Demand for warehousing on the rise

Same-day delivery pushing up need for convenient space, according to JLL report. 

The relentless rise of same-day delivery has merchants on the hunt for warehouse space close to their urban customer base. Strong demand has made industrial real estate increasingly hard to find. And even when space is available, it’s typically not found in the city center, but instead in sprawling sheds the size of football fields in the suburbs, according to the latest report from JLL.

“Because customers today demand such fast delivery when they order online, companies need more smaller locations rather than fewer larger locations,” said Mr. Rich Thompson, who leads the global Supply Chain & Logistics Solutions team at JLL. “At the moment, this isn’t really the way things work.”

He added that the “Airbnb model for industrial warehousing space” allow companies to be nimble enough to respond to seasonal changes and compete in the age of e-commerce.

According to Mr. Stephen Wyatt, Country Head of JLL Vietnam, over the past few years it has seen an increase in co-working operators entering the market. “Therefore, it is only a matter of time before we see a flexible approach to leasing warehouse space, especially with the strong demand from the e-commerce sector for smaller or flexible warehouse facilities for the fastest ‘last mile’ delivery,” he said.

He believes a flexible approach to warehousing could be very successful in Vietnam and this is something that JLL will be monitoring closely in the future. “A flexible warehouse space solution could be the answer to a number of existing problems in the industrial sector,” he said. “Industrial space in the country has high occupancy rates and rents, and if a flexible approach entered the market I’m sure there would be strong demand from many businesses.”

According to surveys by FLEXE in the US, up to 30 percent of warehouse space is underutilized at any given time. Most lease agreements don’t allow firms to rent out these spaces to those who need it. A new, more flexible model provides a solution. This is especially true for companies that need a lot of space during a certain season because they can profit off their real estate portfolios during the off season.

For instance, think about a Christmas tree decoration retailer in November suddenly inundated with product, but the space they lease sits unused in the warmer months. Meanwhile, a pool-accessory manufacturer is in need of that square footage during summer.

“The on-demand warehousing market for industrial warehousing is relatively new and most companies are just beginning to understand how it works,” Mr. Thompson said. “The other hurdle is cultural. Many companies still prefer to have full control over their operations.”

Still, as more companies enter the space, the flexible space model could “take some of the friction out of near-term imbalances or unplanned shocks in supply chains,” said Mr. Aaron Ahlburn, Senior Director of Research at JLL. “It could make shipping goods to customers a more seamless process.”