Statistics indicate a 40 percent decline in the number of warehouse buildings under construction in the Dallas-Fort Worth area of Texas. What exactly led up to this situation? In this article, we’ll talk about the factors that have contributed to the gradual decline of the warehousing sector and what new threats to profitability Texas warehouses face.
The Warehouse Workforce
The primary concern for warehousing companies is whether there are enough potential employees for them to hire. The cost associated with hiring said employees is often a secondary concern and one that heavily influences the choice of location. Essentially, what companies look for is a mix of experience and value. The need for a qualified workforce has caused costs to increase for warehousing companies as they compete in the same employee pool. Companies are struggling to identify the optimal balance of skills and costs when scouting for staff.
The whole exercise is a balancing act, which in some instances can be a threat to the profitability of a warehouse. Warehousing companies have a tendency to gravitate toward highly populated areas. The logic is quite simple: there is a larger pool of employees with diverse and more sophisticated skill levels. However, in the same regions, labor tends to be costlier. Another issue worth mentioning is the increase in minimum wage rates not only in the State of Texas but elsewhere leading companies to spend more out of the gate.
Rising Costs of Leasing Warehouse Space
With a slump in the development of new warehouses and continued demand for the same, there has been an observed rise in the cost of leasing warehouse space. Demand from manufacturers and other users has been steady which has resulted in a 15 percent increase in lease rates. The continued growth of e-commerce and consumer products companies should, naturally, fuel a boom in warehouse construction. However, this hasn’t been the case in the Dallas-Fort Worth area. While construction of new warehouses has slowed down thanks to increased construction costs and other concerns, there hasn’t been any decline in the leasing of warehouse spaces. If anything, the demand for warehouse space has risen.
The fact that businesses now need to spend more on their warehouse leases poses a particular threat to the viability of warehouse sector in the sense that not everyone will agree to the rise in rates. There is a possibility that consumers may seek alternative markets. After all, a 15+ percent rise in lease rates is no small issue.
In summary, the availability of land and labor are perhaps the most significant issues facing the warehousing sector in Texas. As construction costs continue to rise, there is a need for intervention so as to avert a crisis. The warehousing market presently continues to show signs of health, with overall vacancy rates falling below historical norms. How long will the status quo last? Only time can tell how the whole situation will shape up.
In the meantime, companies struggling to balance costs in their warehouse operations should look to alternative staffing solutions like unloading services and managed labor. In a managed warehouse labor arrangement, a third-party provides skilled and well-trained staff, paying them directly. The cost of labor in turn becomes a single, easier-to-manage, and typically cheaper line-item on the manager’s P&L.
To learn more about managed labor and the benefits Costa Solutions delivers to warehouse operations across Texas, we invite you to contact a member of our team here.