By John Fioramonti, Kidder Mathews Research
The COVID-19 pandemic ignited significant social changes that have impacted commercial real estate in differing ways. For example, the remote working shift has driven major occupancy challenges in the office sector while landlords and occupiers work to adjust to this new reality. And the supply chain crisis powered explosive demand for all types of warehousing and logistics properties.
One of the most impactful changes caused by the pandemic lockdown orders has been the accelerated expansion of ecommerce and the unprecedented demand for warehouse and logistics space that expansion has caused. Online shopping went from of-necessity to of-choice as the country quickly embraced the convenience and speed of ecommerce. Online retail sales have grown to over 19% of the total US retail sales, coming in at more than $1 trillion this year.
US Retail Ecommerce Sales – 2014-2025
US Online Penetration (US ecommerce sales as a percent of total retail sales)
To enter and compete in the ecommerce space, smaller ecommerce companies, retailers and start-up businesses need access to high-quality warehouse and logistics space just like Amazon or Walmart, but without the long-term commitments and expense of traditional warehouse leases. A new industrial product type has emerged to meet this need.
Flexible warehousing (sometimes referred to as “elastic logistics”) is quickly becoming an effective solution to the outsized demand for warehouse and logistics space across the country. Fashioned on a shared space platform, flexible warehousing provides tailored warehouse space and short-term leases with office-type common area amenities such as high-speed internet, reception services, and coworking and conference spaces. Ecommerce and logistics amenities such as dock doors, enterprise equipment, packing areas, and aggregate shipping bins add to the efficiency and functionality of flex warehousing space. Tenants have the ability to occupy warehouse space that meets their current needs and adjust the amount of that space up or down as their requirements change — for example, for seasonal inventory fluctuations. Flex tenants avail themselves to the full operations and services of the warehouse proportionate to the space they occupy.
There are significant business advantages to using the flexible warehouse platform. A few of the more notable include:
- Affordability: Flex warehousing users are billed only for the space used while the operational costs of the warehouse are spread across the whole tenant base. This allows flex users to minimize their warehousing costs and increase their supply chain efficiencies and profits.
- Scalability: As mentioned above, flex warehouse users can quickly adjust space usage to meet their business fluctuations, allowing them to more efficiently manage their inventory and optimize their resources.
- Workforce Management: The availability of the flex warehouse’s existing staff reduces the payroll and training requirements for the warehouse tenant. This frees up vital resources for business expansion.
- Faster Delivery Times: Consumer demand for same or next day delivery puts large ecommerce companies like Amazon at a distinct advantage over smaller competitors. Even the smaller last-mile delivery warehouses require long-term leases and staffing. The flexible warehouse platform allows the smaller retail operators to achieve competitive delivery times at a fraction of the cost.
From the landlord’s perspective, flexible warehousing can generate considerably higher rental rates as the premium for providing the operational infrastructure with the physical floor space is substantial. Operating a flex warehouse also expands the tenant base to a wide variety of ecommerce, logistics, and retail businesses that were historically priced out of the traditional warehouse market. It also gives the landlord a pipeline to the future space needs of its tenants as their businesses grow.
Flexible warehousing is a promising alternative to the many challenges facing the warehousing sector. Occupancy near capacity nationwide, scarce developable land and rapidly rising rental rates are driving occupiers and investors to explore new options. The surge of new ecommerce companies is further fueling the demand for more choices in warehousing and logistics. Flexible warehousing provides a solution for that demand.