News / Demand for warehousing expected to pick up – but facilities must be up to date

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Global warehouse demand is expected to pick up at the end of the year, according to Transport Intelligence (Ti), but it warned that ‘outdated’ warehouses would not secure premium contracts as shippers demand more modern and sustainable storage operations.

In its Q1 24 Warehouse Tracker, Ti reports that warehouse costs have increased steadily since the first quarter of 2022, although that growth has been dented by high vacancy rates.

In particular, markets in north-east Asia have “a very high vacancy rate” and have seen less dramatic cost increases over the past year, in comparison with Europe and North America.

Ti notes that the availability of “older, lower-quality second-hand space” is largely being driven by demand for more modern warehouses that “attract local labour and meet sustainability targets”.

It warned: “Warehouses which don’t meet updated specifications for power supply and sustainability, or don’t have a welcoming cafeteria to attract and maintain staff, are not securing premium contracts.”

The analysts said there was a “two-tier market emerging”, particularly in the UK, with higher rental growth for new warehouses than for older, secondary space.

Indeed, Mark Tarratt, solutions director at GXO UK and Ireland, told The Loadstar: “We are seeing a shift towards more automated solutions in the warehouse, resulting in a growing demand for facilities where new technologies can be implemented, which you tend to find across the newer buildings in the market.”

UK brewer Greene King today announced it would invest £23m ($29m) in a Manchester depot, under a 15-year partnership with GXO, which will see an site at Middleton refurbished, including the installation of 8,000 sq metres of solar panels to generate a targeted 1.2m kWH a year.

Matt Starbuck, MD of Greene King brewing and group supply chain, said: “The new site will make for a far better environment for the teams to work in, and people will absolutely be at the forefront of the design and planning process.”

In 2023, Amazon invested in more than 100 new solar and wind energy projects, aiming to have all the electricity powering its operations renewable by 2025.

However, Ti also noted that the escalating prices of land, construction, energy infrastructure, sustainability and automation were all putting upward pressure on the cost of building new large-scale warehouse facilities.

“Aside from recovering demand, the upward pressure on costs we’re expecting next year is likely to also come from measures to reduce the environmental impact of warehousing operations while updating technology.”

However, while sustainability initiatives, like rooftop solar installations, were an added upfront cost, Ti added that, over the long term, these measures should reduce operational costs.

Short-term, it predicted, there would be minimal warehousing price movement in Europe, while rents in North America were expected to continue climbing, albeit slowly.

Costs were likely to increase at a quicker pace in both markets later this year, and into 2025, “as demand recovers and vacancy rates are reduced”, it said.

Oversupply in north-east Asia, however, “leaves little room for cost and rent growth” in that region, added Ti.