Warehouse construction future down due to poor economic climate
Warehouses added to the global building stock in 2023 is down 35% compared with 2022 as companies are focusing more on automating current assets rather than building new ones.
- Warehouses added to the global building stock in 2023 down 35% compared with 2022.
- 26% of warehouses expected to be automated by 2027, up from 18% in 2022
- The Inflation Reduction Act, coupled with trend toward near-shoring, resulted in uptick in durable manufacturing warehouses in Europe and North America.
The recent economic downturn has hit the warehouse construction sector hard. Updated research suggests fulfillment center construction has suffered in particular, partly driven by Amazon’s decreased spend on micro-fulfillment.
In response to the rising trend towards online shopping and e-commerce during the pandemic, we saw an increase in the construction of fulfillment centers to cope with this demand. Amazon accounted for a large proportion of this activity, as it doubled its fulfillment capacity between 2020 and 2021. But, as the trend towards e-commerce begins to slow down, the construction and building of new fulfillment centers has also dipped. In 2022, 4,000 fulfillment centers were added to the global building stock, but in 2023 this is forecast to decline to 2,000.
Consequently, demand for end-to-end automation solutions will also decrease and the boom we saw during the COVID-19 pandemic will come to an end. Many companies are likely to focus on automating their existing assets rather than investing in new, larger projects.
Warehouse construction has also suffered from the effects of poor economic conditions across much of the globe, in particular rising interest rates. It is expected the US will see a “meaningful” downturn within the next 12 to 18 months and, consequently, Interact Analysis forecasts a decline in the rate of warehouse construction in the coming years. Despite this, the growth in e-commerce since the pandemic is likely to dampen the shock to the warehouse construction sector. This is a lagging indicator, so a significant decrease is expected in 2H 2023 and 1H 2024. Overall, 6,700 warehouses will be added to the global building stock in 2023, a reduction of 35% compared with 2022, but still higher than pre-COVID levels.
Overall, China and the US are leading the way in terms of warehouse construction. In 2022, the two countries combined accounted for 58% of total square footage added. The US’s total warehousing stock increased by 6% over the year and China’s by 5%. The updated research shows that Japan and France registered the lowest growth in terms of additional warehouse square footage in 2022.
Rueben Scriven, research manager at Interact Analysis, said, “It is important to realize the downturn in warehouse construction is not due to a lack of demand. Rather, it is due to high interest rates and poor economic conditions. The slowdown in warehouse construction is likely to be short-lived as the demand for sites is still there. Rent prices are anticipated to increase in the mid-term and e-commerce will continue to drive demand over the long term.
“Regarding automation,” he said, “although we expect to see a decrease in demand for end-to-end automation, by the end of 2022, 18% of all warehouses had some form of automation installed and this is set to increase to 26% by the end of 2027. Food & beverage warehouses, and parcel sectors report the highest levels of automation in their warehouses.”
– Edited from an Interact Analysis press release by CFE Media and Technology. Interact Analysis is a CFE Media and Technology content partner.
Do you have experience and expertise with the topics mentioned in this content? You should consider contributing to our CFE Media editorial team and getting the recognition you and your company deserve. Click here to start this process.