Tianya1223 Steve Purvis, managing director of Bis Henderson Space, says retailers and their supply chain partners should consider short-term leasing as they secure warehouse space in anticipation of the ‘golden quarter’ and the Christmas peak.
Predicting requirements seven or eight months ahead is always a challenge, and this year looks particularly uncertain. While there is a ‘cost of living crisis,’ it seems that consumer spending during the Easter peak held up better than expected. Some retailers and suppliers even experienced stock shortages as demand exceeded their expectations.
Price inflation remains high, but there is a possibility of a rapid decline throughout the year. However, there are contrasting views among economic forecasters, with some suggesting a rerun of the high-inflation Seventies.
e-retailing seems to have found its new natural level, accounting for approximately a quarter of retail trade.
One notable observation is that e-retailing seems to have found its new natural level, accounting for approximately a quarter of retail trade. This indicates that an omnichannel approach is the way forward for many retailers, adding complexity to warehouse space planning.
Given the uncertainties, many companies have been cautious about committing to space for the winter peak. Some have decided not to renew leases on their existing estate due to pressure on margins and expectations of subdued trading. Scaling permanent warehousing facilities to accommodate the highest peaks in demand often ties up capital and results in inefficient use of resources during off-peak periods.
This year, entering into long-term space commitments is not advisable. Quality warehouse space remains in short supply, and landlords face significant increases in interest rates. Rents have already seen year-on-year increases, with larger units experiencing a rise of 10.5%, and smaller and multi-let facilities witnessing a substantial 13.2% increase.
While the headline rates per square foot may appear high, businesses only pay for the time they need the space. In practice, rates are often highly competitive
To address these challenges, adopting strategies that embrace short-term leasing is crucial. While the headline rates per square foot may appear high, businesses only pay for the time they need the space. In practice, rates are often highly competitive, as space providers are keen to see any return on their underutilized assets.
Short-term leasing also offers cost savings since businesses do not have to bear the year-round expenses of heating, lighting, staffing, and maintaining largely empty space. Additionally, taking up another company’s spare capacity can result in shared operating costs, including labor and IT resources, further reducing expenses.
This flexibility provided by short-term leasing is not limited to the holiday season but extends to experimentation with new product lines, regional markets, customers, and distribution chain architectures. It allows for different approaches to balancing physical stores and e-commerce, minimizing long-term risks.
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