The North American warehousing and logistics market has continued to experience strong demand in 2021. However, pandemic-related supply chain issues continue to exacerbate a wider supply/demand problem within the North American warehouse construction sector.
Projects currently under construction are experiencing schedule delays while planned developments are being impacted by rising material costs, causing windows for the acceptance of tender prices to shrink.
Labour shortages across the construction industry, many of which posed a problem before the pandemic, add a further layer of complexity to the aim of returning to pre-pandemic levels of activity, with many contractors finding it difficult to recruit skilled workers.
Despite market challenges, the fundamentals driving demand in the US remain strong. It is one of the world’s largest e-commerce markets, with online sales representing close to 20 percent of all retail sales.
As part of the Biden administration’s recently announced Supply Chain Disruptions Task Force, there is an intention to build capacity and resilience that will result in funding being made available at federal level. The semiconductor shortage, the push to increase domestic made electric vehicles and the rapid expansion of the pharmaceutical sector has underlined the need to expand capacity as quickly as possible.
From the owner/developer side, two strategies have emerged with investment both inside metro areas and in the nearby nodal points, where highways and ports converge. There has also been a recent trend for the redevelopment of “zombie malls” and box stores that have seen a major decline in foot traffic as e-commerce continues to gain market share.
Another strategy is moving distribution hubs into existing metropolitan industrial areas, making use of brownfield land which cannot be used for residential or corporate uses. While being located much closer to customers, these sites still pose a challenge because they tend to be smaller and would require double stacking to create enough space for inventory, increasing build costs. Their dense urban location also makes high frequency truck traffic harder to accommodate.
Despite these challenges, the additional cost and effort needed to make these strategies work is increasingly becoming more palatable as demand continues to skyrocket.
Canada continues to see strong growth in the warehousing market with all its major cities seeing all-time highs in leasing activity over the past 12 months. Aligned with trends in the US, e-commerce is proving a major driver of demand with destinations such as Vancouver, London, Waterloo Region and Toronto having availability rates of less than one percent.
While domestic demand has been steadily strengthening throughout 2021, producers and manufacturers have struggled to keep up amid the global supply chain disruptions. This has pushed up the cost of goods for businesses and households, with inflation reaching 4.4 percent year-on-year in the 12 months to September 2021.
While employment levels are back up to pre-pandemic levels, there remains a chronic shortage of skilled labour within the Canadian construction market. All provinces continue to grapple with an aging labour force.
The Government of Canada, as part of its drive to strengthen trade corridors, confirmed in July 2021 that an additional $1.9 bn of investment will flow from the National Trade Corridors Fund to reduce barriers to trade and build long term resilience in the sector.
Vice President, North America
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