Melinda McLaughlin, vice president and global head of research with Prologis, paints a picture of warehouse demand in the U.S., now and over the next five years.
“In short, it’s not enough.” That’s how McLaughlin describes the supply of warehouse and fulfillment space in the country today. Vacancy rates remain under 5% nationwide, and below 3% in some markets. At the beginning of last year, the warehouse construction pipeline was expanding by more than 300 million square feet, but has since shrunk. Fewer projects broke ground in the second and third quarters of the year, McLaughlin says.
Some of that tightening of space was due to growing shortages and demand for product during the coronavirus pandemic, with inventory levels building in response to greater volatility in the supply chain. But the trend is likely to persist beyond the pandemic, McLaughlin says, especially in response to growing demand for e-commerce fulfillment. Warehouse footprints for that purpose must double in size over the next five years.
E-commerce requires greater amounts of space than traditional fulfillment, with broader and deeper levels of inventory to meet the expectations of the online shopper. The absence of physical stores means that everything must be stocked in the warehouse. In addition, many modern facilities incorporate value-added activities, such as returns handling and white-glove service, within their walls.
Expect future warehouse facilities to vary widely in size, from massive operations to micro-fulfillment centers. “We’ll continue to see new models crop up as the industry grows,” says McLaughlin. “It’s quite an exciting time.”
Automation will play an increasingly vital role in warehouses, especially those handling e-commerce orders, as facility operators look to boost productivity, eliminate waste, and respond to chronically low levels of unemployment in many areas, McLaughlin says.
Timely, incisive articles delivered directly to your inbox.