The new requirements of warehouse real estate

In a post-pandemic economy, warehouse spaces seem to be the most lucrative commercial real estate opportunity. If retail operators have had to close their doors for most of 2020 and switched to e-commerce, many retail venues were made obsolete, leading to massive demand in warehouse spaces. The country’s biggest retailers are reducing their office space and doubling down on warehouses in a race to keep up with increasing demands and fulfill orders on time. For commercial real estate investors, this is a once-in-a-lifetime opportunity. Demand is higher than supply; new spaces can’t be built fast enough, and, as a result, rent prices are soaring. What’s more, available warehouse spaces stay on the market for less, especially those near large population centers and port hubs.

But is investing in warehouse space a surefire recipe for profit? When done right, it is. However, it’s important to look at more than just prices. Demand may have gone up, but the requirements have also changed, and it’s essential to stay up to date.

What’s driving the high demand for warehouse spaces?

At first sight, it might seem like the pandemic was the main driver behind the surging global demand for warehouse spaces, but the wheels were actually set in motion before COVID-19. It all started when Amazon started offering next-day delivery by default for Prime users and made the very concept of retail shopping almost obsolete. It was the biggest e-commerce trend to date, and other retail chains, such as Walmart, were quick to adapt and expand their fulfillment space to keep up.

Then along came the pandemic, and the industry was faced with two major challenges:

1. When the first stay-at-home orders were issued, many people refused to go to the supermarket in person and started ordering groceries online. Other sectors, such as electronics, fashion, furniture, health, and consumer goods, also saw a spike in online orders, which left stores in need of bigger, better warehouse spaces.

1. At the beginning of the pandemic, there was a lot of panic buying going on. People rushed to purchase essential groceries, and stores had to increase their stocks to keep up. Many stores even had to upgrade their warehouse space because the old one no longer fit the entire stock. Also, due to facilities in China being closed temporarily, many Western retailers doubled up on their stock to avoid running out, which again increased the demand for bigger warehouse spaces.

In the following years, the public storage and warehousing market is expected to grow even more. In 2021, it was already worth $23.2 billion, and by 2026, it’s expected to reach $557 billion.

For commercial real estate investors, these numbers are a clear sign that they should pay attention to the trends in the warehouse and storage market and invest in these properties as quickly as possible. However, it should also be pointed out the standards have changed in the past year, and what passed as high-quality warehouse space in 2019 may not hold up today. To stay competitive and make sure your properties find a tenant immediately, here are the trends you should keep in mind.

The key features of a competitive warehouse space

What does it take to run a successful warehouse? Forklift training for employees is essential, as is a good location. However, there’s more to it than these two and, if you’re not familiar with this industry, you should pay attention to a few key trends:

Modern warehouses are spacious, with plenty of buffer space between workers.

Before the pandemic, warehouse operators saw nothing wrong with making employees work in cramped spaces and maximizing every inch of floor space. Now, this is a major red flag that could get warehouse operators in trouble, which is why the gold standard is now to move to larger warehouses, where workers can have at least 6 feet between them. This is key in maintaining social distancing and also offers an additional benefit: retailers can store extra goods for periods when demand goes up.

Sustainability is no longer optional.

The average warehouse from a few decades ago has almost nothing in common with today’s warehouses, which must place sustainability at the forefront of their operations. In addition to being made from sustainable materials and utilizing energy responsibly, warehouses must also tackle waste, which is a huge problem in the industry. The average warehouse may produce tons of waste every year, such as paper, cardboard, and plastics, and it’s essential for these by-products to be reused and recycled, not thrown away to the landfill. For this reason, modern commercial warehouses should have dedicated recycling machines such as balers and compactors, which compress waste and reduce the risk of contamination. This creates a cleaner workspace and also helps warehouses reduce their waste collection costs.

Features that improve workplace mood

Warehouses aren’t exactly famous for having pleasant working conditions – especially if we look at Amazon, which has a terrible track record for offering unsafe working conditions, sometimes below the levels of human decency. But not all warehouses are Amazon, and they cannot afford to make the same mistakes. In fact, there’s a growing trend for warehouses to include wellbeing facilities. This includes things like good ventilation, which is essential for maintaining air quality and reducing the spread of viruses and bacteria, natural light, and facilities such as recreational spaces. Warehouses should no longer be ugly, utilitarian industrial spaces. Instead, they should aim to become places where workers actually want to stay. After all, the warehouse sector has a major problem with high employee turnover, and raising the bar in terms of building features is a good way to address it. Lastly, it’s also a good idea to leave room for automation because there’s a major shift towards this, without neglecting the needs of human workers.