Warehouse Space Availability in U.S. Lowest in 18 years

Record Low Warehouse Availability

Online Shopping is creating demand for more warehouses and causing a stir in the 3PL industry.

A report released this month from the CBRE Group, a real estate brokerage firm, shows a historic shortage of warehouse space across the U.S. mostly due to the rise of online retailing. The holiday boom in online shopping will only shrink space even further.

Industry Impact and Trends

As reported in the Wall Street Journal and elsewhere, despite an additional 50 million square feet of new warehouse space entering the market during the third quarter of this year, availability is still the lowest in 18 years. The industrial availability rate, which measures vacant or soon-to-be vacant properties fell to 7 percent, the lowest since 2000.

Richard Barkham, a global chief economist at the CBRE Group, told the Wall Street Journal that “a really strong consumer economy” is responsible for the disappearing space — Much of that has to do with the growth of online retailing.

That growth will surge this holiday season, as it does every year. A study released this month by CPC Strategy reports that 80 percent of consumers will be searching Amazon this holiday season and online shopping will result in nearly half (46 percent) of all gift purchases this year, followed by 29 percent of shoppers preferring a brick-and-mortar experience. A quarter of holiday shoppers plan to shop both in stores and online.

As retailers prepare for the online rush, importers have placed their orders earlier than usual. As reported in the Wall Street Journal, the National Retail Federation reports that all major U.S. seaports handled 2.7 percent more container cargo in September than the same month the previous year. That follows a 3.4 percent year-to-year rise in August and a record-setting July. The NRF estimates that inbound capacity will continue to grow through the end of this year.

So if warehouse space is shrinking, what will it take to open up more facilities?

The CBRE Group also has outlined the factors that represent the most favorable conditions to develop multi-story warehouse space. They are: A large and dense population, high industrial land prices and rents, and a significant use of online retailing by the surrounding population.

The five cities that fit that bill are New York City, San Francisco, Miami, Chicago, and Los Angeles.

Until that new space opens up, CBRE’s Barkham says that demand will continue, aided by strong economic conditions and the stimulus that came from the recent tax cut. “We thought this cycle might end slowly but it’s got extra legs,” he said.

Are you considering expanding your warehouse space? Are you finding it easy or cost prohibitive? Which parts of the U.S. are you considering — or would consider if it was an option. Let us know in the comments below!

Want to learn more about Argos Software’s WMS solutions? Reach out today!

Frequently Asked Questions

What is causing the current warehouse space shortage in the United States?

The primary driver is the explosive growth of e-commerce and online shopping. Consumer demand for faster delivery has forced retailers to establish more distribution centers closer to population centers. This increased demand, combined with a strong economy, has outpaced new warehouse construction despite 50 million square feet being added in Q3 alone.

How much does it typically cost to lease warehouse space during shortages?

While specific rates vary by location, warehouse shortages typically drive rental costs up significantly. Markets like New York City, San Francisco, and Los Angeles see the highest rates due to dense populations and limited land availability. Businesses should expect premium pricing and potentially longer lease terms during shortage periods.

Why are multi-story warehouses becoming more popular for development?

Multi-story warehouses maximize space efficiency in areas where land is scarce and expensive. They’re particularly viable in dense metropolitan areas with high industrial real estate costs and strong e-commerce demand. This vertical approach allows developers to increase storage capacity without requiring larger land footprints.

When is the best time to secure warehouse space given current market conditions?

Acting quickly is essential in today’s tight market. Many experts recommend securing space 12-18 months ahead of actual need, especially before peak seasons like holidays. Early planning allows for better negotiation leverage and prevents being forced into suboptimal locations or terms during critical business periods.

What alternatives exist when traditional warehouse space is unavailable or too expensive?

Companies can explore shared warehouse facilities, third-party logistics partnerships, or flexible co-warehousing arrangements. Some businesses utilize overflow storage during peak seasons or consider emerging markets outside major metropolitan areas where space availability is better and costs are lower while still maintaining reasonable distribution reach.