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• Updates• Trends• Challenges• Opportunities

UPDATECompanies in this industry operate facilities to store goods and may provide related logistics services. The global warehousing and storage industry is forecasted to exceed $700 billion in annual revenue by 2017, according to Lucintel. Top regions for growth include Asia and Latin America, due to increased trade in both developed and emerging economies.

The U.S. warehousing and storage industry includes about 7,000 companies with a combined annual revenue of about $29 billion. Growth drivers include the state of the U.S. economy.

Warehouse operators in Colorado have seen a high demand from marijuana production and distribution clients. To grow, package and adequately store its products, cannabis businesses require significant amounts of industrial space. According to The Wall Street Journal, a third of all the warehouse space leased in Colorado over the past 18 months can be attributed to the growth of the cannabis

manufacturing and distribution industry. As a major logistics hub for companies moving goods between the Midwest and the West Coast, warehouse space in the Denver area is in high demand. Warehouse rental rates in the Colorado industrial market have also increased 10% in the past year. Since the beginning of last year, warehouse space has nearly doubled to $80 a square foot. This trend could continue to effect other locations as recreational cannabis use is legal in four states, the District of Columbia, and for medical purposes in 20 other states.

With a reduction in vacancy rates and the increased cost of available warehouse space in the state, the commercial real estate market in Colorado has benefitted tremendously from the increased

demand of the cannabis cultivation and manufacturing industry. Commercial real estate tracker Xceligent Inc. estimates that in the city, cannabis manufactures occupy about 4.5 million square feet of space, which is the equivalent of 78 football fields.

TRENDSFrom being a passive provider of storage space, the warehousing industry has evolved in the direction of providing logistics services, as well as providing customers with the ability to identify, track, and expedite individual items through the supply chain. Many warehouse facilities are considered high throughput distribution facilities rather than long-term storage buildings.To fulfill sophisticated distribution functions for customers, it is now

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common for some warehouses to become as large as one million square feet. With computer systems now controlling the identification and throughput of individual items, special wiring and outlets are installed in warehouses. In some warehouses, a grid of wires in the floor allows computer guided forklifts to know exactly where a stored item can be found.

As more warehousing and logistics companies specialize, they require more customized material handling equipment. More site specific, comfortable, and safe products are especially in demand. Many special requests, such as side restraints to protect drivers if a lift truck tips could eventually become standard.

Revenue (in current dollars) for U.S. warehousing and storage services is forecasted to grow at an annual compounded rate of 4% between 2015 and 2019. Total U.S. manufacturers’ shipments, an indicator of demand for warehousing and storage facilities

and services, fell 3.8% year-to-date in July 2015 compared to the same period in 2014. Total U.S. revenue for warehousing and storage rose 2.3% in the second quarter of 2015 compared to the previous year.

The spot price of crude oil, which affects energy costs for warehousing and storage, fell 51% in the week ending September 11, 2015, compared to the same week in 2014.

CHALLENGESEconomic slowdowns greatly impact the industry, as many business customers use public and contract warehousing mainly to handle peak demand. Industrial production, import volume, and office vacancy rates are indicators of demand for warehousing.

Cold storage and temperature-controlled facilities have high energy requirements, contributing significantly to operating costs. In times of rising costs, facility managers investigate new, more affordable technologies to reduce

consumption. Electricity costs can make up a significant portion of a cold storage building’s ongoing operating costs.

Some warehouses serve only one large customer or one specific industry, specializing their equipment and distribution system for particular needs. Specialization can lead to longer-term contracts and higher profits. However, greater customer exposure exists for these warehouses if the customer or the industry suffers a downturn. Diversification across several markets and customers might be important to mitigate this risk.

Some manufacturers and distributors operate their own warehouses to maintain tighter control over service. Consolidation among companies in the U.S. has created larger entities that may choose to operate their own warehouses rather than rent space from warehouse companies. However, some large companies choose to outsource warehouse functions.

With distribution-type warehouses becoming larger, fewer prime locations are available for construction. Smaller, older facilities tend to occupy space along major transportation corridors.

OPPORTUNITIESRecognizing the importance of efficient storage and distribution functions, more companies are

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outsourcing to logistics specialists, known as third-party logistics providers, or 3PLs. In addition to greater efficiency, companies can lower their capital investment and the risk of being stuck with poorly sited facilities. Outside logistics firms are more likely to use public warehousing to fulfill local distribution needs.

Some records storage firms are expanding their capabilities from paper documents to electronic records by building computer server farms in secure locations. By providing secure online storage offsite for customers’ critical computer applications, storage companies are gradually transforming their business from paper to electronic storage.

Robots have historically been too expensive and not mobile enough to do the tasks found in distribution centers, but advances in computing power, vision systems, and sensors are making robots more feasible for warehousing, according to DC Velocity. As prices come down and the machines become more human-like, the use of robotic automation for warehouses is increasing.

ABOUT MOHR PARTNERS

Mohr Partners, Inc. is a global corporate real estate firm offering tenant advisory and consulting services. Mohr Partners has 19 offices in North America, providing corporate tenants with portfolio services including strategic planning, portfolio and lease administration, research and site selection, project and construction management, comprehensive demographic analysis, and economic incentive negotiation. Since 1986, Mohr Partners has been managing real estate portfolios for corporations in all 50 U.S. states, all Canadian provinces, and many locations around the world through its strategic alliance partners.

For more information please visit our website at www.mohrpartners.com.

Data for this newsletter was sourced from First Research® Industry Profile, 09-21-2015. First Research forecasts are based on INFO-RUM forecasts that are licensed from the Inter-industry Economic Research Fund, Inc.

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