Warehouse space and available storage capacity have become increasingly important for most growing businesses, but the average logistics warehouse vacancy rate across North America is expected to remain at or near historic lows during 2022. Harder-to-secure materials, labor shortages and land scarcity have slowed the pace of construction completions at the same time as demand is increasing significantly.
The figures come from a report released by the research arm of Prologis Inc. The projections suggest it will remain difficult to procure warehouse and distribution space throughout the year. Vacancy rates ended 2021 at an all-time low of 3.4 percent despite an additional 270 million square feet of capacity entering the market. A record 410 million square feet was snapped up last year-85 percent higher than 2020 levels-and about 400 million square feet will be spoken for this year, according to the report.
Traditionally, vacancy rates had hovered around 6 to 8 percent, but are typically at less than 4 percent today. “We’re still adding inventory, but we’re gobbling it up as quickly as they build it,” said Bryan Gardner, SIOR (Society of Industrial and Office Realtors), McIntyre Industrial Real Estate Services.
Traditionally, vacancy rates had hovered around 6 to 8 percent, but are typically at less than 4 percent today. “We’re still adding inventory, but we’re gobbling it up as quickly as they build it”…
The industry is in a gap period where existing commercial space has been almost entirely backfilled and new buildings aren’t yet online. “There is a pipeline of buildings under construction in virtually every part of the country, but these buildings won’t be ready for material handling setup until the first or second quarter of 2023,” Gardner said.
What’s more, most landlords now are requiring a minimum five-year lease. “In the past it was a minimum of a three-year lease,” Gardner said. “Some institutional landlords won’t do anything less than seven-year terms right now.”
Understanding the Short Supply
Gardner said the challenge with adding new storage space has been a lack of construction materials. “It used to be that if I’m building warehouse capacity somewhere across the country and I went out with my structural plans, I could start ordering materials and the roof structure might turn up in four to six months. Now, in some markets, that has stretched out to 14-18 months,” he said.
What’s more, customer demands have increased, and today’s logistics facilities are more sophisticated than ever. Popular requests include renewable energy options, indoor/outdoor amenities, and infrastructure options for automation and other technologies, according to Prologis.
The key application sectors of warehousing, such as manufacturing, retail, healthcare, construction, automotive, technology, etc. are expected to exhibit continuous growth, according to the Warehousing and Storage Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast 2022-2027.
Additionally, e commerce sales have increased, changing the dynamics of inventory and warehousing space needs. “We’re seeing companies that need more square footage,” Gardner said. “We need the space, and we need places to put the product.”
Given shifts in demand, Gardner is also seeing companies seek out warehouse design that allows for a better, more efficient layout for multi-level fulfillment pick operations. “With e-commerce, you have partial-in and partial-out shipments. There are a lot more touch points,” he said.
Examining the Price of Rent
Rents have gone up as material and construction costs have increased and as available space has decreased. Prologis reported that net effective rents increased by a record 17.6 percent in 2021. Similarly, in 2021, the price of construction materials rose 40 percent in the U.S. and land values rose 50 percent.
Prologis reported that net effective rents increased by a record 17.6 percent in 2021. Similarly, in 2021, the price of construction materials rose 40 percent in the U.S. and land values rose 50 percent.
Overall construction carrying costs also increased because projects are taking longer to complete. This is due to the size and complexity of today’s logistics buildings as well as labor shortages and increased regulatory hurdles.
Global rent growth in 2022 should reach the high single-digits as demand continues to outpace supply.
Maximizing Available Space
With the current capacity constraints, shippers must optimize their warehouse operations and maximize available space. Optimizing operations begins with selecting the right geographic location for a warehouse.
Within the warehouse walls, companies can prioritize warehouse space utilization by engineering the right racking solutions, establishing aisle widths, and determining the right slotting and storage patterns.
Additionally, wearable devices, robots, and other warehouse technology can improve warehouse efficiency. The right solutions increase order fulfillment speeds and maximize the efficiency of the picking and packing process.
ITS Logistics continues to invest in new facilities and capacity, customized technology solutions, and its team members have years of expertise in every type of fulfillment services and distribution services, drayage and intermodal services, dedicated fleet services and full omnichannel supply chain solutions.
Contact Kasia Wenker at (855) 449-2885 or email@example.com to find out how we can help you with your warehousing space needs.
Kasia Wenker, Director of Supply Chain Solutions