US warehouses running out of room amid supply chain crisis

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The warehouse owner says, “Of all the places I have seen so far, the demand for space is the highest.”

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Experts say warehouses in and around US ports are running out of space, posing another challenge to the country’s already dysfunctional supply chain.

“We are either at or over capacity, and the demand for space is by far the biggest,” said Michael Sarcona, president of Sarcona Management Inc. It operates several warehouses in the Newark area, the third largest port in North America.

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Hundreds of thousands of shipping containers faced record backlogs at US ports over the past several weeks. Now that some have made landfall, the goods in those containers could soon exceed warehouse capacity.

According to recent data from CBRE, an American commercial real estate service and investment firm, warehouse vacancy in the country has reached 3.6%, a record low.

“Effectively, three-and-a-half percent is zero,” said John Morris, executive managing director of CBRE’s industrial and logistics business in the US. “For the year, we basically have an effective shortfall of about 300 million square feet of space.”

Even if retailers could ship more products to the US, Morris explained, they would struggle to find a place to store them and move them along the supply chain.

“In an efficient supply chain, you want about 15% availability of warehouse capacity in these markets and across the country,” said Craig Fuller, CEO and founder of FreightWaves, a global logistics industry data and analytics company. “At 3.6%, these warehouses are operating beyond their available capacity to function properly.”

North America’s largest port, the Port of Los Angeles, has a record low vacancy of 1% in warehouses, according to a CBRE analysis. CBRE has recorded the lowest ever vacancy for the port.

“This vacancy rate is down more than half compared to last year,” said Chris Catton, global head of strategy and analysis at Prologis, the world’s largest logistics real estate developer. “So there’s an extreme shortage in these port markets.”

Warehouse vacancy at ports in central and northern New Jersey is about 2%. Sarcona operates eight warehouses in Newark with a combined capacity of about 2 million square feet, but a team of employees and real estate agents are urgently looking for more space.

How will this affect consumers?

According to experts, consumers might not be able to trust online shopping.

“I’m concerned that the inability to maintain the supply chain will impact the amazing growth we’ve seen in this omni-channel retail economy,” Morris said, referring to the online shopping platform. and timely access to big and small brand items.

“I think we’ve lost the prediction of when products will be delivered to consumers,” Fuller said, explaining that sellers won’t be able to guarantee delivery times this holiday season. Ordering items – [because] If someone tells you they can tell you when something will be delivered, they are either not truthful or they have been given false information.”

Fuller believes that uncertainty could be pushing consumers back into the store.

“I think people are going to find that as we get closer and closer to the Christmas holiday, the stuff that they would normally be able to buy online, they have to go to the stores to get it. Will,” Fuller said. ,

How did this happen?

The boom in consumer demand has led to record imports through US ports on both coasts. Warehouses at those ports are the first stop for goods arriving in the US, and they are overwhelmed.

“Are we out of space? The answer is no yet,” Morris said. “Are supply and manufacturing meeting demand? Just barely… Like… just barely.”

One factor: The demand for land around these ports is increasing rapidly.

Regarding the challenges facing warehouse construction and development, Catton said, “In the most demanding locations, value is going up – we’ve never seen rents increase.”

The issues relate to physics and the scarcity of land in these prime locations, per Catan.

“If you want to build a 500,000-square-foot facility in New Jersey, you need 30 to 35 acres of land that is relatively flat and well served by infrastructure, and that’s just increasingly scarce. ,” said Catan.

Adding to overcrowding, these warehouses often ship goods to distribution centers, which in turn send those items to consumers or brick and mortar businesses. These centers are “at capacity or even over capacity,” warehouse operator Sarkona said.

When is all this okay?

“Maybe in the third quarter of next year” that will all be settled, Morris said.

The US will use more than 1 billion square feet of storage space this year, compared to 800 million last year. And there is already 500 million sq ft of storage under development per CBRE.

But even as more storage spaces are built, supply chain issues continue.

“It’s hard to get the materials to complete that build,” Morris said. “With a broken supply chain for building materials, the cement roof trusses, the pins that hold the roof to the wall, are short on all that.”

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