Warehousing landlords are poised to earn more profit this year without expanding their property, as leasing rates are projected to rise despite a slowdown in demand. According to data from real estate company Colliers, warehouse costs in the US have increased by 20.6% since 2022, reaching a record $9.72 per sq ft. However, the growth in industrial real estate rents slowed in the second half of the year, with some markets experiencing annual declines while others showed increases. Nonetheless, Colliers predicts that the upward trend in warehousing rents will continue this year because of low vacancy levels.
Rates aren’t expected to come down any time soon. Colliers’ research anticipates more rent increases, even as vacancy rates remain historically low.
Additionally, the supply of new warehouse construction is expected to decrease significantly due to a lack of new space becoming available. The facility construction boom, triggered by the surging e-commerce market of 2021/22, has largely come to an end. Colliers has warned that construction starts have significantly decreased, resulting in a dwindling construction pipeline.
Experts attribute this phenomenon to the unique dynamics of the industrial real estate market. In this landscape, warehouse operators and their clients often commit to three to five-year deals, making leasing decisions based on long-term prospects rather than short-term market conditions. Despite the appearance of increased vacancies, the broader market for warehouse space maintains an exceptionally tight status by historical standards, with availability still significantly below pre-pandemic levels. This context underscores the intricate interplay of long-term commitments and a persistently constrained market contributing to the current dynamics in warehouse rents.
Is it time to Outsource Fulfillment?
As the cost of warehouse rents is expected to continue rising, many businesses and retailers are facing higher operational costs in managing their logistics and fulfillment processes are looking for ways to cut down on expenses. One way to achieve this is by consolidating operations, reducing shipping locations, or outsourcing their operations to third-party logistics (3PL).
How to know when it’s time to outsource e-commerce fulfillment
With increasing warehouse rents and the looming challenges of internal fulfillment management, such as rising parcel rates, outsourcing can be a cost-effective and scalable solution that provides the benefits of shared infrastructure with specialized expertise. By entrusting fulfillment to a third-party logistics (3PL) partner, retailers not only mitigate the impact of escalating warehouse costs and parcel rates but also gain access to specialized expertise like kitting & assembly, returns management, and inventory optimization.
For more info check out this article from supplychaindive.
