Last year, around this time (the end of the first quarter of 2023), supply chain discussions were dominated by the difficulty of finding affordable warehouse space in the US market. At Waypost Advisors, we were advising against long-term negotiations due to soaring costs and scarcity of space. Curious about where it stands now?
1) A very near-term dynamic suggests a softening market, meaning warehouse rents are not increasing as quickly as they were even mere months ago if they are increasing at all. The driving forces behind this current dynamic are:
This all means that warehousing costs are under some downward pressure, depending on where you are in the country. Markets like Southern California, Houston, and Pennsylvania are still heavily utilized. Still, in other markets, lessors of warehouse space may find pricing more stable and 3PLs and Lessors more willing to negotiate.
According to the Wall Street Journal, which cites real estate company Cushman & Wakefield data, the average industrial warehouse space rent rose to $9.79 per square foot in the 4th quarter of 2023. In the same period, the warehouse vacancy rate across the US escalated to 5.2%, more than 2 percentage points higher than a year prior and the highest since the pandemic. However, this is still below the 15-year average of 6.4% (Warehouse Availability Surges to Highest Level Since the Pandemic - WSJ)
2) The continued desire for customers to maintain lower inventory and the growth of rapid e-commerce fulfillment are driving corresponding growth in the warehouse, as well as 3PL needs in the US.
The growth in e-commerce will continue to put upward pressure on rents and 3PL costs but will also continue to attract real estate investors into the equation. (Understanding the Growth in the Average Warehouse Size in US (warehousingandfulfillment.com) A good portion of the warehouse space being built right now is speculative, meaning that it does not have a specific customer to take it, but that the investors believe they will be able to sell that space quickly. This suggests that investors do not think empty spaces will sit empty long.
Also interesting for B2B suppliers is the continued trend of their customers wanting to reduce the amount of inventory they want to hold but also want to reduce the variability of the time it takes for them to receive product once they need it. One of the only levers for this expectation is lead time, meaning that inventory needs to be positioned closer to the customer so that they can receive it quickly.
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Adding inventory to a network will always add costs to a supplier, but it may be justified if the customer is willing to pay a bit more for the convenience of not having to hold their own inventory but still knowing that they won’t have to wait weeks or spend significant money on expedited freight if they need something in a hurry.
These trends also suggest that warehouses and 3PLs will become more technologically advanced, leveraging more automation and data analytics to drive efficiencies and reduce the costs and risks associated with labor.
Find out more on supply chain mark updates: Charting the Course: Global Container Market Projections
Waypost Advisors has leading supply chain consultants ready to help your organization take the next step towards optimizing your organization’s operations. Contact us today and we’ll schedule your 30-minute complimentary call with an Advisor that’s experienced with your situation.
Waypost Advisors is an end-to-end supply chain and resourcing solution. We offer expertise in procurement, inventory, project management, planning, transportation & warehousing to fit the needs of your B2B manufacturing or distribution company. Our advisors can provide you with the resources and expertise to tackle your supply chain challenges while allowing you to still focus on running your business.