Winning the overflow storage war in a tight market

09 Nov 2021

By Claus Brewer

If you’re in consumer goods, you’ll be working through the challenges of the upcoming Christmas retail period. Over the last 20 months supply chains have struggled to meet inventory demands. This has resulted in many organisations increasing orders and manufacturing to ensure they have stock on-hand when it’s needed. However, where this stock is being stored is becoming the big issue.

As happens every year, there is a scramble to secure overflow storage space for the higher volumes of inventory our retailers need to get through the silly season – and this year not many people are jolly.

Auckland industrial vacancy levels are sitting at around 1%. Whilst we have a handful of options to discuss with occupiers at present, most landlords who previously entertained securing a short-term tenant from October – February, seem happy to leave their buildings vacant for a little bit longer to secure a long-term occupier rather than compromise this by committing to a short-term contract. This has significantly impacted the short-term leasing opportunities for seasonal overflow storage.

Reactions and actions

To combat this issue, some organisations are holding their stock overflow through container detention which could become high risk and a high cost if they can’t move that stock quickly through sales.

Others are engaging third-party logistic (3PL) firms or transport providers for alternative and temporary solutions – and the storage issue then becomes their problem. Discussions we’ve had with several 3PLs is that their warehouses have no capacity left this year.

Some occupiers are building or leasing additional long-term space into their current requirements knowing the issues that come with seasonal overflow and inventory management. They are grappling with having to pay current market rental rates whilst ensuring they are maximising the benefit from the sqm rate. It is requiring them to be smarter about how they add-on and utilise the additional capacity. We are advising clients to look at the feasibility of longer-term rentals utilising the space for the seasonal influx over October – February, and then allow our team to sublease or collaborate with complementary occupiers for this space during the other seven months.

A long-term view is essential

The supply pipeline for additional large-scale industrial development isn’t substantial, this is due to a conservative approach to speculative development over the last 18 months. With the average build period being approximately 16-20 months on development-ready land supply is unlikely to change significantly in the next year or so.

Therefore, a shortage of overflow space in not just a 2021 problem. From an occupier viewpoint this requires careful planning and strategy of what to do with their footprint over the short and medium term and this must feed into a longer-term strategy.

Our team continue to advise organisations on property profiles, and our supply chain team help with facility design, preferred location and movement of product to inform organisations on how to mitigate the same overflow issue occurring next year.

We have been working with market leading 3PL Online Distribution since pre-Covid. Having seen how tight the market was even at that stage, Greg Managh, Chief Executive began implementing a long-term property strategy to include capacity for seasonal demand from contract logistic providers, eCommerce and retail clients, as well as staying ahead of the steep growth curve.

Balancing capacity and lease commitments for the evolving needs of customers has always been key for an effective 3PL, but never more so than in an environment of shifting market conditions. Getting this right enables long-term value for Online’s clients and their customers through efficient process, service offerings and better overall customer experience.

In our next piece, we’ll talk to Greg about his journey to implement this future-focused strategy and the need for organisations to have a long-term overflow storage plan in place now.