20th century warehouses not fit for 21st century e-commerce
Facilities built before 2000 still account for 89% of storage space in the U.S., and that's forcing tradeoffs on clients.
The 1 billion square feet of new warehouse space built over the last decade constitutes only 11% of total warehouse space available, according to CBRE data, and that remaining 89% may be unsuited to the demands of e-commerce.
The average age of warehouses is now 34 years old, rendering them "increasingly obsolete" for companies seeking new warehouse tech-friendly buildings, according to CBRE's report.
As a result, e-commerce companies are struggling to make do with what's available in warehouse space, because while all of them may want newly built, up-to-date warehouses with high ceilings, modern amenities and new tech compatibility, they can't always find those warehouses in the right location.
Old warehouses tend to be in more densely populated areas while the newer ones tend to be farther away from those target markets. Warehouses before the e-commerce boom tend to have lower ceilings, uneven floors and less square footage — making them less attractive to e-tailers looking to maximize space and efficiency.
So, choosing a warehouse in 2018 has become a complex series of tradeoffs and strategic business decisions, said Adam Mullen, CBRE's Senior Managing Director and Americas Leader for the Industrial & Logistics Division.
"It’s not a one size fits all," he told Supply Chain Dive. "There’s ‘old stock’ warehouse space that’s in markets where an e-commerce user may not want to be, or they may serve that market from a regional distribution center that’s further out, and they might not have to take advantage of that older space. E-commerce users are going to deal with a whole lot more pain if the warehouse is closer to the market."
Mullen said e-commerce may have to give up warehouse height, dock doors, amenities for employees and even parking if they choose an older warehouse. Often, depending on the business need, they may not have any other choice.
"The trade off is, it’s really well located," he said.
If an e-commerce company's warehouse is farther from the target market, it may end up being more technologically advanced to accelerate operations and deliver quickly to farther away customers. For example, a distant warehouse might use more automation in its processes to keep operations moving quickly and deliver to customers as quickly as a closer warehouse would.
"I would say every major e-commerce user out there is dealing with some kind of compromise," Mullen said. "We see it more as an opportunity than a challenge. With that we’re seeing really strong demand in the warehouse space, because e-commerce users need more space to serve consumers. So it’s actually been a really ripe opportunity for our marketplace."
Although warehouse rents are at all-time highs and vacancies at all-time lows, there's also some imbalance with warehouse demand: according to CBRE Director of Research and Analysis Colin Yasukochi, e-commerce users really want the new, modern warehouses, so those get snapped up first. If an e-commerce company isn't nimble enough, it could miss a good warehouse opportunity.
"When we look at demand in the marketplace, we tend to look at net absorption, and what we did find was that of all the new spaces built over the last two years, about 80% of that has represented the total market demand," Yasukochi told Supply Chain Dive. "The new stuff is dominating the demand in the marketplace and that doesn’t appear to be changing."
And that leads to the creation of tertiary markets: more and more e-commerce companies are moving into more remote areas that are close enough to their target markets so they can build or rent the modern warehouse spaces. That's led to the creation of the Inland Empire in southern California and the Lehigh Valley logistics hub.
Until the old warehouses grow too old to be safe, e-commerce companies will need to keep making tradeoffs and compromises to reach consumers. But e-commerce is growing to dominate consumer spending, so the wear and tear on old warehouses could give way to a new building spree with modern warehouses in optimal locations.
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