• DTS.USA
    5.765
    -0.008
    -0.1%
  • NTI.USA
    2.910
    0.000
    0%
  • NTID.USA
    2.900
    -0.090
    -3%
  • NTIDL.USA
    2.010
    -0.090
    -4.3%
  • OTRI.USA
    7.190
    -0.220
    -3%
  • OTVI.USA
    11,406.010
    -45.940
    -0.4%
  • DTS.USA
    5.765
    -0.008
    -0.1%
  • NTI.USA
    2.910
    0.000
    0%
  • NTID.USA
    2.900
    -0.090
    -3%
  • NTIDL.USA
    2.010
    -0.090
    -4.3%
  • OTRI.USA
    7.190
    -0.220
    -3%
  • OTVI.USA
    11,406.010
    -45.940
    -0.4%
E-commerce & FulfillmentModern ShipperNewsRecent NewsTop StoriesWarehouse

How to make the most out of scarce warehouse space

Focus less on individual logistics facilities, more on value added to network

Logistics warehousing is the new king of industrial real estate. But warehouses themselves are getting old — according to real estate services giant JLL Inc., the average age of a U.S. warehouse in 2022 is 42 years.

That doesn’t quite cut it these days. In a May 2021 study, real estate services firm Cushman & Wakefield found that more than half of the 70% of warehouses built before 2000 had clear-ceiling heights of 27 feet or lower. But Cushman executives also estimated that big box tenants with facilities 500,000 square feet or larger need between 32 and 40 feet.

But building a warehouse hasn’t gotten any cheaper. In fact, it’s getting more expensive — another Cushman report revealed that today, the cost of materials like steel, concrete and fixtures alone is greater than what it would have cost to build an entire warehouse just a few years ago.

The high cost of building a new facility, or replacing an old one, has also caused rents to skyrocket to unprecedented levels. In the first quarter of 2022, average nationwide asking rents were $7.24 per square foot. Before then, they had never exceeded $7.

That has done nothing, however, to quell demand. Despite recent historic lows in logistics real estate supply, heightened consumer demand and an aging cohort of warehouses are driving a need for more facilities, and tenants are paying more for them whether they like it or not.

With warehouse space more difficult to come by than ever before, the margin for error for logistics real estate investments is getting slimmer. So what should real estate asset managers and warehouse tenants prioritize in a new facility?


Watch: Is your warehouse strategy ready?


Acquiring industrial property used to be a quarterly or monthly concern. But according to L.D. Salmanson, CEO of real estate data and analytics firm Cherre, the pandemic-driven shift toward online spending has made it an issue that companies think about daily.

“That creates this really terrifying environment for all these retailers, which is: ‘Half of my consumption just moved online. None of it’s coming back, and I’m not even remotely designed to be able to handle that,’” Salmanson explained. “So now we have this explosion, the need for these centers pretty much everywhere across the U.S.”

Cherre typically works with large asset managers like Brookfield or Starwood. The firm aggregates a combination of public, third-party and internal data to create a dynamic profile of each of its facilities, updating things like throughput, cost of operation and the types of products handled in real time.

To do this, Cherre captures a wide range of data. Salmanson’s short list of data points included, but was not limited to: taxes, deeds, mortgages, assessor reports, past transactions, zoning permits, and even details like the surrounding foot traffic and weather patterns. 

He emphasized, though, that when retailers are looking at a new facility, they’re really looking at all of their facilities.

“When we connect those datasets, we don’t just deliver them in the marketplace as is,” Salmanson said. “We deliver them connected to everything else that the client owns.”

In the case of industrial properties like warehouses or 3PL facilities, Salmanson explained that retailers typically weigh building operating costs against the value the building brings to their overall network. For example, one facility might cost more per square foot to operate than another, but its location optimizes vehicle routing, helping tenants save on transportation costs.


Read: Warehouse robotics provider GreyOrange raises $110M

Read: Automating the road to improved logistics sustainability


“I think it’s really hard for new players because the competition is high. You have to move really fast in the market. The market changes weekly, and in order to be competitive in the market, you have to have superior insights,” opined Doris Pitilon, CTO of last-mile real estate asset manager Faropoint, one of Cherre’s clients.

“What characterizes the last mile is the friction of the market,” she continued. “And this is because of fragmented ownership, local investments, selectivity, small size of deals and lack of data.”

Faropoint takes into account data like rent, location and the condition of the property before making an acquisition. But according to Pitilon, picking the right logistics facility is all about understanding its local supply and demand.

Analyzing supply is easy, Pitilon said. Faropoint uses a combination of AI technology and human asset managers to estimate a facility’s current throughput. 

The tricky part is on the demand side. Because tenants need to be able to forecast demand in order to know how much value a facility will truly provide, Faropoint needs to account for factors like the size of the local population, the number of e-commerce orders delivered to the surrounding area, broader macroeconomic demand trends and a host of other data points.

“Basically, we aggregate everything and evaluate: What is the weight of each parameter, of each predictor, for the purchase price?” Pitilon explained.

“To be able to tell the client, ‘Hey, the price of warehousing and shipping here will change based on demand.’ … Because I can’t add more space, that has to be driven by real-time insights,” Salmanson added.

Whether those insights come internally or from a data and analytics firm like Cherre, retailers need to have an idea of what cost looks like right now and what demand will look like three months, or six months, or one year from now.

They also need to remember that cost isn’t always equal to value. That means looking not just at what an individual facility can do on its own. To really calculate value, retailers should account for what a warehouse brings to their wider network of logistics facilities.

You may also like:

Cloud supply chain firm Stord adds $120M in new funding at $1.3B valuation

Berkshire Grey is turning anywhere into a fulfillment center

Meet Chill Storage, the latest cold chain player

Jack Daleo

Jack is a staff writer for FreightWaves and Modern Shipper covering topics like last mile delivery and e-commerce fulfillment. He studied at Northwestern University, majoring in journalism with a certificate in integrated marketing communications. Previously, Jack has written for Backpacker Magazine and enjoys travel, the outdoors, and all things basketball.

Leave a Reply

Your email address will not be published.