The market for industrial real estate across Canada is going full speed ahead even as higher interest rates and lingering inflation continue to haunt many sectors of the economy.
Industrial property continued to outperform nearly every other asset class in 12 commercial real estate markets across the country, according to the RE/MAX 2023 Commercial Real Estate Report for this year’s first quarter.
Demand is being propelled by a combination of shifting needs by manufacturers and distributors, changing consumer and workplace patterns and creative new ideas about the warehouse of the future.
The quest for distribution and warehouse facilities was already underway in southern Ontario and British Columbia, but demand has been spreading to other regions, reaching markets in neighbouring provinces.
The industrial market is particularly hot right now in Alberta and Newfoundland, says Christopher Alexander, president of RE/MAX Canada. In addition to strong activity in Edmonton, Calgary and St. John’s, the market is also robust in Saskatoon and Regina in Saskatchewan, London and St. Thomas in Ontario, and Halifax, he notes.
“The big reason is e-commerce. People need warehouses in industrial buildings to facilitate manufacturing or distributing goods,” he says. “We see this trend as long-lasting simply because of the way the world has changed in the last few years.”
The boost in e-commerce has been driven partly by the tug-of-war between workers and employers over how much time people should be expected to go to the office.
This battle puts some pressure on the commercial real estate market, but it also means people working from home order products delivered to their door, which requires more industrial shipping and warehousing properties, Mr. Alexander explains.
“People want to work remotely and that’s likely going to be a trend for the next few years,” he says.
The RE/MAX report shows that Alberta’s industrial market has attracted interest because of government incentives such as the Alberta Investment and Growth Fund, which, among other things, targets key sectors.
Alberta’s municipal governments are attracting industrial buyers with favourable zoning and tax policies, the report shows. Edmonton and Calgary act as “inland ports,” shipping and receiving goods by air, rail and ground to millions of customers.
The industrial real estate boom is fuelled by activity in other property sectors too, as commercial real estate investors from Ontario and B.C. drive demand for sites to support construction and building conversions.
Our population is growing and that means people need homes. We need places to store and receive building materials and equipment.
In St. John’s, the industrial market is strong because of rising energy prices, Mr. Alexander says. “Newfoundland is an oil producer, and there’s a need for industrial sites to support the sector.”
The industrial property market is strong not only in St. John’s but across the Atlantic provinces, says Judy Wall, president of East Port Properties Ltd. in Dartmouth, N.S.
“A lot of the growth here is driven by immigration. Our population is growing and that means people need homes. We need places to store and receive building materials and equipment,” says Ms. Wall, whose company develops, leases and manages commercial and industrial property.
“Activity in the port of Halifax has also increased, which also drives the need for industrial sites,” Ms. Wall adds.
“There are also a number of government contracts that bring the need for industrial property,” she explains. For example, in 2020, the federal government awarded a $72-million shipbuilding and maintenance contract to a Halifax-based J.D. Irving Ltd. company that could balloon to more than half a billion dollars of work over several decades.
Another force driving demand is the need to rebuild and refurbish buildings and infrastructure after a series of weather disasters that has struck the region – post-tropical storm Fiona, which caused an estimated $660-million in insured damages in late 2022, and destructive fires and floods that swept through Nova Scotia this year.
The design and configuration of industrial property is changing too. There’s a push toward energy efficiency, as the effects of climate change push builders to seek sites with energy-efficient cooling and heating and companies and governments look for properties with higher environmental standards.
Ms. Wall’s company has been building a warehouse in Dartmouth that will have 300,000 square feet of space with net zero carbon emissions.
“The whole building sector is supposed to reach net zero by 2050, so we have to start,” she says. “There’s rising demand for carbon neutral properties, from public companies that want to show good environmental policies and from governments that want to lease environmentally friendly industrial property.”
“It’s going to take some time, but warehouses are going to have to become more energy efficient and sustainable,” Mr. Alexander adds.
It’s critical for infrastructure – roads, rails, ports and power supplies – to keep up with the boom in industrial property, he explains.
“Lagging infrastructure can lead to costs down the road,” he says. “Municipalities, higher governments and industries need to plan for what kind of infrastructure is going to be required as new buildings and sites go up.”
According to the RE/MAX report, demand for industrial property across Canada is likely to grow.
“Industrial will remain the sweetheart investment, drawing suitors from both a local and global audience,” it says. “The momentum is building.”
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