OTTAWA — The fierce demand for housing in Canadian cities is running up against an equally fierce demand for warehouse space from online retailers trying to serve demanding customers swiftly and efficiently.

“What COVID did was accelerate everything,” said veteran commercial real estate consultant Peter Morris, in an interview with The Logic. “What we’ve seen, certainly in the industrial world, is we were caught flat-footed. We just don’t have the wherewithal to quickly rectify that.”

Commercial real estate firm CBRE’s latest report on warehouse space in North America—looking at facilities of 200,000 square feet or more—found that in 2020, the two large markets on the continent with the lowest vacancy rates were Toronto and Montreal.

Just 0.3 per cent of Toronto’s warehouse space was looking for tenants, and CBRE found “demand is so high that completions are leased before or at the time of completion and any available existing space is leased prior to being vacated.” (Montreal’s rate was 1.1 per cent. Columbus, Ohio, at the bottom of the top 10, had a vacancy rate of 4.8 per cent.)

As The Logic has documented, Amazon has massively expanded its warehouse network in Canada during the pandemic, and shifted its emphasis toward smaller but more numerous “delivery stations,” built closer to where customers live.

The company declined an interview, but according to its latest self-published “impact report” on its Canadian operations in November, Amazon is up to 17 of its large “fulfilment centres,” six intermediate “sortation centres” and 35 smaller “delivery stations.”

And in an email, spokesperson Dave Bauer said the shift is “part of our customer-obsessed approach to support Amazon’s two-, one- and sub-same-day delivery.” Smaller warehouses help with the “last-mile” challenge of getting goods right to people’s doors.

It’s costing the company tens of millions of dollars for prime property.

In 2021, for instance, Amazon bought a warehouse spot at 501 Consumers Rd. in Toronto, right next to the interchange of highways 401 and 404. According to the trade publication Real Estate News Exchange, Amazon paid $56 million—more than double what the previous owner paid for the building in 2015. And it was just one of three properties the company bought in the Toronto area in 2021.

Amazon would have been competing with a wider variety of potential buyers for the Consumers Road property than the previous owner was six years ago.

It’s in a business park, an island of low-slung light industrial buildings with residential neighbourhoods on the two sides not occupied by highways. But it’s a business park that the City of Toronto explicitly designated for redevelopment in 2018, intending to add housing for up to 11,800 people by the early 2040s.

For the longest time, cities have even offered incentives to clean up and redevelop “brownfields.”

But now Toronto is trying to figure out how to handle the demand for warehouses as it embarks on a regular review of its overarching land-use plan, spokesperson Diane Morrison told The Logic by email.

“The popularity and importance of e-commerce has been realized in Toronto, particularly since the start of the COVID pandemic,” she wrote. “Not only has there been an uptake in lands for large distribution centres, but also small distribution facilities to address ‘last-mile’ fulfillment needs have been set up.”

A special category of e-tailer is meal-kit businesses, which require refrigeration to maintain cold chains. Montreal-based Goodfood already has manufacturing and distribution sites in Montreal, Ottawa, Toronto, Calgary and Vancouver. It told investors in November that it had added a “micro-fulfillment centre” in Toronto to enable delivery in an hour or less, and would soon add such sites in Montreal and Ottawa, despite a dip in customers and sales in its previous quarter.

Vancouver, where Morris is, isn’t on CBRE’s list of the largest North American warehouse markets, but he said land-use fights are frequent there because the tight geography of the Fraser Valley means there’s very, very little vacant land.

“If you say ‘I want more industrial land,’ people say, ‘No, you’re not going to put that in my backyard,’” he said. “If you’re going to convert something from one use to another use—that’s the only way to get it done.”

A city that sprawls, like Toronto, isn’t that much different: it has land readily available on its suburban outskirts, but not close to its dense residential areas.

But even in Ottawa, a city with a fraction of the population (and one huge Amazon fulfillment centre and another under construction), planners have worked up special designations to protect land, especially near major highways, for logistics and related industrial uses.

And no sneaking in other types of development there: “To help preserve these lands from being occupied by other uses … including offices, will be limited to being secondary, complementary and accessory in nature and size,” says a city document laying out the strategy.

The lack of space has e-tailers coming up with creative solutions, Morris said. Some are eyeing the former locations of defunct big-box retailers in suburban “power centres,” like Home Outfitters (an offshoot of The Bay that closed in 2019), which are often in the sweet spot for smaller warehouse sizes.

Also, older warehouses can be rebuilt taller now, with new standards allowing higher stacking of goods.

‘“We’ve also seen two-level distribution centers,” he added. “So you have the lower level, which will have accommodations for semi trucks, and then you’ll have a second floor, which might actually be three or four floors up, where you’d have a smaller distribution, maybe 5,000-, 6,000-square-foot bays, that are served with cube vans and five-ton trucks and things of that nature.”