While the coronavirus disease (COVID-19) pandemic has closed many doors over the past 18 months, industrial real estate in North America was immune to the virus, transactions for large warehouses and distribution centers of 200,000 square feet or more climbing nearly 25% in 2020, according to CBRE. The CBRE predicts the absorption of an additional 300 million square feet of industrial space through the growth of e-commerce by the end of 2021. According to Cushman and Wakefield, new rental activity in the logistics space accounted for 366.6 million square feet, which represented 85.9% of all new rental activity in all product types at the end of the first half of 2021. As it progresses as demand increases, so does the cost. According to the same Cushman and Wakefield report, warehouse and distribution center rents rose 5.4% in the second quarter of 2021 compared to the same period last year.
And it’s not just the demand for warehouses and rents that are increasing. Input costs for construction have also skyrocketed over the past year, increasing 24.3% from May 2020 to May 2021, according to Associate General Contractors of America (AGC). Material shortages, price hikes and shipping delays due to COVID-19, tariffs and quotas and other global supply chain disruptions like the Suez Canal, Yantian port closures , the capacity crisis and various commodity shortages have also increased project times and costs, making them more difficult for companies looking to rapidly scale up their operations to cope with rising order volumes.
As a result, brands and retailers are experimenting with many different strategies to expand their operations, including leveraging their physical infrastructure for shipping from the store. Some companies are also looking for alternative spaces such as closed shopping malls, golf courses and even vacant office buildings, but these can present additional challenges like rezoning issues.
If expansion isn’t an option, here are some ways businesses can make the most of their current warehouse space to optimize fulfillment operations.
As the industry continues to shift to online shopping, more and more retailers are starting to explore drop shipping options with manufacturers. In addition to freeing up valuable warehouse space, drop shipping allows retailers to expand their product offering, minimize inventory risk, and reduce shipping costs and delivery times.
Use of vertical space
After evaluating inventory practices, the next area to consider is the use of space. With social distancing standards limiting reshuffles and ground-level changes, businesses should look for ways to maximize vertical space. Areas above cross aisles and dock doors are often underutilized and can be converted to shelving sections to increase storage capacity.