The Amazon effect ramps up pressure in Canada's industrial market
Credit to Author: Evan Duggan| Date: Tue, 20 Aug 2019 23:53:16 +0000
Amazon continues to expand its network across Canada with several new or soon-to-complete distribution centres in Calgary, Edmonton and Ottawa.
That likely represents either a boon of convenience for some (customers and landlords), or a disaster for others (bricks-and-mortar retailers and competing industrial tenants).
Amazon opened a 600,000-square-foot facility last year in Calgary, and a one-million-square-foot facility was just delivered in Ottawa. Meanwhile, another one-million-square-foot facility is now being built for Amazon in Edmonton and is set to complete in 2020, according to CoStar, the Washington, D.C.-based property research and technology firm.
Amazon’s quick-turnaround shipping is a relatively new concept for these markets, but it’s already an affirmed and expected service in Toronto, Montreal and Vancouver.
Roelof van Dijk, CoStar’s head of market analytics, recently shared a few thoughts with Postmedia about Amazon’s Canadian expansion including: Amazon’s rising threat to bricks-and-mortar retailers; the Amazon effect on the country’s industrial market; and what happens to e-commerce here when a recession hits North America.
Roelof van Dijk, CoStar’s head of market analytics.
“Amazon is trying to up their game (to) get more same-day or next-day (delivery) capacity in some of these markets that they didn’t really have … at this point,” van Dijk said. “They’re getting bigger and badder and that’s not going to stop.”
That means existing retailers need to react in kind. “If Amazon is getting bigger and faster in their local market, (their e-commerce and retail competitors are) going to need to do the same.”
E-commerce has relegated many bricks-and-mortar retailers to showrooms for the internet, he said. Amazon’s increasing Canadian distribution capacity is going to exacerbate that issue for retailers. “These retailers that are in the market that don’t have an e-commerce presence are going to need to make sure they can react faster to what the customer wants,” he said.
Van Dijk said Stats Canada currently pegs the percentage of Canadian e-commerce retail at three per cent of total retail sales, while the data service consensus marks it at 10 per cent. “Either way you look at it, the trajectory is up (and) that’s only going to increase.”
Prime Minister Justin Trudeau announces an Amazon Vancouver headquarters to open at the redeveloped Canada Post building.
Available industrial space is already extremely tight in Vancouver and Toronto. Large, spacious warehouses and distribution centres near main highways and ports are just the kind of spaces that Amazon and other e-commerce businesses have been gobbling up to store, pick and ship its items.
“We now have e-commerce fulfillment centres going in and taking up space, and that’s almost like retail taking up industrial space — and that’s happening more and more,” van Dijk said. “That’s been driving down vacancy in those markets because we just haven’t kept up with construction activity,”
It’s going to be tougher for other types of industrial businesses to compete for industrial space, he said.
Experts and financial institutions are now putting the chances of a U.S. recession in the next year at one in three. The chances of that potential recession having an impact on Canada’s economy and consumer habits are nearly a certainty — although to what extent remains a mystery.
It’s hard to measure the effects of a recession on our e-commerce industry in Canada, van Dijk said. However, Canadians still tend to use e-commerce mostly for buying everyday consumer products, while relying on bricks-and-mortar retailers for their bigger-ticket purchases.
“If (a recession) comes to fruition, it will have a bigger impact on bricks-and-mortar retail than it would on e-commerce,” van Dijk predicted.