Feb 21, 2023 4 Min READ

Navigating the Warehouse Real Estate Crunch

Ashley Hawkins

Ashley Hawkins has over 5 years of experience in applied mathematics, previously working as an editor and copywriter in engineering and tech. She now works as a Content Marketing Specialist at Extensiv where she writes content on industry trends and best practices. With experience in research and consulting on software workflows, Ashley is passionate about the future of technology and logistics.

4 Min READ
Navigating the Warehouse Real Estate Crunch


The warehouse real estate market is both complex and competitive, making it a challenging vertical to navigate for many third-party logistics (3PL) companies. Stated in the 2022 3PL Warehouse Benchmark Report released late last year, “39% of 3PLs identified adding warehouses in new locations as one of the most significant opportunities in the coming year, while 35% identified finding available warehouse space as one of their biggest challenges.”  

Why are so many 3PLs looking to expand their space? Easy—they are running out of room. Also from the Benchmark Report, 20% of surveyed 3PLs report running at over 100% capacity while almost 40% of respondents were between 90-99%. With such limited space, finding new customers and handling surges in demand/seasonal fluctuations in inventory becomes much more difficult.  

The Real Estate Landscape

But finding new warehouse space is also difficult, especially as new construction of warehouse space slows. According to the Wall Street Journal, “U.S. industrial construction starts fell 24% in the fourth quarter of 2022 compared with the same period a year earlier,” which significantly contrasts “the frenzied pace of warehouse expansion during the pandemic, when companies leased record-high amounts of space to respond to a surge in ecommerce orders.” With the exponential growth of ecommerce, warehouse vacancy rates reached all-time lows, greatly contributing to the shortfalls in real estate we are still dealing with.

But with the downturn of the economy resulting in less consumer spending, many (smaller) retailers have slowed their leasing. In fact, warehouse leasing was down 28.2% in the last quarter of 2022 compared to Q3 and down 37.2% compared to 2021. Less leasing should mean more available warehousing space for 3PL expansion, right? Yes—sort of. The national average vacancy rate did increase, but only barely, crawling up to 3.3% compared to 3.1% in Q3 2021. Though the real estate crunch is technically getting better, the decrease in construction and extremely low vacancy rates—well below the 5% average—combine to create a dire shortage of space that will inevitably continue the elevated logistics property prices.  

Go Big or Go Home?

At the same time, 2022 set records for the number of 1 million+ square foot leases, and larger companies are still leasing these mega facilities despite the economic uncertainty. Supply & Demand Chain Executive reports that 2022 saw 63 signings for 1 million square feet or more in the top 100 industrial lease transactions, up from 57 in 2021, and the average size of these facilities grew to 1.07 million square feet compared to 1.05 million in 2021. What’s more, “3PL operators signed 18 of the top 100 leases, up from only 10 in 2021 and seven of which were for 1 million square feet or more versus just two in 2021.”  

Does this mean that 3PLs need to go big or go home to be successful? Not necessarily.  

On the other end of the spectrum, the industry has seen an increase in micro-warehousing, bringing fulfillment hyperlocal. The 2023 State of the Third-Party Logistics Industry Report highlighted micro-warehousing as one of the trends that could help 3PLs overcome their real estate and capacity woes because it “not only helps 3PLs expand their available square footage by adding smaller warehouses to their real estate portfolio but also gets inventory closer to consumers, dramatically decreasing delivery times and costs.” Nancy Korayim, CEO of MetroSpeedy, confirms that “companies that can offer hyperlocal fulfillment have an added advantage with speed over other retailers that might be shipping goods from across the country or overseas.”  

As consumer expectations continue to rise—many consumers now want same-day delivery in addition to delivery flexibility like buy online pick up in store (BOPIS), no longer content with the 2-day shipping standardized by the Amazon effect—fulfillment speed is a key to success. Not to mention, finding smaller, urban warehouse space, or converting an old storefront into a micro-fulfillment center, is a lot more feasible than building a mega facility. With the warehouse real estate market as it is, Research and Markets expect micro-fulfillment center installations to grow by 20 times by 2030, 80% of those in North America. Micro-fulfillment just may become a core component of ecommerce fulfillment over the next few years.

Tools to Succeed

Whether you are going mega or micro in your plans for warehouse expansion, your success hinges on the same thing: technology.  

If you plan to go the mega route and drastically expand your warehouse square footage, managing operations will be almost impossible without some form of automation. I mean, imagine trying to find anything in a 1 million+ square foot space without a warehouse management system (WMS). Get real.  

On the other hand, in a micro space, you may think you could get away without a WMS, but you would be wrong. Although they are smaller in size, the functionality of micro-warehousing that prioritizes lightning-fast and often more complex (omnichannel) fulfillment means you need all the tools to keep operations running smoothly. Additionally, you are going to need to be able to coordinate with multiple shipping carriers with micro-warehousing if your traditional carrier lacks the capacity to handle increased shipping volume. A WMS solution like Extensiv 3PL Warehouse Manager that has Small Parcel Suite that automates rate shopping across carriers and generates labels within the platform is ideal for this situation.  

A WMS will also help your warehouse in the event that you can’t expand your footprint. With directed putaway and inventory management capabilities, WMS software helps you optimize the space you already have by calculating the best configuration of your usable space. Additionally, new technologies like warehouse design modeling and simulation software use predictive analysis to create a picture of what your warehouse could look like before moving any SKUs around.  

Finally, you have another option for expanding your available square footage—partnering with another 3PL to create a 4PL network! The 2023 State of the 3PL Industry Report named the growth of 4PLs as one of our top trends of the year thanks to new technologies that make it easier to coordinate inventory and warehouse transactions across a 4PL network, including Extensiv Network Manager. Furthermore, you can use Extensiv’s Fulfillment Marketplace to find 3PLs in complementary geographies so you can extend your geographic footprint and reduce shipping costs and shorten delivery times for orders in other parts of the country. When you own the 4PL relationship, both you and your partner 3PL benefit from your collaboration—a true win-win.

Whether you are looking to add square footage to your real estate portfolio or just want to maximize the potential of your existing footprint, technology—especially a WMS—is essential. To learn more about Extensiv’s software ecosystem and WMS solutions, schedule a demo today.  

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