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Address space constraints through multi-storey warehousing

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by Gurudeep R , Research Analyst, Logistics and Warehousing
1 January 2017


In 2016, the U.S. industrial market became extremely tight with warehouse space availabilityinmost of the urban regions where vacancy rate is 5.6 percent, which further dropped by 0.8 percent compared to 2015.Increasing demand drives the value of industrial land by pushing rental rates in Seattle to new heights where average rental rate was$7.28/sq. ft. /year and vacancy rate was2.6 percent at the end of 2016. Due to this industrial space shortage in Seattle,occupiers are looking for feasible solutions to meet the consumer demand where last-mile delivery is growing. Setting up a traditional warehouse in rural or suburban region can be a solution where the rental rates will be lesser compared to urban regions. However, this solution will impact the buyersin terms of higher transportationor distributioncost and delivery time. Multi-storey warehousing model is another solution for such space constraints where more storage space is built in single warehouse to meet the ongoing demand. Multi-storey warehousing is a popular trend in Asia Pacific countries due to less availability of space in the market and the average rental rate for multi-storey warehouse is $1.43/sq. ft. /month which is 35 percent lower than traditional warehouse.

Currently the U.S.is a demand driven market with retailers being the major takers. As last mile delivery grows,many industry players are also planning to bring warehouse operations closer to their customers to optimize the overall distributioncost and last mile distribution network.Shifting from traditional warehouse to multi-storeywarehouseenables the buyer toadopt higher consolidation practice whichreduces transportation cost and improves last mile distribution cost and network. This article analyzes the benefits of multi-storey warehousingin Seattleand how it impacts the industries.

Traditional warehousein Seattle

Traditional warehouse demand in Seattle is higher andmajorly driven by the e-commerce and the 3PL industry where the market remains incredibly space-constrained with the vacancy at 2.6percentin Q4 2016, down 100 basis points from the previous year;industrialvacancy rates have remained below five percent in Seattle starting Q1 2016. Availability and supplyof industrial land is lessin Seattle resulting in increase in rental rates. Currently the rental rates show growth rate of 10-15percent Y-O-Y.

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