The supply chain sector is booming. As industries grow and eCommerce drives demand for logistics services, many organizations find themselves needing more room to manage new volumes. For many, that means acquiring a new warehouse.
While industrial vacancy rates have neared historic lows as warehousing demand booms, some companies manage to find available spaces. However, even in this hot market, it’s inadvisable to rush into acquiring the first available warehouse. Here are eight essential factors to consider when expanding into a new space.
1. Purpose for Expansion
The first and arguably most important thing to keep in mind is the new warehouse’s purpose. How the company will ultimately use the facility impacts virtually every other aspect, so it’s crucial to define this early and in detail.
Some organizations may want a new warehouse to provide more storage for certain high-volume products. Others may wish to create a dedicated space for reverse logistics workflows. While both scenarios may warrant a new building, their specific needs for the property will vary.
Similarly, consider the kinds of products, workflows and machinery the warehouse will host. For example, businesses can only store 60 gallons of flammable liquids in any cabinet and hold only three cabinets in one room. Consequently, a warehouse storing these items may need more space than one with an equal amount of non-flammable goods.
Location is a critical factor for any piece of real estate, but it’s crucial for warehouses. Where the facility is will impact how quickly suppliers can stock it and how fast shipping is for customers. The cost of those ingoing and outgoing shipments will vary depending on the location, too.
To find the optimal location, first consider the kinds of goods the facility will manage. Then, pinpoint where the target market for those products is and compare that to suppliers’ locations. An ideal warehouse position will lie relatively equidistant from the source and the destination.
It’s also important to consider the available workforce in the area. Property may cost less in more remote locations, but it’ll be harder to find enough staff to run it.
Similarly, logistics companies should go over the accessibility of the warehouse and its location. With more than 70% of all goods sold in the U.S. traveling by truck, the facility will rely on highways. Consequently, being close to interstate exits or other major roads will help streamline operations and reduce shipping costs.
It should also be reasonably easy for employees and large trucks to reach the warehouse. Small access roads with sharp turns or poor pavement will make it less convenient to get there, hindering workforce productivity and impacting shipments. Be sure to note peak traffic hours and how congested the area can become, as well.
4. Size and Capacity
Next, businesses should consider prospective warehouses’ size and capacity. Once again, this ties back to its end purpose. If the facility is mainly handling reverse logistics workflows, space isn’t as pressing a concern as if it were managing peak shipping season volumes.
If a company is growing quickly and has reason to believe that growth will continue, it may be best to get a space that’s bigger than its current needs. This way, it’ll have room to expand in the future. On the other hand, if an area is too large, its rent or property taxes may be too high for the company to justify.
As businesses compare their options, they should keep financing in mind. That includes more than just a general budget. Before considering a purchase, organizations need a defined finance plan, including potential loan sources and terms.
Financing a commercial property loan is often more challenging than people think. Several years ago, as much as 52% of commercial real estate realtors reported having clients fail to secure financing for a commercial property. Given how common that is, companies should ensure they have enough assets in place to secure a loan ahead of time.
Offering a larger down payment can help increase a business’s chance of getting a loan. Companies should also prepare in the months leading up to the financing talks to ensure they have enough liquid capital.
Another critical factor some organizations may overlook is the warehouse’s staffing needs. Recent surveys show that 73% of warehouse employers struggle to find workers. Therefore, it may take careful planning and considerable time to ensure a warehouse has enough employees to staff it.
Businesses should keep this tight labor market in mind when planning to expand. They may need to automate more processes than they can staff, which carries different space needs. If they know how many workers they can expect to have in the beginning, they must ensure they have enough room for them, including sufficient parking.
7. State of Repair
The facility’s state of repair is another thing to consider. Any property likely needs some adjustments before it’s ready for companies to use, but if it requires too much work, it may not be worth it. Repairs and maintenance make an otherwise affordable warehouse too expensive — companies should include these considerations in their budgets.
It’s important to note how much repairs will cost and how long they’ll take. Lengthy maintenance will delay the facility’s return on investment, which may make it unaffordable. In some cases, organizations may be able to put some repairs off, but only if they don’t impact workplace safety or productivity.
Finally, companies should look at any safety hazards on the property. Work-related injuries and fatalities are leading concerns in industrial workplaces and cost the nation $171 billion in 2019 alone. If a building is too hazardous, it could put workers in unnecessary danger or increase repair costs beyond a business’s budget.
When inspecting a property, note any slippery surfaces, aging infrastructure, limited visibility and similar workplace hazards. Some may be excusable but require specific signage and safety protocols once the facility is in use.
It’s also vital to consider more significant environmental hazards. Warehouses in some areas may be at higher risk of hurricanes, tornadoes or other natural disasters, requiring specific safety measures. Companies must understand all these risk factors before buying a property.
Consider Warehouse Properties Carefully Before Buying
Acquiring a new warehouse can be an excellent move for a logistics business. However, that decision must be a careful one if it hopes to make the most of it.
These eight factors can help organizations find and manage the ideal property properly. They can then expand safely and efficiently, ensuring future growth with minimal disruption.
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