As industrial rents surged nationwide in 2021, tenants whose multi-year leases expired saw their rates rise an average of 25 percent. Some areas of New Jersey and California fared even worse, facing increases of over 60 percent.
After reeling from initial “sticker shock,” some warehouse occupiers panicked. They shifted into overdrive, contacting one 3PL company after another, searching for more affordable space. Unfortunately, there were very few alternative solutions, and warehouses across the country were at maximum capacity. Below are some steps you can take as a manufacturer to prevent steeper rent prices from standing in the way of achieving your goals in 2022.
What factors contribute to skyrocketing industrial rents?
To understand the increasing cost of warehouse space, it’s important to take a step back and consider the variables that combine to create the perfect storm within the industrial space arena. While there are many contributing factors, the top three are as follows:
Inflation has officially replaced COVID-19 as the number one concern among most business owners. As companies scramble to cover costs of materials, laborers, supplies, and space, many business owners are being forced to pass some of these costs along to their customers. For 3PL companies, this means raising rents, and for manufacturers, inflation leads to higher prices on goods.
Supply Chain Disruptions
In addition to inflation, logjams in global supply chains caused the delivery of construction materials to slow to a screeching halt. With fewer materials available in the marketplace, efforts to construct new warehouse and logistics space fell far short of demand during the pandemic. Vacancy rates reached an all-time low, causing rents to spike.
As office vacancies surged during 2021, the industrial space market became more competitive than ever. With consumer demand for products showing no signs of slowing down, warehouse property is more valuable than ever. Owners know they can charge more for space as manufacturers and retailers engage in intense competition to secure any available space.
What measures can manufacturers take to contend with rent increases?
As the owner or operator of a manufacturing business, it’s up to you to control expenses while maintaining adequate inventory. Failure to achieve these goals could lead to the demise of your business, either by depleting cash reserves to cover rent or losing valuable clients because you cannot meet their needs quickly enough. To maintain smooth operations, here are some measures you can take to cope with skyrocketing rents:
1. Avoid knee-jerk reactions
Losing your temper, issuing threats, and quickly jumping ship are three of the worst things you can do when learning about a rent increase. Do your best to remain calm and schedule some time to share your concerns with your 3PL partner. Ask your 3PL to give you any and all available options and resist the urge to call it quits – especially if you have a long-standing trusted relationship with your 3PL partner. The cost of transitioning to a new partner would likely exceed the change in your rate and could further disrupt your supply chain.
2. Pay your rent on time
Paying your industrial rent bill is never pleasant. But the task can be especially painful when you face steeper rent rates. Make sure you continue to pay your rent on time, even if you aren’t pleased with your rate increase. If you’re facing a hardship that may preclude you from paying on time, reach out to your 3PL partner right away to let them know. They will appreciate your transparency and might be able to offer some solutions.
3. Reach out to your customers if you raise prices
To help cover the cost of higher rent, many manufacturers are left with no choice but to raise their prices. By taking a proactive approach with your customers, you can help minimize the shock and frustration they may feel if an unexpected price increase completely blindsides them. Depending on your relationship with your clients, you can reach out by phone, schedule a virtual meeting, or send a letter. Be sure to do the following:
Thank them for their loyalty during a challenging time.
Educate them about inflation in your industry, giving a couple of specific examples.
Explain the other sacrifices your company has made, and let them know raising prices is always a last resort.
Offer an alternative, more cost-effective solution or product if you have one to offer.
Tell them you value their business and invite them to reach out to you with questions, comments, suggestions, or concerns.
This type of proactive outreach will go a long way toward reducing the chances your customers will reach out to one of your competitors in search of more attractive pricing.
4. Educate your staff
Your sales staff and frontline workers are the lifeblood of your company. If you face higher expenses, set aside some time to meet with your employees and educate them about current market conditions. Outline some specific ways to help reduce operating costs and arm them with some thoughtful ways to respond to customers who inquire about pricing increases. Finally, make sure to tell your staff how much you value their contributions – especially in the midst of industry challenges.
5. Keep a pulse on the market
You will never hear the latest news or discover creative options if you stick your head in the sand or bury yourself in work. Make it your mission to always keep a watchful eye open for changes in vacancy rates, innovations in the warehousing industry, and updates from your 3PL partner. By remaining abreast of the latest industry activity, you can remain a step ahead of your competitors.
What is the single best step you can take to respond to soaring industrial rent costs?
Industrial rents are projected to continue to rise well into 2022, dashing the hopes of the manufacturing industry’s eternal optimists. Taking the measures above will help you be prepared to face this continued challenge and help your business weather the storm until rents begin to drop.
The single best step you can take to contend with surging industrial rent rates is to communicate regularly with your trusted 3PL provider. Through regular, transparent communication, you can remain aware of the latest industry trends and be better prepared for additional changes that may lie ahead. Staying in touch with your 3PL provider will also help your company remain at the forefront of your 3PL provider’s mind. This could prove to be helpful to your company if a special opportunity arises.
To discover how an experienced 3PL could become your best ally when the chips are down, we invite you to contact us at Symbia Logistics. Even when industry conditions are less than ideal, you can count on us to be truthful, transparent, and proactive. We look forward to serving as your trusted 3PL provider through thick and thin!
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