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The rise of warehousing: How it can benefit your investment strategy

The demand for warehouse space is pushing industrial real estate into new terrain, and Canada may...

The demand for warehouse space is pushing industrial real estate into new terrain, and Canada may have limited warehouse space by the end of the year, thanks to the surge in e-commerce sparked by the pandemic.

The need for warehouse space was already high before COVID-19. However, it accelerated even more when stores temporarily closed due to the pandemic, leaving people at home with no choice but to shop online. Statistics Canada reported retail e-commerce sales were up 110.7 per cent year-over-year to $3.5 billion in January 2021.

With storefronts closing and reopening intermittently during the pandemic, retailers realized they needed to offer online shopping to keep sales going. This leads to companies needing additional space to store inventory and process orders for delivery.

A recent report by CBRE found that for every $1 billion in e-commerce sales, 1.25 million square feet of additional warehouse space is required. Online splurging by Canadians is estimated to reach $92.7 billion by 2025 and net-new warehouse requirements from e-commerce-related pressure are expected to exceed 40 million square feet over the next five years.

This growth is more significant than all the available leasable space in Canada’s three largest industrial markets combined. Consequently, with vacancy rates for existing warehouses at historic lows, it soon may become impossible for businesses to find places to store their inventory.

Equiton believes warehousing and fulfilment centres are a top choice for Canadian real estate investments this year.

Assessing the value of a warehouse

There are economical and objective elements to understanding the value of a warehouse.

An empty warehouse with no facilities will be worth less than a warehouse tailor-made for a specific use.

For example, warehouses with custom refrigeration units or chemical safety equipment will typically cost more than empty warehouses. Warehouses built to serve different forklift types are also often valued differently.

Identify the right location before investing

The ability to deliver and receive products quickly is a significant factor determining the value of a commercial warehouse.

It should be close to airports, seaports, and all major highways. Choosing a site is critical, mainly since the costs of bringing in a product and shipping it out can produce up to 60 per cent of a company’s expenses.

Three ways to invest in the warehouse sector

Direct warehouse investment: Investors who are optimistic about their investments can buy warehouse properties directly and rent them out to different business entities.

Flipping existing retail spaces into warehouse facilities: Investors who have bought retail spaces and are suffering from defaulting retail tenants may consider changing these non-performing retail spaces into warehousing facilities at a low cost.

Investing in warehousing facilities through a real estate investment fund: For investors who do not have the time to research warehousing investment facilities by themselves, the next best option to enter the warehousing sector is to invest through a real estate investment trust which, in turn, invests in warehousing facilities.

Warehouse investing is an excellent way to diversify your investment portfolio, but it requires much research. Especially if you lack the time and expertise to do so, investment firms offer an alternative, allowing you to invest in commercial warehousing without having to do all the research and value assessments yourself.

Equiton recommends you seek out a professional to guide you through this type of investment.

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