According to an article by Bill Mongelluzzo in April 2015 The Journal of Commerce entitled “Extending the Boom”, available warehouse space nationwide continues to diminish at a rate of more than 20% year-over-year with net absorption of more than 61-million sqft in the 4th quarter of 2014 versus just over 50-million 12 months earlier.
So what does that mean? Simple supply-and-demand theory would suggest that third-party available warehouse space will continue to tighten up resulting in increased prices to manufacturers and distributors, eventually likely trickling down to the consumers. It also may mean that existing older, smaller buildings which used to be ignored as viable warehouses could become more relevant.
Older buildings are often overlooked as viable options as available warehouse space for a number of reasons. While newly constructed buildings have higher ceilings, wider column-spacing, and more docks, the older buildings have a tendency to require more labor to operate and can be more difficult for the unseasoned warehouse operator to run efficiently. In addition, like any older building – residential or commercial – buildings initially constructed for one purpose generally require a good deal of front-end cash infusion to bring them up to speed. They are less efficient and cost more to operate and maintain.
Does this mean there will be a dramatic uptick in industrial construction? Or will a newer trend develop rewarding the 3PL team with experience managing the more inefficient buildings in order to provide the much needed available warehouse space?
The latter looks to be a possibility, but not for the feint at heart. With third party logistic companies’ profit margins often nearly razor thin (less than 8% in most cases), uncertainties surrounding the operation within unusual and non-standard former factories and outdated distribution centers is risky. Very risky.
So where does a company find available warehouse space these days? It’s not going to get any easier, but experienced 3PL warehousing companies who know how to work in older buildings might be a good place to start. With the exorbitant costs of constructing the new tilt-up buildings skyrocketing, companies already experienced operating in facilities with unusual characteristics should prove to be the answer.