The news: Warehouse vacancy rates are at record lows as retailers struggle to offload excess goods while ordering more inventory to avoid being caught short during the holiday shopping season.
A closer look at the numbers: The vacancy rate for US warehouses is currently hovering around 3%, per Warehouse Quote’s Warehouse Pricing Index (WPI), the lowest it’s been in decades.
How we got here: Many retailers find themselves caught between a rock and a hard place: On the one hand, supply chain delays caused many to stock up early to avoid empty shelves and disappointed shoppers. On the other hand, softening consumer demand for items like consumer electronics, furniture, and appliances has left many with excess inventory they can’t get rid of.
The situation will only get worse. Many retailers ordered inventory for the holiday season well in advance to circumvent potential delays (inadvertently creating another supply chain bottleneck). But with warehouse space at a premium, getting goods off ships and into stores may be a logistical nightmare.
Some will win: The tight warehouse market is a boon for operators like Prologis that can use the situation to raise rents virtually unchecked. But it’s also an opportunity for large retailers with their own extensive warehouse networks to flex their muscle.
…while others struggle: As more retailers move from a “just in time” mindset to a “just in case” one, inventories—and warehouse costs—will continue to pile up.
Looking ahead: The easiest way out of the warehousing shortage is for operators to add more space. Prologis says it will take another 800 million square feet of space to alleviate the current squeeze—but it’s not so simple. Shortages of steel and other construction materials are hampering expansion plans.
As the need for warehouse space grows more acute, retailers should be looking for ways to optimize their existing facilities to store more products and improve worker efficiencies. They should also maintain an aggressive approach to inventory reduction, either by cutting prices significantly to encourage shoppers to spend or by selling unwanted goods to off-price retailers or liquidators.
This article originally appeared in Insider Intelligence's Retail & Ecommerce Briefing—a daily recap of top stories reshaping the retail industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.
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