Why Is Rent So High For Warehouses?

Warehouse space is dwindling in the US due to a rise in online spending, an import surge, and growth in safety stock. Rent prices have increased as a result of new business competition for these properties. Experts believe that the rental rates will continue to grow, as it has in the past. This is likely to have a considerable impact on American industry and logistics real estate. Rent prices are soaring nationwide due to the shortage of available warehouses. Warehouses are demanding higher negotiated rents now than asking prices. This growth in asking rents comes after they increased by 8% over the last year. 

Logistics companies are bidding against each-other on the cost of warehouse space, and this is causing prices to rise. The price is increasing fastest near ports in major cities, and Southern California is one such area where renting a warehouse has increased by 24%. Across the whole of America though, the lack of warehouse space means that companies are having to pay more, with all four regions seeing rent requests increase. 

How the Warehouse Shortage Affects The Economy 

When a crisis disrupts the supply chain, fulfilling orders can become almost impossible without some stock on hand. This is why lean manufacturing and JIT strategies can have major limitations. It’s also crucial to carry supplies for your customer base, even if demand has decreased in some areas. Businesses need to prepare for the next crisis by being prepared with safety stock, which they get by buying more inventory than usual. These include stocks of PPEs, which are growing in importance after COVID. 

How E-commerce Demand is Affecting the Price of Rentals 

Retailers are shifting away from in-person shopping to e-commerce, which has created a scarcity of space for wholesalers and warehouses. Certain businesses closed their brick and mortar stores due to the pandemic and have been focusing their efforts into their online store. The employees of these stores determined that JIT logistics was necessary for the company and are now stocking up on larger inventory in order to keep up with demand from online shoppers. People are returning to shopping in person, but it is not clear yet how much retailers will pivot back to brick-and-mortar stores. With the safety of the population increased due to vaccinations, more people are feeling comfortable with returning to normal societal behaviors and e-commerce sales have hit record levels. With the increased preference for online shopping, stores are more likely to keep their shuttered stores. 

Consumer sentiment has been volatile for the past few years, but is predicted to rise. Consumer sentiment rose to 88.3 in April 2021, but then when down to 81.2 in July 2021. The index has gone up since last year. It was one of its lowest points during the pandemic in July 2020. However, it was still significantly lower than in July 2019. To guarantee a strong supply of merchandise, businesses may wait before they make buying decisions. This holding pattern can also influence customer confidence as well. 

In contrast to the rest of construction, warehouses in particular experienced a large year-over-year increase. It is uncertain how increased warehouse space may fix the underlying problem, which is that priorities have changed as a result of an unprecedented economic crisis. Experts in the industry say rent rates will continue to rise over time, with Carolyn reporting that Cushman & Wakefield does not predict an end for rental rate growth. 

The logistics industry will experience a shortage of labor in the future. Solutions like automation, which are already important in the industry, may become more mainstream as demand for storage skyrockets. Similar to internet of things devices and autonomous mobile robots, automation may move from being a cutting-edge investment to more of a mainstream warehouse tool in the future. There could be an increase in jobs if online shopping continues to grow, as they would be needed for e-commerce fulfillment. The number of labor-intensive jobs would increase and this could be good for the economy. Retailers are using new tools to quickly quantify the size, space, and productivity of their warehouses. Data-collection tools help retailers gather information about their location inventory, warehouse traffic, and site productivity. 

How to Handle the Rent as a Result of the Lack of Space in Warehouses 

Warehouse rental rates will continue to grow, as demand and consumer confidence continue to rise. With this, they need more space to handle new inventory. Space shortages could provide the necessary fuel needed to propel the digital transformation of warehouses. It may also accelerate things such as space and labor shortages.