Warehouse space is tight around the world and Vancouver is no exception. New consumer habits coupled with evolving approaches to inventory and supply chain management have suppliers competing for space as the industry looks outward and upward in an attempt to meet demand.
Worldwide Growth and Investment for Warehouse Owners
“Logistics is one of our highest conviction themes globally and the sector continues to prove its resiliency and strong growth potential,” said James Seppala, head of real estate in Europe for Blackstone.1
The US investor runs more than 1700 properties and has opted to double down with a €21bn recapitalisation of its logistics platform1, a sign they see a bright future for warehouse operators.
London-listed landlord Segro is also seeing growth. The company reports adjusted pre-tax profit increases of 20% for 2021 as rents climbed by an average of 13%, with 25% increases in the London area, all part of a trend toward high demand and strong returns.
E-commerce Rise Contributing to Warehouse Shortages
A number of factors are playing together to drive up demand for warehouse space; the rise of e-commerce is chief among them. Consumers gravitated toward the safety and convenience of e-commerce during the pandemic and, although many are beginning to ‘return to normal’, the gains are not expected to disappear.
“People were glued to their homes, putting in home offices and ordering online,” says Ryan Kerr, principal with commercial real estate giant Avison Young. “E-commerce was at the forefront of driving down availability in industrial space that took place from August 2020 to now.”2
As Segro chief executive David Sleath reports, it’s not just e-commerce driving demand in London. “We’re doing a lot of space for data centres, film studio deals with Netflix [and] food production and distribution companies like Hello Fresh.”3
Supply Chain Complications Changing Approach to Inventory
A perfect storm of supply chain complications have led many suppliers to change their habits, thus increasing their need for storage space. As the pandemic, weather, and other factors have thrust supply chain imperfections into the spotlight, companies are protecting themselves from potential shortages by moving away from the just-in-time approach, opting instead for a just-in-case strategy. This move toward higher inventory holdings is an obvious factor in the capacity pressures being felt in warehouses.
Even as supply chain disruptions drive greater demand for warehouse space, they also slow construction efforts, complicating the industry’s attempts to meet that demand. Labour shortages likewise impact warehouse service providers, preventing rapid supply side growth.
Vancouver Warehouse Capacity
According to the Vancouver Sun, the vacancy rate for industrial space in Vancouver has gone down to about 0.4%. Mountains and oceans place obvious limits on the city’s ability to expand outward, which has caused some to look upward toward multi-story buildings, or further afield, to the benefit of warehouse owners in places like Calgary.
“For years, warehouse spaces within Vancouver’s traditionally industrial areas have been disappearing as a result of new non-industrial, mixed-use developments,” writes Kenneth Chan for Daily Hive in a story detailing a proposed new five story building.4
“Very large companies that ship goods directly to customers took up much more space in virtually every municipality of Metro Vancouver,” reports the Sun, adding that “smaller, local businesses that flourished during the pandemic are also scooping up industrial spaces.”2
International Space Squeeze
The problem is not uniquely Canadian. Late last year property agents Cushman & Wakefield predicted that the UK could run out of warehouse space within a year, citing the expansion of Amazon as just one factor.
“Even though developers have been fairly quick to respond to the shortage . . . when you look at how quickly development is being taken up, there’s probably not enough [warehouse space],” added Cushman’s logistics lead Bruno Berretta.5
The consequence of these shortages, both domestically and abroad, will be rising costs for those who seek warehouse space, costs that will, in turn, be passed along to end consumers.
Goodbody analyst Colm Lauder assesses the London market and concludes that some would-be space renters will simply be left out in the cold.
“A Kwik Fit [car servicing group] or light industrial company can’t compete with an Asos or an ecommerce firm. Where do they go?” he said. “The sector is evolving and there are certain tenant types that may be left behind.”3
The Need for Forethought
As with all matters related to supply chain management, forethought is key. Companies that build flexibility and robustness into their logistical approach will be rewarded during crunch-time, while their competitors will potentially be left scrambling.
Cited Sources
1 “Live News from February 15: Biden Says There Is Still ‘Room for Diplomacy’ to Avoid Ukraine Crisis, Global Stocks Rise after Russia Says Some Troops Returning to Base, Prince Andrew Settles with Virginia Giuffre over Sexual Abuse Allegations.” Financial Times, February 15, 2022. https://www.ft.com/content/8b70b14a-30c5-4507-a233-69040ffb905d#post-e48d8627-cab5-4228-8953-16650ca97780
2 Lee-Young, Joanne. “Online Shopping Spurs ‘Stacked,’ Multi-Level Metro Vancouver Industrial Spaces.” vancouversun. Vancouver Sun, January 9, 2022. https://vancouversun.com/business/commercial-real-estate/online-shopping-spurs-stacked-multi-level-metro-vancouver-industrial-spaces
3 Telling, Oliver. “Segro Profits Soar over Demand for Warehouse Space.” Subscribe to read | Financial Times. Financial Times, February 18, 2022. https://www.ft.com/content/908d7ab1-a131-4a2d-80a9-349ea99bdb75
4 Chan, Kenneth. “Urbanized.” 300,000 sq ft office and wholesale building proposed next to Strathcona Park. Daily Hive, January 29, 2022. https://dailyhive.com/vancouver/1150-raymur-avenue-vancouver-wesgroup-strathcona-park
5 Hammond, George. “Britain Could Run out of Warehouse Space within a Year.” Subscribe to read | Financial Times. Financial Times, October 24, 2021. https://www.ft.com/content/c1e7b270-c6c6-4904-90a2-57f3e6ef963c