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What the warehousing industry will look like in 2023

9/19/2022

What the warehousing industry will look like in 2023

The COVID-19 pandemic presented the warehousing industry with unforeseen challenges and their lingering effects are expected to continue in 2023 and likely beyond. Here are the three key trends experts predict will permeate the warehousing industry next year:

1. Low vacancies

Global commercial real estate agency JLL Inc. recently reported that the industry can anticipate low vacancy rates for the foreseeable future. The vacancy rate is expected to remain below 4% next year. As many organizations have more stock in their warehouses than ever before, almost every warehouse is currently occupied.

The reason for this is three-fold: firstly, as warehouse media publication DC Velocity explains, the popularity of e-commerce and online shopping is at an all-time high. Secondly, manufacturers across the world experienced severe supply shocks during the past two years and are consequently increasing their inventory positions to avoid the same problems in future, FreightWaves explains. Lastly, as ports across the world still struggle with labor shortages and remain congested, more stock is sitting in warehouses than before as distributors wait for space at ports before shipping.

Building a new warehouse now costs over 20% more than it did in 2021. These high costs combined with a labor shortage in the construction industry mean we're unlikely to see many new warehouses being built any time soon, so companies can expect warehouses to remain in short supply in the immediate future.

2. Increased rent

Commercial real estate agency Cushman & Wake explains that companies in the industry will need to brace themselves for continually rising industrial rent, which is predicted to increase by over 8% in 2023. Since 2016, the average price per square foot has risen by almost 40%. Prologis reports that the price per square foot had increased by over 17% in 2021 alone.

Because companies heavily prioritize same-day deliveries, those renting warehouses are willing to pay exorbitant prices just to stay relevant and competitive in their respective markets. Thus, organizations in the warehousing industry can expect to keep paying a lot more rent in 2023.

3. Labor shortages

Global mass lay-offs at the beginning of the pandemic resulted in labor shortages in every industry, including warehousing. As EAM Mosca explains, the demand for goods shipping currently exceeds the labor supply needed to meet it.

It also means current warehousing workers are expected to work longer hours under more stressful conditions. This combination has led to many specialized employees leaving the industry, resulting in a massive employee turnover that sat at just under 50% in 2021.

Further, as experienced laborers age and need to leave the industry, fewer people in younger generations are available to replace them. And, as Forbes explains, continued low wages have also caused experienced workers to leave the industry. Consequently, warehousing companies will need to find strategies to overcome the labor shortage in 2023.