Key Takeaways
- Rise of Fractionalized Space: The demand for fractionalized warehouse space is increasing due to its cost-effectiveness and flexibility compared to traditional long-term leases
- Disparity in Warehouse Vacancy: There's a significant difference in vacancy rates between smaller (under 100,000 sq ft) and larger warehouses
- Trend Towards Smaller Footprints: Data indicates a shift towards needing smaller warehouse footprints, driven by factors like pricing advantages
Price Advantages Fuel The Rise of Fractionalized Space #
There is a growing demand for fractionalized space, which can offer an attractively priced, flexible alternative to traditional long-term leases. Data from over 1,150 Flexe quotes across US warehousing markets, encompassing 731 facilities and 280 3PLs, shows that spot/fractionalized costs compared to general industrial market rent growths reveal potential cost savings.
Due to broader under-utilization of capacity across the industry due to the COVID-driven surge in new construction and subsequent macroeconomic slowdown, this adaptable approach is driving favorable pricing dynamics for buyers.
This price spread suggests that businesses can find favorable deals by exploring flexible outsourcing options and leaning on the operational expertise and efficiencies with a 3PL.
Small vs. Large: A Tale of Two Markets #
One of the most striking disparities lies in the vacancy rates between small and large warehouses. Warehouses under 100,000 square feet exhibit a 3.9% vacancy rate compared to 10.9% for their larger counterparts. This scarcity of smaller spaces available to lease may be fueling increased demand for smaller footprints of fractionalized space (see below).
There are a myriad of reasons why there's a scarcity of smaller spaces: more expensive and less available land, higher rent costs due to urban/suburban tax rates, and lower tenant churn. Interestingly, as a consequence of the COVID-related boom for large industrial buildings and unprecedented eCommerce adoption, developers have focused more on constructing larger warehouses. This has exacerbated the shortage of smaller units typical in urban and suburban areas where there is less available land and space is tight. This situation has left many small and large businesses struggling to find suitably sized warehouses to lease, even as small as 5,000 square feet.
Smaller Footprints, Bigger Demand #
According to a Flexe data analysis, the average size of new 3PL warehousing needs indicates a clear trend towards smaller footprints.
While the exact cause of this shift is uncertain, the increased demand for these smaller spaces' attractive pricing dynamics aligns with the difficulties businesses face in leasing smaller warehouse footprints.
Key Considerations #
The analysis underscores several critical points:
- Risk Mitigation: Opting for flexible warehouse solutions can help businesses mitigate risks associated with long-term leases and market fluctuations.
- Cost Reduction: Fractionalized space and strategic market access can lead to significant reductions in operating expenses.
- Real-Time Responsiveness: Flexible options enable businesses to respond to changing demands more effectively.
- Growth Initiatives: Businesses can leverage flexible warehouse solutions to test and implement growth initiatives without major capital investments.
Conclusion #
The warehouse market is dynamic and evolving. The trends point to a growing need for flexibility, smaller footprints, and as always, cost-effective solutions. Given ongoing global disruptions and the continued expansion of eCommerce, these trends will undoubtedly persist and reshape the industry. Flexible warehousing offers significant opportunities for optimization. Instead of reacting to disruptions, companies can be strategic about how they approach warehousing, enabling them to better respond to both short-term disruptions and long-term growth opportunities.
Want to gain deeper insights into warehouse market trends and optimize your strategy? Explore flexible warehousing solutions and comprehensive insights into macroeconomic trends, vacancy rates, site costs and the Flexe Logistics Network capabilities.
Move beyond reacting to disruptions and start driving strategic growth.
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