Holiday shopping season has started and with e-commerce rates at record highs, companies are needing more places to store their goods. Except there’s one problem: There’s no more space, so experts say it’s time to get creative with government land.
According to CBRE’s 2022 Canada Real Estate Market Outlook, “new construction will likely become the key avenue for occupiers looking for space,” and that’s happening with total industrial space under construction in Canada sitting at a record high of 36.2 million square feet at the end of 2021.
But in some key cities, there is no land left to build, so we need to rethink land usage, explains Chris MacCauley, executive vice-president of CBRE in Vancouver.
“[In Vancouver], nothing has improved for people who have been looking for warehouse space over the past three, four, five years,” Mr. MacCauley says. “We can’t change the geographical restraints that Vancouver has, but we’ve got regulatory restraints around land use – that we can change.”
To add to the pain, Canadian cities might start to lose out on jobs and economic growth, as companies – from startups to multinational corporations – skip over the cities that can’t accommodate their fulfilment needs. But while there have been many sounding the alarm, experts say that few solutions will be found until local governments amend their industrial land regulations.
For years, Mr. MacCauley has been a significant voice in the call for more industrial space and the freeing up of farmland to fill this need – in particular, the Agricultural Land Reserve, which is 4.6 million hectares of land controlled by B.C.’s Agricultural Land Commission since the 1970s and kept for agricultural purposes. For him, this system is outdated and hurting many sectors, including agriculture, which he says also needs warehouse space for the production and processing of goods.
“A lot of our land is controlled by the provincial government,” he explains, “and it was [established] almost 50 years ago with no real science behind it. … That needs to be reviewed so that we can look at benefiting agricultural land as well as ways to expand existing industrial parks.”
However, he doesn’t see this happening until the area starts to experience “real economic pain” as a result of companies choosing places such as Alberta to set up their multinationals because of B.C.’s warehouse scarcity.
Michel Pilon, president and chief executive officer of Ottawa-area development company Avenue 31, agrees that using up government-regulated land is the way to solve Canada’s warehouse issues. In fact, his company is building the city’s latest industrial park, National Capital Business Park, on federal land.
“It’s National Capital Commission Land, so it’s federal land that we’ve leased on a long-term basis. Now the project is well under way,” Mr. Pilon says, adding that the demand is already there from future tenants of the 1.3-million-square-foot industrial park who need the space. “The types of tenants that are coming to us [are] three-quarters nationals or multinationals, 25 per cent local or regional.”
Indeed, according to CBRE, new supply jumped to 9.1 million square feet of space in the third quarter of 2022, but provided little relief as almost 90 per cent of the new builds were delivered preleased.
“We’re getting phone calls daily,” Mr. Pilon adds.
It’s not just multinationals that will have to ignore areas that don’t have warehouse space. It is also needed by smaller businesses and without that option, some Canadian cities may see their entrepreneurial sector suffer.
“Everybody’s looking right now,” says Jordan Armstrong, senior vice-president at Paradigm Group Commercial Real Estate Services in Vancouver, which just completed a deal for a 38,000-foot warehouse space in the city’s Railtown neighbourhood for an international furniture manufacturer.
“But the people that are winning [bids] tend to be mid and large top companies.”
Because the current tight market conditions have managed to drive warehouse rents in Canada to a new record high of $12.89 per square foot, a 29.4-per-cent year-over-year increase, according to the CBRE, it’s getting even tougher for businesses of any size to afford them.
In places such as Vancouver, which has prided itself on entrepreneurial startups, this might just bring that idealism to its knees, Mr. Armstrong says, because landlords are going to go for the safe bet.
He adds that the situation is made tougher for these smaller companies because the city is currently experiencing a 25-per-cent year-over-year increase in rent for these warehouse spaces and it’s hurting startups.
In Vancouver, we want this hub for startups and see a lot of industrial demand for the green economy businesses,” Mr. Armstrong says. “But when that type of tenant goes up against a tenant like Amazon or a large multinational, landlords are obviously going to err on the side of a larger corporation [rather than] on a startup, no matter what that startup’s financial situation looks like.”
While one common solution might be to “build up,” as many cities have done to ease residential housing pressure, it’s a lot more complicated in the industrial warehouse space.
But Mr. MacCauley reiterates that the need for more land is still at the centre of this issue and says that while building up to accommodate the growing need is possible, there are still many logistical issues to work out before this can be considered a widespread option.
Right now, Amazon has several multilevel warehouses in Canada and the U.S., but they are the only occupant of these spaces, Mr. MacCauley explains.
“I want to see a multilevel industrial [space] that’s worked in [other places in] North America that has multiple tenants and how they interact, operating on different floors,” he says. “That hasn’t been proven yet and that’s something that we need to see.”