Cormier in Laval. Uniboard Canada is listed as the owner on Laval’s property evaluation role;
• 208,475 square feet at 5799 Route de L’Aéroport in St-Hubert. 5799 Route de L’Aéroport Holdings is listed as the owner on the Longueuil property evaluation role;
• 180,000 square feet at 3000 Louis A Amos in Lachine. Broccolini built the facility which is now owned by Investors Real Property Fund according to the city of Montreal property evaluation role;
• 119,808 square feet at 3399 Francis-Hughes in Laval. Canadian Urban Real Estate Fund 7 LP in Edmonton owns the facility.

Industrial availability has been on the rise

Karam says there has been a “big wave” of industrial construction in Montreal in the past few years, and 3.2 million square feet of new supply hit the market in 2024. “Unfortunately, that new supply came to the market at the same time demand was softening a little bit.”

As a result, the availability rate has been creeping up. The current 5.5 per cent rate translates to a tenant-leaning market, in which tenants have more opportunity to negotiate better terms, rental rates and improvements, and landlords with vacant spaces compete to retain and attract occupiers, he said.

Although rental rates have doubled over the past five years, they stabilized in 2024 and CBRE is expecting that recent trend to continue this year with “maybe some downward pressure,” Karam said. 

About 1.7 million square feet of new industrial space is set to be delivered in the Montreal area in 2025, with another 400,000 square feet coming to market in 2026. All the new spaces are large bay buildings of more than 200,000 square feet.

Now that there’s some available space on the market, Karam said most developers are building to suit for tenants, rather than building on spec.