One of the lesser talked about drivers of industrial real estate demand is the sheer amount of returned products.
According to a report from GWL Realty Advisors, sales from e-commerce in North America are forecasted to grow an additional USD$497 billion by 2023—over $82b of which will be in Canada—however, that will come with its own set of complexities. Return rates for products purchased online are more than three times higher than in-store purchases, and where clothing is concerned, it can exceed 75%.
That has led to high demand for reverse logistics space where products can be inspected to ensure they aren’t faulty.
“With the rise of e-commerce generally, you’re seeing broad-based demand for forward and reverse logistics, but the latter is less emphasized,” said Anthio Yuen, director, research services and strategy at GWLRA. “With strong demand, you’re seeing lower vacancies and with the structural shifts of e-commerce and that sector’s strong growth, as well as strong population growth, you’re seeing overall demand from direct retailers and third-party logistics firms.”
As online retailers grow in as-yet small sectors, like grocery, furniture, appliances and health products, the demands for complex reverse logistics spaces will rise in kind.
According to industrial vacancy rate statistics gathered by Colliers International, the Greater Vancouver Area sits at 1.5%, the Greater Toronto Area at 0.40%, Greater Montreal Area at 2.30%, and the Greater Ottawa Area is at 1.3%.
Retailers have been jockeying for limited space for some time now and the competition is expected to grow fiercer. CoStar Group’s Roelof van Dijk, market economist for Canada, noted that Amazon is aggressively taking market share.
“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,” van Dijk told Postmedia.
“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. That’s been driving down vacancy in those markets because we just haven’t kept up with construction activity.”