A report recently issued by Los Angeles-based industrial real estate firm CBRE highlighted how the ongoing coronavirus, or COVID-19, pandemic is drawing in interest in on-demand warehousing by retailers.
In the report, entitled, “On-Demand Warehousing: Opportunity in a Period of Uncertainty,” CBRE explained that this interest is characterized by short-term leases for relatively small size segments, coupled with the uncertainty caused by coronavirus related to retailers’ ability to maintain necessary inventory levels is a major driver as to why on-demand warehousing has the potential to become more prevalent in the future.
CBRE observed that while on-demand, flexible warehouse space is becoming more popular, it still represents a “narrow niche within the industrial real estate sector.” And it added that the growth, or emergence, of on-demand warehousing serves as a response to the increasing number of supply chain challenges industrial real estate occupiers are up against and are dealing with limited warehouse space options, rising rents, longer-term leases, and inventory fluctuation. This situation, the firm added, is compounded by the current economic and geopolitical climate, which has resulted in supply chain uncertainties, specifically for inventory procurement, which has made things difficult for companies to make decisions related to long-term distribution.
As for what type of logistics and supply chain stakeholders represent the primary occupiers of U.S. industrial space, CBRE said 3PLs continue to lead the way, driven by a near-doubling of e-commerce, in terms of deal activity for calendar year 2019. Looking ahead, the firm said that 3PLs may also utilize co-warehousing facilitators to capitalize on location, technology, and labor, leading to higher demand for industrial space. CBRE identified FLEXE, Cubework, Stord, W2G, and Flowspace as the five biggest providers of on-demand warehousing services.
In an interview, Matt Walaszek, CBRE Associate Director, Industrial & Logistics Research, said that there is an indication that more retailers are seeking short-term on-demand warehousing options.
“This was already happening, but the recent disruption to the economy has accelerated the trend,” he said.
The ranges for on-demand warehousing spaces, in terms of length and square-footage, are typically less than 30,000 square-feet, with that really depending on the requirement, according to Walaszek. And he added that the lease length is typically pay-as-you-go or short term (2-3 years), but also depends on the requirement and is negotiated between the tenant and landlord.
When asked about the main supply chain challenges industrial occupiers are up against, specifically relating to coronavirus and trade tensions, Walaszek noted that industrial demand is largely driven by the economy, and as that takes a hit by everything shutting down, it will likely impact demand for space.
“Therefore, retailers are having to rethink their supply chains and some companies need to scale-back operations,” he said. “As the economy picks back up, these same retailers will need to scale-up as demand rebounds, so having more flexibility is critical. Supply chains that rely on China have now been hit twice in 12 months. This along with other factors including rising labor costs and intellectual capital concerns will drive companies away from China and into other parts of Asia, Mexico, and even reshoring to the U.S. especially as automation improves.”