Amazon has been making U.S. headlines in recent months as the e-commerce behemoth continues to scrap plans for new warehouses across the country. Not only are those plans being scrapped, but final occupancy of buildings already underway is being delayed. Even buildings that are operational and were previously occupied are being shuttered, with two on the East Coast closing Oct. 25.
The news in Canada is markedly different.
In the western provinces, Amazon plans to open more than 7.2 million square feet of new space in Alberta and British Columbia before year's end.
CoStar's previous analysis outlined the general lack of modern logistics space within the Canadian market. If Amazon did pull back on any planned space, that real estate would likely be reabsorbed quickly, given the shortage. Industrial vacancy rates in major markets across Canada range from sub-1% to 4%, with Calgary and Edmonton occupying the higher end of the range despite rapidly declining vacancies — down 60% in Calgary and 40% in Edmonton since the start of 2020.
As a result of the ongoing supply shortage in Canada's industrial real estate market, and despite the decline of e-commerce activity in the country, Amazon appears to be moving full speed ahead. This is most obvious in the western provinces, where over 7.2 million square feet of Amazon space will be completed by the end of 2022, led by the 2.9 million-square-foot, custom-built, multilevel, automated warehouse in the Acheson market of Parkland County, which was very recently completed.
On the heels of the Acheson project, Canada’s first large-scale, multilevel distribution building was completed in Burnaby, British Columbia, in the early days of the fourth quarter and is fully leased to Amazon. The building measures 707,000 square feet and is split between two floors, serviced by a heated outdoor ramp that provides access to large truck courts with ample space for full-sized transport trucks to maneuver.
Rounding out the Amazon projects expected to come online this year are two buildings in the Dufferin area of Southeast Calgary. The buildings are located within the same block and across 106th Avenue Southeast from each other. They measure 2.6 million and 1 million square feet, respectively.
E-commerce activity in Canada peaked in April 2020, contributing 11% toward total retail sales. That number has since trended downward, with subsequent spikes aligning with new COVID variants and related government lockdowns. Over the course of the past six months, those values have consistently been between 5 and 6%, well above the 2.5 to 3.5% consistently measured pre-pandemic, notwithstanding the month of December when increased activity has consistently been measured. These numbers are a far cry from U.S. e-commerce sales, which have consistently been between 14% and 15% since the start of 2021.
In terms of these select western Canadian Amazon buildings that have already come online in late 2022 or are scheduled to arrive by year’s end, the projects were a significant portion of the under-construction supply in mid-2022. The two buildings in Calgary contributed 40% of the square feet underway, while the Edmonton property was 60% of the market total. The Oxford building in Vancouver equates to a 7% contribution, but when adding the other two ongoing projects — a Beedie-built multilevel warehouse in Glenlyon Business Park and an Onni-built warehouse in Golden Ears Business Park — Amazon's buildings were the equivalent of 25% of Vancouver’s construction pipeline.
Given that all these buildings, with the exception of the 707,000-square-foot warehouse by Oxford, are considered custom builds for Amazon, the overall effect on the market demand for logistics and distribution space remains. Buildings in Edmonton and Calgary continue to be started on a speculative basis and are achieving near complete lease-up by completion. Vancouver continues to see preleasing activity well before construction, and although that pace has slowed in recent months, newly built distribution buildings are rarely delivered without full occupancy.
The runway for Canadian e-commerce, when compared to the U.S. level of activity as a portion of total sales, is a long one. With inflation remaining stubbornly elevated and interest rate hikes still in the offing, consumers' disposable income is decreasing while also not going as far. Consumers are very likely to continue to search the web for discounts and better deals, resulting in continued demand for large-format distribution space throughout Canada.