March 19, 2020

Supply chain disruptions from the U.S./China trade conflict and the COVID-19 pandemic have heightened retailers’ interest in on-demand warehousing, characterized by short-term leases for relatively small size segments. This era of uncertainty over the ability to maintain necessary inventory levels is why on-demand warehousing may become more widespread in the coming months.

On-demand, flexible warehouse space offerings are gaining popularity but remain a narrow niche within the industrial real estate sector. The emergence of flexible warehousing is a response to the growing supply chain challenges faced by industrial occupiers, who are up against limited warehouse space options, rising rents, longer-term leases and inventory fluctuation. What’s more, the current economic and geopolitical climate has created supply chain uncertainties, especially for inventory procurement, making it difficult for companies to make long-term distribution decisions.

Figure 1: Fastest Industrial Rent-Growth Markets & Top States for Flexe Warehouse Requests, 2019


Note: Indicates the amount of requests by companies for “on-demand” space on the FLEXE platform.
Source: CBRE Research, FLEXE, Q4 2019.

Only a handful of companies currently offer flexible warehouse options. The five biggest are FLEXE, Cubework, Stord, W2G and Flowspace. These companies connect retailers with warehouse providers, some of which (FLEXE, for example) provide fulfillment services on a pay-as-you-go basis. Others have industrial co-warehousing spaces (Cubework) for e-commerce companies and entrepreneurs. One thing most of these companies have in common is that they provide a technology platform to help occupiers manage inventory.

Third-party logistics providers (3PLs) remain by far the top occupiers of industrial space in the U.S., almost doubling e-commerce in terms of deal activity in 2019. Going forward, 3PLs may also utilize co-warehousing facilitators to capitalize on location, technology and labor, resulting in increased demand for industrial space.

Given current market dynamics and external factors at play, on-demand warehousing has the potential to scale and directly compete or partner with the 3PL industry. Whether flexible offerings will truly disrupt the warehousing sector depends on how 3PLs react to growing demand by industrial users for flexibility. Over the medium term, industrial rents likely will increase, along with a rise in smaller transactions as more retailers seek flexible space options in multiple markets. As a result, on-demand warehousing could become an opportunity for some forward-thinking 3PLs.

Figure 2: Top 5 Industrial Occupier Industries by Deal Activity, 2019


Source: CBRE Research, Q4 2019.

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