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.

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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!

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Regional Warehouse Market Analysis

The warehouse space shortage affects different regions across the United States with varying intensity, creating distinct market dynamics that businesses must navigate strategically. Understanding these regional differences is crucial for supply chain planning and facility location decisions.

West Coast Markets Face Acute Shortages

The West Coast continues to experience the most severe warehouse space constraints, with availability rates dropping below 5% in key markets like Los Angeles and the San Francisco Bay Area. Port congestion and import volume surges have intensified demand for warehouse space within 50 miles of major shipping hubs. Companies are paying premium rates of $12-15 per square foot annually in these markets, compared to national averages of $7-9 per square foot.

Seattle and Portland markets show similar patterns, with e-commerce fulfillment centers consuming large blocks of available space. Amazon alone has absorbed over 2 million square feet of warehouse space across these markets in the past year, contributing to the supply-demand imbalance.

Midwest and Southeast Emerge as Alternative Hubs

Traditional logistics markets in the Midwest are experiencing unprecedented demand as companies seek alternatives to constrained coastal markets. Indianapolis, Columbus, and Kansas City have seen availability rates drop from 12-15% to 8-10% as businesses relocate distribution operations to these central locations.

The Southeast corridor, particularly Atlanta, Charlotte, and Nashville, has become increasingly attractive for warehouse operations due to:

• Lower land costs enabling new construction
• Strategic positioning for East Coast distribution
• Available labor pools for warehouse operations
• Competitive lease rates averaging $5-7 per square foot

Strategic Solutions for Space-Constrained Operations

Companies facing warehouse space shortages are implementing innovative strategies to maximize operational efficiency within existing facilities while exploring non-traditional space solutions.

Vertical Storage Optimization

Businesses are investing heavily in vertical storage systems to maximize cube utilization within existing warehouse footprints. Automated storage and retrieval systems (AS/RS) can increase storage density by 40-60% compared to traditional racking systems. Companies like Walmart and Target have retrofitted existing facilities with high-bay storage systems reaching 30-40 feet in height, effectively doubling their storage capacity without expanding their physical footprint.

Mezzanine installations represent another cost-effective solution, allowing businesses to add 8,000-12,000 square feet of usable space within existing 40,000 square foot facilities. The average investment of $15-25 per square foot for mezzanine construction often proves more economical than securing additional warehouse space at current market rates.

Alternative Space Strategies

Forward-thinking companies are exploring unconventional warehouse solutions to address space constraints:

Shared Warehouse Networks: Third-party logistics providers are developing shared facility models where multiple companies utilize partitioned sections of large warehouse complexes. This approach reduces individual space commitments while maintaining operational flexibility.

Temporary and Seasonal Facilities: Retailers are increasingly utilizing temporary warehouse structures and seasonal space agreements to handle peak demand periods. These solutions typically cost 20-30% less than permanent space commitments and provide operational flexibility during uncertain market conditions.

Urban Micro-Fulfillment Centers: Companies are establishing smaller, strategically located facilities closer to population centers rather than relying on large, centralized distribution centers. These 10,000-30,000 square foot facilities enable faster delivery times while reducing dependence on scarce large-format warehouse space.

Cross-docking operations have gained renewed attention as a space-efficient strategy, with companies processing 60-80% of inventory through direct transfer rather than storage. This approach can reduce warehouse space requirements by 30-40% while maintaining service levels, making it particularly valuable in constrained markets where every square foot commands premium pricing.

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.