Warehouse space is in short supply. Available capacity hit a historical low recently, and lease rates are at record-setting highs.
The lack of available options – such as expanding to a bigger facility – has left many warehouses out of storage space with nowhere to go. These conditions require tenants to pursue alternative solutions to maximize their warehouse capacity.
To get a better idea of the current market conditions, supply chain challenges and warehouse capacity solutions, Colliers’ Head of Supply Chain Brewster Smith offered his insight.
Warehouse vacancy is at a historic low. Do you anticipate that easing at all in 2022, or will the demand for warehouse space continue?
We see that the demand for warehouse capacity is likely to continue to increase. While Amazon has been building out their distribution network for 27 years, many companies appear to have only recently developed a sense of urgency to build out direct to consumer, e-commerce capabilities which requires incremental warehouse and fulfillment center capacity. COVID-19 accelerated this dynamic.
What would you consider to be biggest challenges facing warehouses in the coming year, in addition to limited capacity?
Labor scarcity is the most common we are hearing from supply chain practitioners. Warehouse managers are having an unusually difficult time finding and retaining people.
In addition to labor scarcity, there are two other concerns. The first is warehouse availability. We are seeing record occupancy levels and finding space is unusually difficult. Secondly, the cost and availability of building materials is a challenge. Steel, wood, concrete, roofing materials and many other items are in limited supply and therefore more expensive than what we have seen historically.
Looking at the current state of the supply chain, what does 2022 have in store?
Companies will make larger investments in automation technology, like collaborative robotics, to address the labor scarcity problem.
Additionally, volatility, in some shape or form, will continue. If the pandemic eases, a different disruption will arise. It could be related to cyber security, geopolitical instability, social unrest, fiscal policy or environmental disruption. Companies need to include risk simulation and mitigation planning into their quarterly review processes to be prepared for the next asymmetric event.
What would be your advice to tenants that need more warehouse space?
I would encourage our clients to be courageous and creative in taking on the problem. Three steps I’d advise, for example, include:
- Write-down and scrap the inventory that is obsolete or non-sellable.
- Schedule a rack installer visit to get ideas about how to improve storage density.
- Explore the modular and flex warehousing options.
The situation is not likely to get better anytime soon so it is important to act sooner rather than later, and Colliers can help map out critical next steps for anyone looking to maximize their capacity.