Are Co-Warehousing Solutions a Game-Changer for Industrial?

Co-warehousing solutions are rising in popularity as solid alternatives for the surging number of small businesses and users with short-term needs. More than 5.5 million new business applications were filed in 2023 alone, according to Census data, a record-breaking number.

The same source shows that small businesses represent nearly 44 percent of the country’s GDP, employing almost half of the country’s workforce. Of course, their needs vary by industry, but a significant part of this economic force requires industrial space to operate, so it can benefit from co-warehousing solutions tailored to them.

And recently, this industrial niche has become increasingly competitive, with large players creating their own brands of flexible warehouse solutions. Others have chosen to specialize in certain segments, like e-commerce.

Co-warehousing combines the full functionality of warehousing with the flexibility, convenience and predictable overhead of coworking, as Jeff Mirel, principal at The Rosenblum Cos., puts it. Businesses can focus on growing core operations because co-warehousing mitigates risk along with the inertia of equipping and managing a space.

Following 1.1 billion square feet of industrial space delivered between 2022 and 2023, the national vacancy rate grew to 6.4 percent in July, a recent CommercialEdge report shows. This, coupled with fewer large-scale, single-tenant deals, creates new opportunities for the co-warehousing model.

Where do co-warehousing solutions thrive?

Warehouse occupancy rates in New York’s capital region stand at around 98 percent, with very few spaces where small businesses can operate from, according to Mirel. This pushed The Rosenblum Cos. to create Launchbox Flexible Warehouse Suites and provide support for the many self-employed operators in the area. The company opened its first co-warehousing location in Latham, N.Y., in March. Today, there are roughly 4,000 small businesses within 15 miles of the company’s facility, spanning industries such as e-commerce, light manufacturing and creative arts and crafts.

Similarly, Saltbox—another co-warehousing solutions provider—has strategically opened its facilities in locations where small, infill logistics space is scarce and in high demand. The company currently operates in Atlanta, Dallas, Denver, Los Angeles, Miami, Minneapolis, Phoenix, Seattle and Washington, D.C. When asked where a new ideal location would be, Saltbox Co-Founder Maxwell Bonnie said that San Francisco, Chicago and New York would be his top picks because these markets are home to many innovative e-commerce brands that could use co-warehousing services to grow and scale up.

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Since the co-warehousing trend started gaining traction roughly five years ago, many large metros and land-constrained areas with fast-growing populations have been a common target for this model. However, given the evolution of small business growth, less dense areas are also starting to draw interest.

The model is practical in any area with small- to medium-sized e-commerce companies, where firms need incubator space and logistics providers operate on a contract basis, believes Stephanie Rodriguez, national director of Industrial Services with Colliers.

Is co-warehousing immune to industrial headwinds?

Since co-warehousing attracts occupiers that need smaller footprints, it’s more isolated from the ebbs and flows of the larger industrial sector.

Today, there are much fewer owners and developers willing to spend money to acquire and build large facilities, Damon Juha, vice chair with Saul Ewing’s real estate practice, noticed. So, multitenant assets make much more sense in this context, as they allow developers and owners to hedge risks since they don’t need to search for a single, massive occupier.

Additionally, co-warehousing operators can benefit from more competitive lease terms in markets where a significant amount of new speculative industrial space has been recently delivered, Rodriguez added.

This doesn’t mean the niche is completely free of hurdles to overcome, however. The flip side of short leases and multitenant operations is that operators need to constantly seek new customers, while also having to differentiate from competitors. Even if more competition is welcome, Bonnie said, as it validates the model’s success and recognition.

Saltbox, for example, is laser-focused on the needs of e-commerce brands, tailoring its logistics services for them. It tries to differentiate itself by prioritizing accessibility, flexibility and a deep understanding of its customers’ businesses.

Still, there is a certain dependency on the traditional industrial market, Juha noted. If traditional owners have to become more flexible in terms of amenities, lease length and size of space, then there could be some downward demand on these sorts of spaces as the gap between traditional and co-warehousing narrows.

How will co-warehousing solutions evolve?

With its focus on small businesses, co-warehousing lends itself to a more human-centric approach, Bonnie believes. This provides a value that’s hard to quantify, driven by accessibility and flexibility. Ultimately, it leads to higher client retention rates and more positive feedback.

One area where there’s room for improvement, Bonnie continued, is onboarding. Ensuring that new members have a smooth transition and can quickly access all the advantages is key to maintaining that retention rate and creating a good tenant experience.

Another area of growth for the co-warehousing model is providing space to companies that wish to establish a toehold in a new market, including those looking to collocate with growing regional industry sectors such as the wind and semiconductor industries. Launchbox, for example, is the first American location for Instagrid, a German-based manufacturer of portable clean power systems.

Similar to the coworking industry, the co-warehousing niche can also benefit from technology enhancements such as access controls, payment management, reserving additional space and so on. What’s more, small industrial users also need to coordinate, move, ship and track inventory, and being able to do all of that via a phone app, for example, is of immense value.

Additionally, with warehouse automation being a very costly investment for small businesses, co-warehousing operators can bridge that gap and offer automation as part of their services. Some examples include automated storage and retrieval systems, packaging automation and robotic forklifts, which can mitigate labor and inventory control challenges.

All these potential avenues for improvement emphasize the growing strength of this niche. Mirel believes that demand for co-warehousing solutions will only grow in the future, as the number of small businesses continues to grow and their need for small, well-located, high-quality spaces that don’t require a lot of upfront capital also increases.