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Home Shipping & Logistics Contract Logistics (SCM)

Warehouse Space Wanted

Industrial space is in big demand as companies adjust to the new realities of the burgeoning e-commerce market.

July 7, 2022
Warehouse Space Wanted

Warehouse man worker with forklift.

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With US e-commerce sales growing steadily over the last decade, and with significant growth taking place in 2020 and 2021, shippers have been positioning their goods closer to their end customers. With online sales reaching $870.7 billion in 2021 (a 14.3% year-over-year increase) and $759.6 billion in 2020 (a 31.8% lift over 2019’s numbers), the race to find storage space near those eager buyers is on.

As with any supply-demand scenario, the fact that companies are hungrily consuming industrial space in and around urban areas has driven up prices while driving down availability. According to CBRE’s most recent industrial market report, the US industrial market achieved record-high asking rents amid extremely tight space conditions in 2021.

“Demand well outpaced supply, leading to a record low vacancy rate of 3.2% at year’s end,” CBRE adds, noting that occupiers from a diverse array of industries leased a record total of more than 1 billion sq. ft. in 2021. The average asking rent increased by 1.9% quarter-over-quarter and 11.0% year-over-year to a record-high $9.10 per square foot.

These factors have created a “perfect storm” of challenges for shippers that need more storage space than their current facilities can offer. “As retailers and logistics companies try to stockpile goods to hedge against supply chain problems, they are facing a new challenge,” the New York Times reports. “In many parts of the United States, there is little to no space available to stash the merchandise.”

330 Million Square Feet Needed

In Amid Land Shortage, it’s a Landlord’s Market for Industrial Real Estate, Propmodo explains  how, across much of the world, industrial vacancies are at record lows, rents are going through the roof, and developers can’t keep up. These factors have created an intense industrial market that shows no signs of letting up.

“I’ve been working in industrial real estate for 27 years, and I’ve never seen it this intense,” JLL’s Kris Bjorson told the publication. “It’s a really unprecedented time for the U.S. industrial market. It’s unbelievable to be under a 4% vacancy rate nationally. It’s usually in the double-digits.”

With vacancies so low, companies are finding themselves in bidding wars for new space. In some gateway logistics markets or close to major ports, Propmodo says “rent growth is astronomical.” For example, industrial rent growth in California’s Inland Empire—situated within easy delivery distance of Southern California’s coastal area—was 58% in 2021.

Citing a recent CBRE report, Propmodo says the US needs another 330 million square feet of warehouse space by 2025 to keep up with e-commerce growth. Knowing this, developers are now busy adding new industrial space to the market. “There are so many tenants out there looking for industrial space,” one build-to-suit developer told RE Journals. “It’s not much different from what we are seeing in the housing market: They have a need and they can’t fulfill it. The need doesn’t go away.”

Rethinking their Approaches

The current situation is driving companies to rethink how they manage storage, handle distribution and set up new delivery systems for their goods. “Logistics firms are taking several steps to deal with the scarcity of storage space,” the New York Times states, “like signing deals for new space long before ground is broken and expanding searches for sites farther from coastal ports, to such areas as Knoxville, Tenn.; the Lehigh Valley in Pennsylvania; and Reno, Nev.”

Organizations are also turning to their logistics providers for help. A contract logistics partner for businesses across all key markets, DB Schenker’s worldwide network covers more than 794 locations in over 60 countries and more than 8.75 million square feet of warehouse space. It covers all stages of the supply chain—from supplier to customer delivery from reverse logistics to aftermarket support.

Companies are also reimagining their existing commercial warehouse space. In densely populated areas, where land is scarce and zoning is restrictive, some companies are building taller warehouses or spreading their goods to smaller spaces (i.e., vacant storefronts that were shuttered during the pandemic), the New York Times adds.

“The supply-and-demand imbalance is more significant than I have ever seen,” the Society of Industrial and Office Realtors’ Robert Thornburgh told the publication. “There is limited inventory of industrial space. It is almost evaporating before your eyes, if you are even lucky enough to know about it.”

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