The relentless rise of same-day delivery has merchants on the hunt for warehouse space close to their urban customer base. Strong demand has made industrial real estate increasingly hard to find. And even when space is available, it’s typically not found in the city center, but instead in sprawling sheds the size of football fields in the suburbs.

“Because customers today demand such fast delivery when they order online, companies need more smaller locations rather than fewer larger locations,” says Rich Thompson, who leads the global Supply Chain & Logistics Solutions team at JLL. “At the moment, this isn’t really the way things work.”

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“The ‘Airbnb model for industrial warehousing space’ allows companies to be nimble enough to respond to seasonal changes and compete in the age of e-commerce,” Thompson says. There is already a handful of startups working to connect companies with the need for flexible warehousing space with owners who possess excess capacity.

“As e-commerce companies seek to get closer to their customers, many are not able to justify leasing their own facility or it does not make sense given the seasonal aspect of demand, so the flexible model is an option for those companies that simply did not exist before,” Thompson says. “It’s a market niche because companies can now access locations in a new way, which creates greater flexibility and efficiency across the supply chain.”

Most lease agreements don’t allow firms to rent out unused spaces to those who need it. This new, more flexible model provides a solution. This is especially usèul for companies that need a lot of space during a certain season as they can profit off the otherwise wasted space during the off season.

For instance, think about a Christmas tree decoration retailer in November suddenly inundated with product, but the space they lease sits unused in warmer months. Meanwhile, a pool-accessory manufacturer is in need of that square footage during summer. 

“The on-demand warehousing market for industrial warehousing is relatively new and most companies are just beginning to understand how it works,” Thompson says. “The other hurdle is cultural. Many companies still prefer to have full control over their operations.”
Still, as more companies enter the space, the flex space model could “take some of the friction out of near-term imbalances or unplanned shocks in supply chains,” says Aaron Ahlburn, Senior Director of Research at JLL. “It could make shipping goods to customers a more seamless process.”

Stephen Wyatt, Country head of JLL Vietnam, comments on the trend: “Over the past few years we have seen an increase in co-working operators enter the market, therefore, it is only a matter of time before we see a flexible approach to leasing warehouse space. Especially with the strong demand from the ecommerce sector requiring smaller/flexible warehouse facilities for the fastest “last mile” delivery. We believe the flexible approach to warehousing could be very successful in the Vietnamese market and this is something that JLL will be monitoring closely in the future. A flexible warehouse space solution could be the answer to a number of existing problems in the industrial sector. Industrial space in the country has high occupancy rates and rents, if a flexible approach enter the market, I’m sure there will be strong demand from many businesses.”

Source: JLL

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