The Challenges of Finding Warehouse Space in 2022
One of the biggest headwinds to scaling up business for ecommerce retailers is the challenge with finding warehousing space — and in finding it at a price that helps them eke out a profit. Given the demand spike brought on by the pandemic, as well as numerous challenges with procurement given the current state of the global supply chain, many companies are bulking up their inventory rather than run the risk of running out.
This has led to some practices seldom seen in industrial real estate. Some companies are signing deals for warehouse spaces that haven’t even been built. Other companies are taking a hit to their operating margins in favor of renting out space that they aren’t able to fill yet in favor of having the infrastructure in place for when they can.
With retailers, both in the digital and traditional sense alike, scrambling to snap up this precious real estate, learning to navigate the potential pitfalls will be essential for businesses looking to control costs and be successful.
Looking to move into a new warehouse space?
One of the biggest challenges to overcome when considering warehouse space is a matter of finding it, to begin with. While the most obvious consideration is the outright cost (rent rates have gone up 25%), If there is space available, here are a few other things to keep in mind when looking for new warehouse space.
Location: As with all things real estate, location is the most important aspect to consider regarding warehouse space. Ideally, warehouse spaces should be located in as close proximity as possible to main distribution areas, as this cuts down on logistics and transportation costs.
However, urban warehouse spaces can be particularly expensive, to the point of becoming cost-prohibitive in some cases. In those cases, it may be less expensive to rent out warehousing further away and pay slightly more in shipping costs.
Is it necessary?: Another question that needs to be asked before beginning the hunt for space is whether or not an organization actually needs the space. Because of the space shortage, many companies are taking a closer look at their current warehousing to see if it’s operating at peak efficiency. In some instances, it’s not a matter of needing more space but needing to use the space more efficiently.
More than one location?: Multiple warehouse locations offer some interesting possibilities, but it may not be suitable for every organization. There is the immediate consideration of increased costs due to multiple locations, which, again, may be cost-prohibitive. On the other hand, a more diversified network of warehouse spaces increases the operational range for distribution and delivery. Depending on the size and scope of an operation, this could allow for more efficient logistics and lower transportation costs.
Consider the alternative
The warehouse real estate market is hot, and that is unlikely to change anytime soon, given the multitude of issues facing the global supply chain and the considerable strain being placed on the American logistics network.
With that being said, there are alternatives to renting out warehousing space that might be worth evaluating. In particular, working with a third-party fulfillment provider might be the most economical solution for some organizations. Here, the service provider can offer a wide array of services from storage, pick and pack, all the way to shipping deliverables to customers. While an all-out fulfillment service might be costly, it may end up costing less than simply renting out a space.
Ultimately, there’s no one right answer when it comes to finding the best way to store inventory. However, it is a challenge that will need to be overcome soon, as there aren’t any quick-fix options for the current state of the supply chain. In terms of deciding what’s best for your organization, consulting a 3PL would be a great start to evaluate your operational needs before heading off in any one direction.