As consumers become more willing to open up their wallets and e-commerce continues to surge, acquiring warehouse space near customers is more important than ever. Space is also more expensive than ever. In an environment where everyone is scrambling to claim their share of this finite resource, maybe the best strategy is not to use warehouse space at all.
On the surface, this hardly sounds like a reasonable solution. While it may sound counterintuitive, Warehouse Exchange CEO Grant Langston insists that there is a way for companies to get the warehouse space they need, as long as they stop using warehouse space.
“Warehouse Exchange matches people who need space and people who have space. There are a lot of owners of space that have no idea their space has value,” Langston said. “We regularly talk to owners of malls, retail shops, roller rinks, pharmacies and office buildings that all have something in common: They aren’t warehouse spaces, but have most of the amenities needed to make them work as warehouse – or last mile delivery – spaces.”
The overall brokerage community has shown little interest in these spaces. Building owners are largely unaware that they could be making a profit off these spaces, and the buildings themselves continue to sit unoccupied and unutilized.
Ultimately, helping these owners get their buildings on the market could be a serious win for companies across the supply chain for a variety of reasons.
- These spaces are often in high demand last mile areas
Traditional warehouses are not going to pop up in West Hollywood, Greenwich Village or Wrigleyville. A 20,000 square foot former shoe store or 10,000 square feet of empty space in a thrift shop may become available, however. There are a plethora of buildings that have space in places that a modern warehouse will never be built.
- Warehouse Exchange deals in short lease terms
Flexibility is a CEO’s sharpest knife. The owners of these non-warehouse warehouse spaces are typically open to lease terms as short as three to six months. This stands in stark contrast to the multi-year contracts required to secure more traditional spaces, especially as demand continues to skyrocket.
- There is some protection from the high cost of warehouse space
Many observers call the current industrial real estate market the hottest in the last 100 years. The trajectory of warehouse pricing seems to back that up. According to Colliers International US, industrial rents increased 5.6% year-over-year, but that is an averaged rate across the entire country. Nashville grew 6.6%. Los Angeles grew 6.9%. The Inland Empire grew 8.2%. Some markets, like Dallas-Fort Worth, Detroit and Philadelphia grew more than 10% in the third quarter of 2020. Thanks to this trend, some warehouse tenants are getting 30% rent increases at renewal time, a cost increase that is impossible to pass on to consumers.
Warehouse Exchange owners often have different motivations and goals for their space, according to Langston. While each owner sets their own price, an owner who is leasing a 20,000 square foot remnant of his 100,000 square foot space is less interested in getting top dollar than a traditional warehouse owner who is focused on maximizing profits.
Consumers have made it clear that they want their products delivered quickly. The current state of warehousing has not changed those expectations. The best way to get goods to customers is to store them near their homes, perhaps in a building that was never intended to be the warehouse.