A recent report from Prologis predicts that the demand for warehouse space is likely to increase by 400 million square feet due the pandemic, and this is being reflected in fewer traditional warehouse vacancies across the country. What's behind this sudden push to get more room to store? Here are some of the reasons why warehouses are in such high demand during COVID-19.
1. U.S. Manufacturing Has Increased
At the start of the pandemic, American consumers and businesses experienced troubling shortages of many items that were produced overseas. Manufacturers had to rapidly adjust, and many did so by bringing production back home to the U.S. Reuters reports that as of January 5, 2021, U.S. factory activity was at the highest it had been in nearly 30 months. All of those items being made in the USA need to be stored somewhere until they are ready to be shipped.
2. More Room Is Needed for Social Distancing
Typically, warehouse and fulfillment center work involves close, side-by-side activities, making these locations potential hot spots for COVID-19 outbreaks. In order to comply with social distancing requirements, many companies have had to move to larger warehouses or to expand to more locations.
3. Supply Chain Problems Have Led to Increased On-Hand Inventory
Manufacturers aren't the only ones who felt pressure during COVID-19-related shortages. Retailers were also subject to the crunch. Now that frequently purchased items are available, many retailers are choosing to stock up and keep more inventory on-hand just in case. All of this excess inventory means more warehouse space is needed.
4. Online Shopping Is Booming
In order to reduce their risk of catching the virus, many consumers are shopping online instead of in stores. During the second quarter of last year when the pandemic was peeking in many parts of the country, e-commerce sales rose by 44.4 percent. To fill the increased number of orders, many companies have had to expand their warehouses.
5. The Big Guys Are Changing Customer Expectations
Amazon and other large retailers have gotten consumers accustomed to being able to order online and receive their purchase as soon as the next day, placing pressure on even smaller companies to shorten their deliver times. To provide faster delivery, it is typically necessary to establish many decentralized warehouse locations, and so many companies have been trying to establish footprints in new regions.
6. More Companies Need Cold Storage
One of the areas where e-commerce growth has been the greatest is in groceries, but shipping these types of items to consumers poses unique challenges. Companies may find it more cost efficient to relocate to a new warehouse or establish a second location rather than retrofitting their current locations with more cold storage. Vaccine distribution has also created a greater demand for cold storage for both shipping providers and companies in the health care sector, further boosting the need for new warehouses.
7. New Vacancies Are Allowing for Cheap Expansion
For companies that were anticipating an increased need for warehouse space even before last spring, the pandemic has provided a unique opportunity. Many large retailers have filed for bankruptcy and shuttered their stores, and their now vacant storefronts are being converted to warehouse space, which landlords are eager to rent at a discounted price.
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