Industrial Tenants, Including Big-Box Retailers, Driving Demand For Co-Warehousing Model
Companies that provide a coworking-esque model for warehouse space are growing in demand among industrial users, and it's not just small businesses driving gains for the sector.
Major retailers and logistics companies, such as Walmart, are making use of flexible warehouse options to help with seasonal surges in space needs, like those that occur around the holidays or the back-to-school season, sources tell Bisnow.
“This is an interesting newer development, larger institutional occupiers using this [coworking-for-warehouses space] for their flexible needs,” Savills Director and Head of Industrial Research Mark Russo told Bisnow.
Companies like Saltbox and Cubework, which provide flexible or short-term leases for users of industrial space, are in growth mode along with the larger industrial sector, which has seen historic gains in the wake of the coronavirus pandemic. However, some industry watchers have reservations about the stability of the business model and a potential lack of transparency for building owners, not unlike the concerns felt by office players over the boom in office coworking.
Russo said the so-called co-warehousing model makes sense for larger occupiers not just during busy shopping seasons, but also as major companies try to insulate their business from the supply chain woes that have spiked over the last year and a half.
“Having the option for excess space as necessary is worth its weight in gold,” Russo said.
The growth in demand for co-warehousing comes amid tight vacancies for the industrial sector, making leasing options scarce and driving rents up.
A CBRE report published this month found that, nationally, industrial users with five-year contracts expiring this year were looking at an average 25% rent increase. Vacancy across the country is at 3.6%, according to the report. In Southern California, by Savills’ count, vacancy is 2.1%, though the figure is lower in some submarkets, like the South Bay, where vacancy is hovering around 1%.
That demand is evidenced by expansion plans of companies that use the coworking concept for industrial space.
One such firm has secured its first Los Angeles location, with plans already in the works for a second location to open next year.
Atlanta-based Saltbox raised $10.6M in a round of Series A funding in the spring of this year for an expansion, and it appears to be putting those funds to good use. The company opened its fourth U.S. location this week in Torrance, where it signed a deal for a 45K SF warehouse.
“LA presents not just an important market for us in terms of accessing the many businesses located here, but it also provides an important node in the national logistics network we’re building,” Saltbox CEO and co-founder Tyler Scriven told Bisnow in an email. Having a presence in LA means members in other locations across the country can more easily access the area's infrastructure and the large population center here, Scriven said.
Saltbox targets the scores of small and midsized businesses that need warehouse space — but not hundreds of thousands of square feet at a time — or need it on a flexible basis. Saltbox offers warehouse and office space under the same roof, as well as services including daily on-site pickups from a variety of shipping and mail couriers, access to loading docks, a photo studio and conference rooms.
Scriven said that no major logistics or retail tenants have taken up space in a Saltbox location yet, but another provider, Cubework, does count some of these companies among its roster of renters.
Cubework, which is based in City of Industry, is a similar concept also in expansion mode, with plans to add a handful of Southern California locations in 2022, Cubework Chief Commercial Officer Christine Wei told Bisnow.
The coworking-meets-warehouse company has 24 locations in California, 20 of which are in Los Angeles, Orange County and the Inland Empire. Its most recent LA-area location — a 70K SF warehouse in Vernon — opened in mid-2021. Wei said Cubework is focusing on expanding out of state, especially in Texas, noting "skyrocketing" prices for space here in SoCal, but said she is also touring buildings in the LA area for additional Cubework locations that could be coming as soon as next year.
Cubework locations in LA County range from 50K to 280K SF, Wei said. Though the company works with tenants across a number of industries, the majority of Cubework clients fall into the e-commerce category.
Many of them are smaller, seeking between 1K and 20K SF, but the company has also seen interest from larger clientele, such as Walmart, that need seasonal and holiday storage space, Wei said. Walmart did not immediately respond to a request for comment.
Much of this tenant demand for warehouses has been a result of the pandemic-fueled surge in e-commerce. U.S. consumers spent $612.9B online in the first nine months of 2021, a 16.4% increase from $526.7B in the first three quarters of 2020, a report from DigitalCommerce360 found.
Russo said many large retailers are looking to keep more products on hand than they would in years past to mitigate headwinds caused by the supply chain, which in turn translates to a need for more space.
Despite growth in the sector, some sources who spoke with Bisnow were skeptical about the model, especially in instances where entire buildings are leased by co-warehousing companies, which can make it challenging for landlords to fully understand who is renting space, and how they are using it.
Both Cubework and Saltbox lease space from building owners, with the latter signing management agreements with landlords. This business model, in which shared space providers and landlords share expenses and profits, has been touted by coworking companies as a more stable and cost-efficient growth strategy.
In addition to leasing, Cubework also owns some of its locations.
Scriven noted that finding new locations, particularly in inventory-strapped Los Angeles, poses a challenge for Saltbox, though it also marks a sign that the services are needed.
“Finding space is difficult — but what is hard for us is even harder for our members,” Scriven said. “In other words: the same factors that limit supply of available industrial buildings often drive demand for our product from our members.”
Cubework's LA County locations are 100% occupied, Wei said, and consistent demand for its product has the company looking to add a handful of new locations in Southern California next year.
“Our spaces are currently full, so we’d like to pick up more buildings,” Wei said.