Warehouse construction starts are falling in the U.S., along with warehouse leasing rates. A few core factors could be contributing to this trend. If industry leaders don’t address these factors, logistics companies could face a long-term shortage in available warehouse real estate that may negatively impact business growth. What could be causing the slowdown in warehouse construction?
Reducing Rates of Warehouse Construction in the U.S.
After several years of incredible growth, warehouse construction rates are falling nationwide. With vacancy rates hovering around 3% throughout 2022, warehouse space has never been in higher demand. However, leased square footage and construction start square footage rates both fell in Q4 2022.
Leased square footage is down an estimated 37.2% from Q4 2021, while construction starts fell 24% in Q4 2022 after a peak in Q3 2022. A decline in leases could be due to a lack of available space. However, the drop in construction starts could hint at larger potential issues for the logistics industry. If new warehouses aren’t being built, vacancy rates could drop even lower than 3%, and rent prices could sharply increase.
Research shows that 2023 is estimated to see a seven-year low in warehouse development. Interestingly, the drop in construction starts is more concentrated in some regions than others. California is the most desirable location in the country for warehouse development due to the Los Angeles and Long Beach ports.
However, that will likely change over the next few years as California rapidly runs out of land available for developing new warehouses. As a result, Texas will likely become the new hub of U.S. logistics. So, California could see a sharp decline in construction starts while Texas experiences an increase, although starts will decrease in the U.S. overall.
Shifting Perspectives of Warehouse Careers
What is causing this concerning drop in warehouse construction starts? The trend could be due to several factors. For instance, some regions are simply running out of viable space for warehouse construction. However, other areas are curtailing warehouse development through actions like construction moratoriums.
Shifting perspectives of warehouse careers could be one possible contributor to this trend. In the past, warehouse construction was often seen as a good thing for communities because it brought hundreds of new jobs. Over the past few years, those jobs have come under more scrutiny, losing some of the luster they originally garnered.
Amazon is at the heart of this tension. In 2023, the U.S. Department of Labor announced numerous OSHA safety citations at Amazon warehouses in several states. The OSHA citations come in the wake of rising public awareness of high injury rates among Amazon’s warehouse employees. Some employees who have spoken out on the issue cite Amazon’s emphasis on maximum efficiency as a major factor contributing to injury rates.
Reports like this are gaining more and more attention online, making the general public less welcoming to warehouse development. Community leaders may be pushing back against warehouse construction out of concern that it will bring low-wage, high-risk jobs to their neighborhoods.
Addressing Warehouse Safety Concerns
This trend is concerning, but logistics leaders can take steps to improve the situation. Rethinking warehouse safety standards is a great place to start. For example, logistics companies can minimize combustible waste, such as cardboard boxes, present in their warehouses. This reduces the risk of a fire breaking out or spreading.
Additionally, warehouse employees should be encouraged to report any and all injuries on the job and receive support for handling those injuries. If employees get hurt at work and decide not to report it out of fear or shame, the injury could worsen into something much more serious.
Logistics companies must also carefully analyze the injury risks associated with automation. More automated machinery in the workplace can increase the daily risks employees face. Mobile robots, robotic arms, conveyor belts, robotic cranes and other automated equipment should have as many safety protections in place as possible.
The Impact of Warehouses on Communities
Employee safety is not the only factor sparking hesitancy to approve warehouse development. Warehouses are also associated with significant negative side effects in the surrounding communities.
Pollution and Health Concerns
Warehouses bring jobs and business to town, but unfortunately, they also bring high amounts of pollution. Warehouse activity increases air pollution, contaminated stormwater runoff and noise from constant traffic.
Stormwater runoff from warehouse properties can contain toxins that endanger local wildlife if they seep into natural waterways. The increased runoff also increases the risk of flooding in the land surrounding warehouses. Warehouses are often constructed in seemingly empty, open land. However, building in these spaces can destroy valuable habitats and natural resources, such as wetlands.
The increased air pollution generated by 24/7 operations and traffic can have serious health consequences for people living near warehouses. Air pollution can cause asthma attacks, cardiovascular disease, infections, stunted lung development in children, breathing difficulties and even lung cancer.
These serious health risks disproportionately impact communities of color, which are subject to far more warehouse development than primarily white communities. Furthermore, an estimated 57% of Amazon warehouses are located in low-income communities. As a result, the people exposed to pollution and health risks caused by warehouses may not have the means to move to a different neighborhood.
Activists and community leaders are increasingly calling for government action and regulation for warehouse pollution. This may be creating barriers to warehouse development that are contributing to declining construction starts.
Reduction in Home Value
Many people may oppose warehouse development due to its negative impact on home value. However, this can be a double-edged sword since some homeowners may see an increase in home value from warehouses.
For instance, a warehouse developer may offer homeowners a high purchase price to buy their home if it conflicts with the proposed construction zone. Additionally, warehouses could increase demand for houses nearby depending on the jobs they bring to the area. Unfortunately, this can also price out people from the communities they love, forcing them to move away while waves of new warehouse employees take their homes and apartments.
The impact of warehouses on real estate can also swing in the opposite direction, resulting in dramatically lower home values. This most commonly impacts homes with views of warehouses or immediately bordering them. However, it can affect the community at large since warehouses can lead to increased traffic, making a neighborhood less desirable.
The final main factor causing a decline in warehouse development may be the increased traffic warehouses create. Local government leaders and community members may campaign to block the construction of new warehouses to prevent an influx of tractor-trailers, vans and employee vehicles to local roads.
Increased traffic creates noise pollution that can be disruptive around the clock, even leading to sleep issues. It also increases wear and tear on local roads and increases the likelihood of traffic-related accidents. This is particularly concerning for families, who may be worried about their children’s safety on local roads and sidewalks.
Declining Warehouse Construction Explained
The declining rates of warehouse construction starts and warehouse leasing are concerning for the logistics industry. They could hint at long-term availability shortages that may hamper growth. The declining development rates may be connected to a few core concerns surrounding warehouse activity. Logistics companies may need to address these concerns to get local leaders on board with new warehouse construction.