Warehouse Construction is Poised to Significantly Decline in H2 2023

A steep slowdown in warehouse construction is predicted in the coming months if economic conditions deteriorate as predicted. The spurt of new fulfillment center construction during the Covid pandemic is also likely to slow sharply as consumers who shifted from the real to the virtual world in their shopping habits reverse course.

 “It is expected the US will see a ‘meaningful’ downturn within the next 12 to 18 months,” according to Interact Analysis, a London-based firm that studies global supply chain automation. “Consequently, Interact Analysis forecasts a decline in the rate of warehouse construction in the coming months. A significant decrease is expected in 2H 2023 and 1H 2024.” The company noted that demand for warehouses has not slipped, but warehouses have taken a hit from poor economic conditions globally — rising interest rates in particular.

Even though the continuing growth of e-commerce is likely to cushion the shock slightly and 6,700 warehouses are expected to be built in 2023, this will still be a 35% reduction compared to the 10,000 built in 2022, though higher than pre-Covid levels, the company said. 

Fortunately, it believes the slump will be short-lived as the demand for sites remains. “Rent prices are anticipated to increase in the mid-term and e-commerce will continue to drive demand over the long term.” Over the next five years, it expects 28,500 warehouses to be built worldwide. 

Lower demand for end-to-end automation is predicted. Even so, the share of warehouses with some form of automation is expected to increase from 18% to 26% by the end of 2027. Food and beverage warehouses and the parcel sector lead the way in automation. “A significant portion of these new warehouses will be direct-to-consumer fulfillment centers necessitating significant labor and automation investments,” the company stated. 

Fulfillment center development surged with the demand for online shopping and e-commerce in the early stages of the pandemic. Amazon alone doubled its fulfillment capacity between 2020 and 2021. Around the world, 4,000 fulfillment centers opened in 2022. But that number is expected to dive by 50% in 2023, the researchers estimate – “partly driven by Amazon’s decreased spend on microfulfillment.”

As with warehouses, this could also lessen demand for end-to-end automation solutions. “Many companies are likely to focus on automating their existing assets, rather than investing in new, larger projects,” the company stated.

Globally, the US and China are at the forefront of warehouse construction, accounting for 58% of total square footage added in 2022. Japan and France bring up the rear.