Warehouse Space is Shrinking and Companies are Getting Creative
Back in August news surfaced of companies engaged in very creative storage solutions. Facing a lack of warehouse space, parking lots and truck trailers were being converted into storage facilities. Milestone Equipment Holdings LLC is a transportation equipment lessor. Their executive vice president and general manager rightly noted that trailers are scalable, mobile, and accessible. If warehouses are in tight demand, a mobile and accessible option will certainly do.
While some analysts believed the constricted supply of warehouses would abate some, it appears to have worsened. This is really bad news for the smaller operators who are being squeezed out by big retailers with more clout (and money). Karen Galena is the president of First Logistics, a company that rents space in four warehouses in the greater Chicago area. Her phone rings incessantly with small companies seeking space. They’ve been displaced from larger warehouses and simply cannot find any viable alternatives.
According to Cushman & Wakefield, the quarterly vacancy rate for US industrial real estate was approximately 4.8% in Q1 2018. It increased a bit to 5% by the end of 2020 and has since plummeted to 3% as of Q1 2022. While trailers and parking lots are working for some, the unintended consequences of their use are having interesting impacts. When trailers are used for storage, their intended use – transportation – is not occurring. Total Quality Logisitics LLC, a freight broker that rents drop trailers (unhooked trailers) reported revenue up a shocking 849% in the first half of this year compared to 2020. This has resulted in less transport which is further constraining larger supply chain issues.
Big retailers like Target, Nike, and Walmart were caught in a tight spot when the pandemic- consumer purchasing trends suddenly shifted. Items like patio furniture, for example, are piling up, and renting warehouse space (while paying top dollar) is the only option on the table. Some retailers have turned to storing goods on railcars while others are renting their railcars out. Not everyone needs space, and those firms with a rail line near their headquarters are making great money renting out vast amounts of railcar space to those desperate for storage.
As previously mentioned this ravages those retailers that are not behemoths like Target, Walmart, and Nike. Their operating margins are much slimmer and warehouse operators will always prefer the client that can both pay top dollar while also ensuring a reasonable level of turnover of goods. The latter implies handling fees and this brings in additional revenue for the warehouse owner.
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