Even though the Canadian commercial real estate market remains relatively stable, signs of a softening are beginning to appear. This is especially true in class B and class C office space, where sublease availability has skyrocketed, and lower level retail storefronts are at risk of sitting dormant or vacant.
The industrial sector is a different story. With an accelerated increase in e-commerce activity, the verticals of online apparel, grocery delivery, meal kits and home office equipment are increasing and being faced with the need to modify their supply chains to meet demand. According to Statistics Canada, the e-commerce sector grew by 110.8% as compared to May 2019 with a 63.8% increase coming in the month of April 2020 alone.
Consumer Behavior Shift: Because people are increasingly buying essentials online, many major retailers are being forced to meet demand with a direct-to-consumer model that can deliver sub- 1-2 days. To accommodate this demand for fast-moving SKUs, companies are investing in their omnichannel platforms and technologies and doing so with the goal of delivering orders faster. From a real estate perspective, this is causing the need for additional warehouse capacity and thereby increasing rental rates and lowering overall market vacancy in Class A industrial and last mile space.
The Economic Realities of the Pandemic: E-commerce rates will likely be higher than where they were before the pandemic. Consumer behaviour, shopping habits and expectations have changed. Due to the significant capital investment to automate facilities or implement new technologies, businesses will be looking to recapture these costs through the end-user and suppliers. Those who do not adjust, will wake up to new reality when the pandemic is over.
It is important to understand that the success of an e-commerce platform relies on having inventory and capacity that can store appropriate volumes of products. The demand and competition among companies to obtain space and capture market share is also leading to new construction in the industrial real estate market. At the same time, for these e-commerce operators, there are many challenges that span beyond just real estate.
Moving away from old school brokerage, LIDD Toronto Brokerage seamlessly integrates brokerage, design and implementation all under one roof. We view your assets – facilities, equipment and IT as a unified infrastructure and believe that the strength of your operation depends on their combined performance.
To win a lease negotiation, your knowledge must be rooted in facts and data. Our engineering team calculates the capex required to relocate, and our design team creates true relocation alternatives. Armed with the facts, you can demonstrate that you are not a captive tenant and improve your chances of securing a more favourable lease.
Since inception, LIDD has worked with some of the largest and most successful e-commerce providers in the North American market. If e-commerce expansion of optimization resonates with the objectives of your business, please feel free to give us a call. Whether it is real estate, design, technology or project management, we possess the skill sets and expertise to get it right for your organization.