Interact Analysis: Poor economic climate knocks warehouse construction

Research finds that 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.

As with many other sectors, the recent economic downturn has hit the warehouse construction sector hard, research firm Interact Analysis concludes. Updated research from Interact Analysis suggests that 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, the research firm added. 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, according to IA’s Warehouse Building Stock Database research.

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, Interact Analysis added. 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.

“It is important to realize the downturn in warehouse construction is not due to a lack of demand," says Rueben Scriven, research manager at Interact. "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, 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.”

“Lockdowns and social distancing measures implemented to mitigate the COVID-19 pandemic caused a wholesale disruption of traditional brick-and-mortar retail," Scriven adds. "In less than a year, US e-commerce penetration rose from ~10% of all retail sales in late 2019 to roughly 15% by the end of 2020. With global e-commerce online sales projected to more than double over the next five years, 28,500 warehouses will be added to the global stock. A significant portion of these new warehouses will be direct-to-consumer fulfillment centers necessitating significant labor and automation investments.”

IA’s Warehouse Building Stock Database is said to be the only report on the market that estimates warehouse counts, footprint, sizes, and labor demand, and automation penetration as a single, consistent and global dataset. IA gathers and consolidates data points from government sources, public company filings, and industry sources into a model that provides detailed and credible warehouse estimates – all regularly updated to incorporate new information, outlooks, and segmentations.

Article Topics

Interact Analysis
   All topics

Interact Analysis News & Resources

Interact Analysis: logistics and other new application scenarios key to cobot market success
Interact Analysis: Poor economic climate knocks warehouse construction
Interact Analysis: warehouse automation software market to near $6 billion by 2027
Warehouse automation market growth expected to cool in 2023
60 Seconds with… Maya Xiao, Senior Analyst at Interact Analysis
Analyst study: warehousing sector poised for 5% growth up to 2027
Analyst study: China to ship half of the world’s collaborative robots from 2023
More Interact Analysis

Latest in Materials Handling

Mitsubishi Logisnext Americas group celebrates 10th anniversary of National Forklift Safety Day
Services economy activity grows again in May, reports ISM
Autonomous mobile robot provider MiR marks its 10th anniversary
Hy-Tek Intralogistics and Hai Robotics announce partnership
KPI Solutions expands with a new Atlanta office
Manufacturing declines for the seventh straight month in May, says ISM
National Forklift Safety Day coming up on June 13
More Materials Handling

Subscribe to Materials Handling Magazine

Subscribe today!
Not a subscriber? Sign up today!
Subscribe today. It's FREE.
Find out what the world's most innovative companies are doing to improve productivity in their plants and distribution centers.
Start your FREE subscription today.

May 2023 Modern Materials Handling

An iconic American brand is partnering with DHL Supply Chain to build out a network to meet soaring demand. It’s also turning to flexible automation to optimize operations.

Latest Resources

Why Should You Deploy Autonomous Mobile Robots on the Factory Floor?
For managing material handling needs specifically, many manufacturers are deploying Autonomous Mobile Robots (AMRs) to improve efficiency and productivity.
Warehouse Insights: Tackling Space in Micro-fulfillment
AutoStore: The Right Technology & The Right Integrator
More resources

Latest Resources

2023 Automation Study: Usage & Implementation of Warehouse/DC Automation Solutions
2023 Automation Study: Usage & Implementation of Warehouse/DC Automation Solutions
This research was conducted by Peerless Research Group on behalf of Modern Materials Handling to assess usage and purchase intentions forautomation systems...
How Your Storage Practices Can Affect Your Pest Control Program
How Your Storage Practices Can Affect Your Pest Control Program
Discover how your storage practices could be affecting your pest control program and how to prevent pest infestations in your business. Join...

Warehousing Outlook 2023
Warehousing Outlook 2023
2023 is here, and so are new warehousing trends.
Extend the Life of Brownfield Warehouses
Extend the Life of Brownfield Warehouses
Today’s robotic and data-driven automation systems can minimize disruptions and improve the life and productivity of warehouse operations.
Power Supply in Overhead Cranes: Energy Chains vs. Festoons
Power Supply in Overhead Cranes: Energy Chains vs. Festoons
Download this white paper to learn more about how both systems compare.