Warehouse Space Running Out as Retailers Look for More

October 21, 2021


Consumer spending remains strong with US retail sales up 19.1% year-over-year through September and up 21.2% from 2019. The strong demand in retail sales is having a powerful impact on supply chains end-to-end manifesting in backups at ports, delays to warehouses and stores, and delays to the consumers. But, a growing concern are the warehouses.

“With vacancies at unprecedented lows, space in our markets is effectively sold out," Hamid R. Moghadam, CEO of Prologis, a property management firm, said in a company press release.

Running Out of Warehouse Space

Indeed, Prologis CFO, Tom Olinger, noted on the company’s Q3 earnings call on Oct 15 that “spaces above 100,000 square feet are effectively fully leased” and that pre-leasing reached 70% as customers compete for space.

It’s hard to come up with the land to build buildings, according to Prologis executives. Land close to ports is either at a premium or non-existent depending on the port. The same can be said for facilities closer to consumer populations.

Building Up Instead of Out

Current options are for property management firms such as Prologis to either build up instead of out or, perhaps, to think out of the box when it comes to locations closer to consumers.

Building up, i.e. multi-story facilities, is common in other countries such as Singapore, Japan and parts of Europe due to land shortages. However, it’s a different story here in the US. Prologis built the first multi-story facility in the US in 2018 and expects more such facilities to pop up throughout the country. However, multi-story facilities are expensive to build and thus, the costs will likely be passed on to customers in terms of higher rates.

The demand for warehousing facilities closer to consumers continues to grow as retailers integrate physical and virtual stores and as consumers want more last-mile delivery options, particularly faster options.

Using Shopping Malls as Warehouse Space?

Instead of building new facilities, utilizing what is already available such as shopping malls is a possible solution for retailers.

There are about 1,000 shopping malls in the U.S., according to the commercial real estate services firm Green Street. According to Moody’s Analytics’ commercial real estate division, the vacancy rate for regional malls in the U.S. reached a record 11.4% in the first quarter of this year, up from 10.5% in the fourth quarter of 2020. Converting part or all of these facilities could be more cost effective for retailers as their locations tend to be closer to consumers.

Amazon is certainly taking advantage of empty shopping malls. NBC reported in April that Amazon won approval in March to turn a 3.4 million-square-foot mall in Baton Rouge and a 220,000-square-foot mall in Knoxville into distribution centers. In December, the local planning board in Worcester, MA signed off on Amazon's request to convert the city's Greendale Mall into a 121,000-square-foot distribution center.

Even empty store fronts can serve as either a temporary or an ongoing option as last-mile fulfillment hubs for retailers. In addition, companies such as fulfillment tech provider Stord offers temporary or limited warehouse space options in either its own facilities or partner facilities, all of which can be managed via an app.

To speed up the last-mile, retailers will need to optimize their warehousing network and connect it with its last-mile strategy.


ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts has united with Transportation Insight to become North America’s #1 provider of small parcel management and optimization services.  Our team of best-in-class analysts employs cost modeling techniques to help clients optimize their supply chain spend, reducing costs by 20% or more.  Our approach is non-invasive to daily supply chain operations as we employ unparalleled market intelligence and proprietary cost modeling technology, targeting hidden costs and identifying savings opportunities. After establishing the success criteria, SME leverages proven project plans, data warehousing, and milestone documents to ensure an optimized and implementable solution. We build strong business cases based on your data to negotiate better terms, pricing, and service for our clients. We deliver your competitive edge.

Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

Share this article:

Blog Posts

  • Categories

Warehouse Space Running Out as Retailers Look for More

October 21, 2021


Consumer spending remains strong with US retail sales up 19.1% year-over-year through September and up 21.2% from 2019. The strong demand in retail sales is having a powerful impact on supply chains end-to-end manifesting in backups at ports, delays to warehouses and stores, and delays to the consumers. But, a growing concern are the warehouses.

“With vacancies at unprecedented lows, space in our markets is effectively sold out," Hamid R. Moghadam, CEO of Prologis, a property management firm, said in a company press release.

Running Out of Warehouse Space

Indeed, Prologis CFO, Tom Olinger, noted on the company’s Q3 earnings call on Oct 15 that “spaces above 100,000 square feet are effectively fully leased” and that pre-leasing reached 70% as customers compete for space. It’s hard to come up with the land to build buildings, according to Prologis executives. Land close to ports is either at a premium or non-existent depending on the port. The same can be said for facilities closer to consumer populations.

Building Up Instead of Out

Current options are for property management firms such as Prologis to either build up instead of out or, perhaps, to think out of the box when it comes to locations closer to consumers. Building up, i.e. multi-story facilities, is common in other countries such as Singapore, Japan and parts of Europe due to land shortages. However, it’s a different story here in the US. Prologis built the first multi-story facility in the US in 2018 and expects more such facilities to pop up throughout the country. However, multi-story facilities are expensive to build and thus, the costs will likely be passed on to customers in terms of higher rates. The demand for warehousing facilities closer to consumers continues to grow as retailers integrate physical and virtual stores and as consumers want more last-mile delivery options, particularly faster options. Using Shopping Malls as Warehouse Space? Instead of building new facilities, utilizing what is already available such as shopping malls is a possible solution for retailers. There are about 1,000 shopping malls in the U.S., according to the commercial real estate services firm Green Street. According to Moody’s Analytics’ commercial real estate division, the vacancy rate for regional malls in the U.S. reached a record 11.4% in the first quarter of this year, up from 10.5% in the fourth quarter of 2020. Converting part or all of these facilities could be more cost effective for retailers as their locations tend to be closer to consumers. Amazon is certainly taking advantage of empty shopping malls. NBC reported in April that Amazon won approval in March to turn a 3.4 million-square-foot mall in Baton Rouge and a 220,000-square-foot mall in Knoxville into distribution centers. In December, the local planning board in Worcester, MA signed off on Amazon's request to convert the city's Greendale Mall into a 121,000-square-foot distribution center. Even empty store fronts can serve as either a temporary or an ongoing option as last-mile fulfillment hubs for retailers. In addition, companies such as fulfillment tech provider Stord offers temporary or limited warehouse space options in either its own facilities or partner facilities, all of which can be managed via an app. To speed up the last-mile, retailers will need to optimize their warehousing network and connect it with its last-mile strategy.

ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts has united with Transportation Insight to become North America’s #1 provider of small parcel management and optimization services.  Our team of best-in-class analysts employs cost modeling techniques to help clients optimize their supply chain spend, reducing costs by 20% or more.  Our approach is non-invasive to daily supply chain operations as we employ unparalleled market intelligence and proprietary cost modeling technology, targeting hidden costs and identifying savings opportunities. After establishing the success criteria, SME leverages proven project plans, data warehousing, and milestone documents to ensure an optimized and implementable solution. We build strong business cases based on your data to negotiate better terms, pricing, and service for our clients. We deliver your competitive edge. Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

Share this article:

Blog Posts

  • Categories