Datex 2022 Update on New Warehousing Construction Trends
The shortage of commercial warehousing and storage space is the latest in a string of issues that have plagued supply chains. After the pandemic began, there was a supply chain crisis. The weakness of the just-in-time order fulfillment strategy that most warehousing and distribution centers had been using at that time was exposed. During the pandemic, many manufacturing facilities were closed.?This caused delays in moving both raw materials and finished goods throughout the supply chain.?Goods that were in production were not able to be completed. How did this impact warehousing??Companies that leverage the just-in-time-strategy do this to minimize the time and cost of the goods they warehouse.?With the supply chain disruptions caused by the pandemic, many orders could not be fulfilled as the goods were not in the warehouses. As demand increased, inventory shortages created long lead times and left consumers clamoring for their products. In response, businesses began to stockpile goods to keep up with consumer demand, causing inventory levels to rise. Consequently, warehouse space across the nation has become scarce. It has also become more expensive.
The pandemic caused a ripple effect of disruption that permeated through all industries. These effects caused a warehousing bottleneck.?According to Cushman and Wakefield , the demand for warehouse space was higher than the supply in the first quarter of 2022. During that time, 108.7 million square feet of warehouse space was absorbed into the U.S. market. Warehouse demand has driven the warehousing vacancy rate down to 3.3%.?According to real estate experts Jones Lang LaSalle (JLL), 96% of existing industrial warehouse space in the U.S. is currently in use.
Warehouses are filling up faster than items can be picked, packed, and shipped out to consumers. The rapid shift to online order fulfillment is one of the major culprits. The e-commerce business boom expedited the need for fast turnaround on order fulfillment and warehousing services, and subsequently increased the demand for warehousing space. The increased demand coupled with the lack of space created a perfect storm that is driving the construction of new warehouses as well as the associated costs to skyrocket.
CBRE reports that the U.S. e-commerce market will grow to 26% of all retail sales by the year 2025. To manage the increased online orders, the U.S. needs to add 330 million square feet of warehousing and distribution space. The first three months of 2022 saw a record-setting level of warehouse construction, with the groundbreaking of 546.1 million square feet of warehousing and distribution space. In addition, there are currently 582.5 million square feet of warehousing space under construction in the U.S.
One-Third of All New Warehouse Supply is in Five Metropolitan Areas:
Dallas
Phoenix
The Inland Empire
Chicago
Indianapolis
Speculative Warehouses
Retailers and 3PLs across the nation are having problems finding enough places to store goods. The shortage of warehouse space has caused supply chain businesses to re-think their storage and distribution strategies. Logistics companies and retailers are taking steps to combat the scarcity of storage space by signing leases for storage and fulfillment facilities before or during construction. These buildings are known as speculative or “spec” warehouses. Speculative warehouses are typically single-tenant spaces built without a pre-lease in place. Developers of spec buildings build the warehouses in anticipation that they will be able to find a tenant before or shortly after the building is complete.
Main Influences Driving Speculative Construction of Warehouses:
Speculative warehouses are extremely popular in the e-commerce industry because they let businesses secure space for current or potential future use. This is beneficial because increased e-commerce orders coupled with the current logistics and supply chain challenges has caused companies to stockpile inventory. This is commonly referred to as the “Just-in-Case” inventory strategy.
The stockpile of goods improves warehouse order fulfillment rates as it enables businesses to store, access, and deliver goods within one to two days. However, dealing with the added volume of goods has caused warehouses to often function at maximum capacity, stressing their inventory management systems and labor resources. In addition, because global supply chain networks remain in disarray, businesses are also moving to onshore production.?This has increased the need for more manufacturing and storage space in already tight markets.
Retailers and 3PLs are currently engaging in bidding wars for speculative warehousing space. These bidding wars are driving up the cost of warehouse leases and rent. The competition for the increasingly limited warehouse space is so aggressive that in 2021, warehouse rent increased at a faster rate than asking prices. The demand for warehouse space has caused prices to skyrocket, especially those found near ports and major cities. Because warehouse supply is in demand, companies are eager to outspend their competition to secure substantial amounts of warehouse space in prime locations. Rents near the Inland Empire in Southern California for instance, have increased by 24%.
United States Core Distribution?Hub Locations
The introduction of Amazon Prime’s two-day shipping in 2005 and same-day shipping in 2009 altered customer expectations around delivery times. Consumers no longer find five-to-seven-day standard shipping to be acceptable and have embraced?expedited shipping as the standard shipping option. Shoppers want to place orders in a variety of ways, receive those products in the manner that suits them best., If they do not like the product they purchased, shoppers want to be able to return it seamlessly. The volume and nature of the returns process has changed, and this is a contributing factor in the increase in the construction of urban warehouses. As demand for prompt delivery to meet next-day and same-day order fulfillment increases, developers are constructing urban warehouses. Due to low vacancy rates and increased demand, urban areas are becoming populated with multi-story warehouses. Urban warehousing enables companies to better meet consumer demands and enhance customer experience by simplifying last-mile delivery processes. By placing a warehouse or fulfillment center in densely populated areas, companies are better able to quickly access people faster and with less labor and fuel costs. The value in urban warehouses is that their close proximity to consumers and brick-and-mortar stores enables them to provide faster, more cost efficient order delivery, ensuring higher customer satisfaction.
The popularity of urban warehousing is obvious when looking at the top twenty markets that have the most warehouses space under construction.?All are large metropolitan city areas.
Top 20 U.S. Industrial Markets with Most Warehousing Space Under Construction
Dallas – 38,021,216 sq. ft.?????????????????Atlanta – 10,537,541
Phoenix – 36,328,026 sq. ft.?????????????Charlotte – 10,367,782
Indianapolis – 29,967,142 sq. ft.?????? Memphis – 10,073546 sq. ft.
Inland Empire – 25,939,323 sq. ft.????Seattle – 9,861,584 sq. ft.
Chicago – 25,883,951 sq. ft.????????????? Detroit – 9,287,057 sq. ft.
Houston – 18,470,478 sq. ft.????????????? Nashville – 9,129,037 sq. ft.
Philadelphia – 14,033,136 sq. ft.??????? Central Valley – 8,660,209 sq. ft.
Kansas City – 13,375,838 sq. ft.???????? Boston – 6,963,337 sq. ft.
Columbus – 12,699,742 sq. ft.????????????Denver – 6,017,163 sq. ft.
New Jersey – 11,726,849 sq. ft.????????? Cincinnati – 5,192,574 sq. ft.
New Warehouse Construction: Transformation
The e-commerce revolution has had a major impact on the design and construction of warehouse facilities. Global e-commerce sales hit $26.7 trillion in 2021, a sign that online ordering is not likely to decrease any time soon.
In addition, existing U.S. warehouses are not getting any younger. The average age of commercial storage space in the United States is 42 years. That means that over one billion square feet of warehouse space in the U.S. is over 50 years old. In the age of e-commerce business and the Internet of Things, the limitations of older warehouses are proving harmful to supply chains.
New Warehouses:?More Square Footage
As warehouse facilities have shifted from shipping and receiving facilities to full-on automated order processing centers, the average facility size has increased. From 2007 to 2018, the number of warehouse facilities with at least one million square feet increased from 23 to 48. That number jumped to 57 in 2021, a 19% increase from 2020.
According to?Cushman and Wakefield , the average size of warehouses has grown more than 40% in the past 20 years. The increase in warehouse facility size directly correlates to the demand for e-commerce. As warehouses become larger, stockpiles of goods also increase. To keep goods flowing to consumers, developers have had to increase the size and height of warehouses. Major distribution markets such as Atlanta and the Southern California Inland Empire have seen the largest increases in warehouse sizes.
Use of Automation in New Warehouses Under Construction
As technology advances, facilities are turning into automated warehousing and logistics centers. The use of automation has become one of the most vital functions of warehousing operations and logistics. Experts believe that the growing demand for warehouse space will continue to accelerate the increased need for digitization in the warehousing industry. New warehouses are going to have to battle the labor shortage, however. Automated warehousing allows retailers and 3PLs to support warehousing operations, help alleviate labor shortages and facilitate efficiency. Automation also increases the occupational safety and health of warehouse workers, which increases worker retention.
Although automation already plays a key role in supply chain logistics, it has become critical to warehousing. As demand for storage space skyrockets, warehouses are using technology to optimize their performance and maximize their use of every square foot of storage space. This in turn helps them to respond to the ever-changing demands of consumers. By using technology, warehouses can operate around the clock. This alleviates stress on human workers while increasing the efficiency of warehouse operations.
How is Warehousing “Going Green?”
The evolution and development of warehouses and distribution centers in the U.S. remains far behind those in Europe and other countries. Due to stricter environmental guidelines, new generation “net-zero” warehouse facilities are opening across Europe. Warehouse storage facilities that are operational in the U.S., however, are low-rise structures that rely on the use of fossil fuels which contribute to overall global warming.
As investors advance the logistics and supply chain industry towards digitization, they are also adopting carbon-reduction measures to construct more sustainable warehouses. One of the most important warehousing solutions to investors is updating building rooftops with solar panels. By turning warehouse facilities into solar farms, companies are not only able to power their warehousing operations but also to lower utility costs of neighboring homeowners and businesses. As state and federal governments place more importance on decarbonization goals, we can also expect to see the implementation of more green construction measures.
Leasing agreements normally discourage infrastructure upgrades by tenants. However, owners of storage and distribution facilities encourage them. Typically, warehousing tenants sign triple-net leases which put the tenant in charge of maintenance and operations. Terms in this type of lease do not provide any motivation to the owner or the warehouse building tenant to spur investment into the building structure.
The industry has been changing and “green leases” have become popular. This types of lease encourages owners and tenants to collaborate on upgrades to improve the sustainability of warehouse facilities. By sharing information with one another, owners and tenants can held adhere to newer building standards that require carbon reductions.
Cold Storage Warehousing
The growth in online grocery purchases has generated a demand for nearly 100 million additional square feet of?cold storage warehousing space ?by 2025. According to CBRE, The U.S. had 3.3 million square feet of speculative cold storage warehouse space under construction in the second quarter of 2022. This is ten times the amount that was under construction in 2019. The addition of these cold storage warehouses puts the current cold chain capacity at 225 million square feet throughout the nation. The demand for cold storage warehouses is expected to remain strong in food producing states such as California, Florida, Texas, Wisconsin, and Washington state.
In March 2022, Bain Capital and Barber Partners announced a $500 million partnership to develop next-generation cold storage warehouses across North America. Warehouses equipped with food-handling technology cost four to five times as much as traditional warehouses and distribution centers. The construction of cold-storage facilities also takes more time and knowledge to build. Infrastructure such as formidable roofs that can hold heavy-duty cooling units and floors that can support cooling systems are necessary for cold storage construction.
New Warehouse Construction: Key Discoveries
According to Dodge Data & Analytics, the U.S. warehousing market is set to reach $53 billion by the end of 2022. This is a 1400% increase since 2010 and makes up over one third of the commercial construction in the nation. Listed below are key findings about new warehouse construction.
领英推荐
Help to accelerate construction
Control costs
Meet quality assurance goals
New Warehouse Amenities Enhance Workforce Wellness
Conclusion
During the COVID-19 pandemic, companies shut down their brick-and-mortar operations and moved their inventory into warehousing and storage facilities. This move made products more accessible to consumers. It also enhanced companies’ ability to pick and pack items for shipment.
The occupancy levels of warehouse and distribution centers has consistently reached record high rates. With vacancy levels at such a low rate and warehouse rents high, companies are moving quickly to shore up space. As imports rise, companies stockpile goods which make their inventory control difficult. This is leading to construction of more warehouse facilities, including speculative warehouses, especially in urban areas, to enhance last-mile delivery.
To Read More, Please Click Here https://bit.ly/3U7f3Iu