Published May 7, 2020

The industrial sector has remained resilient during these times of instability despite challenges with the global disruption of supply chains – mainly from China, being the largest global exporter of goods – manufacturing plant closures from the automotive, electronics and pharmaceutical industries, and logistics constraints. Vacancy rates, however, have remained low. New supply deliveries face modest setbacks with construction moratoriums in place in certain provinces, and in some cases, companies have considered delaying their leasing commitments as they remain cautious in an uncertain global economic environment. It is expected that these conditions will further impact the labour market structure and unemployment rates in Canada and across the border and will likely influence leasing activity and affect the supply of industrial real estate.

Demand for industrial space will continue to accelerate and gain traction in the coming months, ranging from short-term warehouse or industrial flex-spaces to longer-term spaces, dependent on how the pandemic unfolds. As a result of government containment measures, many companies are working aggressively to adapt to the influx in demand from e-commerce, such as consumer goods and food deliveries, which have resulted in order fulfillment and shipment delays. At the same time, the pandemic has posed other challenges for the industrial market, mainly from the disruption of international supply chains, further contributing to the slowdown in deliveries with much of Canada’s finished goods imports coming from China. The shutdown of several manufacturing plants in China has also led to a decline in container shipments to Canada, particularly in Vancouver and Toronto.

From a manufacturing standpoint, Canada’s direct supply-chain exposure, although significant, may still be limited, according to a report by Royal Bank of Canada. The report states that “only 10% of unfinished or intermediate products are imported from China, which matter more for production…[however,] the longer the outbreak lasts, the more impact intermediate goods shortages could have on industrial output in Canada.” Therefore, we may see a slight softness in certain industrial sectors as some companies considering halting their leasing commitments for larger and small bay warehouse spaces due to manufacturing plant closures from the automotive, pharmaceutical and electronic sectors.

 

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