Doug Kiersey has been building, buying and leasing warehouses for almost 40 years. He’s never seen a time like this.
“It’s completely unprecedented,” says Kiersey, president of Dermody Properties, which owns warehouses used by some of the country’s largest retailers. “In some markets … we’re over 99% occupancy.”
In simplest terms, America’s warehouses are running out of space. It’s all claimed and bursting at the seams.
How did that happen?
Warehouses have become a key middle link in the country’s supply chain. Couches, phones, floorboards and virtually everything else a shopper might buy passes through them. Today, the U.S. is dotted with more warehouses than ever. But they are overcome by the lack of workers to get stuff in and out fast, by the lack of truck drivers and rail cars to haul things away — and above all, by the extraordinary abundance of goods.
“It’s not that the system is broken. [Warehouses] are just totally, totally overwhelmed,” says Zac Rogers, assistant professor of supply chain management at Colorado State University.
Warehouses went into the pandemic already pretty busy, with over 90% of space claimed. Then, closures began at factories, ports and stores. People cut back on shopping, and stuff in warehouses started piling up. Then, when everything reopened, a pent-up rush of goods arrived.
“Warehouses were already sort of full and now they’re really, really full,” Rogers says. His data shows available warehouse space declining every month since last spring.
Meanwhile, shoppers have been spending at record levels, unleashing all the money saved by not traveling or going out — and their cooped-up pandemic anxiety — onto buying things. In an average year, online spending might grow 10% 0r 15%. Last year, it jumped over 40% and has only kept growing through 2021.
Retailers responded to the surge in demand by increasing imports to record levels. Companies scrambled to bring into the U.S. as much as they could, while they could — because they had seen what factory and port disruptions can do. They began storing things “just in case” shoppers want them, rather than “just in time” for when a shopper is likely to buy.
“Essentially, you kind of see this doomsday-prepper mentality in all of these companies where normally they’ve been as lean as possible,” Rogers says.
Warehousing companies have been building as fast as they can. In fact, it was the one type of commercial construction that boomed all through the pandemic.
But setting up millions of square feet with conveyor belts, robots and all the bells and whistles takes time. Plus, prime warehousing space is tricky and limited.
Building a warehouse used to involve finding a cornfield in the exurbs or aligning with a freeway interchange, Kiersey says. Now, that’s too far. Retailers want to get packages to doors in the least amount of time, which means jockeying for storage in expensive and crowded urban and suburban areas.
Warehouse builders were just figuring all that out when the pandemic shopping boom raised the stakes.
“So demand has come up against a static supply,” Kiersey says.
In a matter of a year, warehousing rents in some markets have doubled. Brand-new buildings that would normally sit vacant for months are selling space before they’re finished. The other day, Kiersey had to do something unheard of: turn away an old client as three companies vied for the same warehouse.