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A cannabis plant is shown in southwest Quebec on Oct. 8, 2013.

Justin Tang/THE CANADIAN PRESS

Forget factories. Canada's Pure Industrial Real Estate Trust sees its future in e-commerce -- and potentially weed.

The country's largest multi-tenant industrial landlord, which counts firms such as FedEx Corp. and Best Buy Co. among its customers, expects e-commerce to account for half of its portfolio in the next few years, up from 30 per cent today, according to Chief Executive Officer Kevan Gorrie. He's also considering adding a burgeoning industry to his tenant roster: medical marijuana. It's all to remain on the cutting edge of an industry that's evolving as quickly as North America's economy.

"We're focused on growth in e-commerce," Mr. Gorrie, 47, said at Bloomberg's Toronto office last week. "I don't think enough companies worry about obsolescence. We think about it all the time."

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Demand for renting space in industrial buildings has skyrocketed alongside the growth in online shopping and exports in both Canada and U.S., he said. That's pushed down availability and propelled rents on both sides of the 49th parallel.

The Vancouver-based company's stock has surged 34 per cent in the last 12 months to a record of $5.91 for a market value of $1.4-billion, the best performance in the Bloomberg Canadian REIT index for companies worth at least $500 million.

Pure Industrial owns about 21 million square feet of space across more than 170 properties in Canada and the U.S. Gorrie's aiming to have 40 million square feet in Canada and as much as 15 million square feet south of the border in cities including San Antonio, Charlotte, and Atlanta. The favored locations are close to airports and cities where tenants can easily access and move cargo in the so-called "last mile" of transporting goods.

Big Footprint

Mr. Gorrie, an engineer by training, said he's also interested in adding Amazon.com Inc. as a tenant in Canada, where the online retailer already has a handful of locations. Demand in 2017 is set to grow from e-commerce firms, which require more space than other tenants due to the complex sorting systems they use, according to brokerage CBRE.

Pure Industrial's Vaughan warehouse north of Toronto, which houses FedEx, is a prime example. A conveyor belt, moving at more than 600 feet-per-minute, is operated by workers on two intense four-hour shifts. The warehouse clears all its inventory twice a day and turns over 80 million packages a year. Despite comprising 60 acres, the building itself is only about 420,000 square feet, allowing room for storage and massive trucks to get in and out, Gorrie said.

E-commerce sales surpassed $1.1-billion in Canada last year, according to Statistics Canada, part of what's projected to be a $2.4 trillion global industry by 2018, up 26 per cent from last year.

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Medical Marijuana

Mr. Gorrie's also working on a lease in Brampton, Ont., for a pot distributor seeking a place to store its product. Canada is set to introduce legislation to legalize recreational use this year, which would make it the first Group of Seven nation to do so. In the U.S., eight states plus the District of Columbia have done this, while 28 states have medical marijuana laws.

"At the beginning, we shied away from it but more and more it's becoming mainstream," Mr. Gorrie said. "We would treat them as any other tenant that would require a lot of due diligence." Pure Industrial wouldn't allow companies to grow weed in their facilities, he said. He declined to name the company he's in talks with.

The availability rate of industrial space across Canada has tightened to an average 5.3 per cent in the fourth quarter, the lowest in two years, and to 8.2 per cent in the U.S., the lowest in at least seven years, according to CBRE Inc. That's pushed industrial rents in the period to a record $6.60 a square foot in Canada, where Pure Industrial has 75 percent of its assets, and up 6.3 per cent to $6.58 a square foot in the U.S., the biggest year-over-year jump since 2007, the commercial brokerage said.

Development Required

Competition from pension funds and other investors to own the buildings makes Gorrie more interested in building than buying.

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"You have to be able to develop," he said. "We will continue to deploy more capital towards development than towards acquisitions." The company aims to develop about 500,000 square feet this year, matching last year's level. It has $150-million in cash for potential deals, and is likely to spend about half that this year, Gorrie said.

While U.S. President Donald Trump has said he wants to renegotiate Nafta, which may stymie the flow of goods and potentially the demand for space from tenants, Gorrie isn't concerned.

"I don't see the trade policies changing that dynamic," Mr. Gorrie said. "If you have a border tax, you may have less goods coming in from Mexico, they'll come in from the U.S. or somewhere else but they'll have to come in at some point to those facilities."

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