While the growth of coworking has accelerated at a rapid pace and investment activity in co-living is gaining traction, another flexible way to service consumers has also gained recent popularity: co-warehousing.

The current economic and political climate has caused trade and tariffs to constantly fluctuate, making it difficult for some companies to make long-term distribution decisions. In addition, the rapid growth of e-commerce certainly takes credit, which has increased the demand for final-mile distribution centers. U.S. consumers spent a total of $517.4 billion in online sales in 2018 — up 15% from the previous year — and represented about 14% of total non-auto U.S. retail sales.

In order to keep up with the winds of consumer, political and economic change, the market has created an alternative to the traditional warehouse that offers a short-term and flexible option. In this article, we’ll explore a few of the major co-warehousing players and what’s in store for the future of this emerging sector.

A Climate of Uncertainty

Two major trends are affecting the increase in demand for short-term warehousing solutions, including co-warehousing. The first trend is the increased demand for final-mile distribution, which is the last link in the global supply chain that connects consumers with the rest of the world. The final-mile carries an unproportionate cost, and a great deal of emphasis has been placed on improving this aspect of order delivery. While demand for final-mile distribution centers is surging to new highs, a lack of suitable inventory remains the greatest obstacle.

Industrial occupiers looking to service the final-mile are using co-warehousing platforms to find locations where its inventory can be stored and delivered. Typically, this space can be found in third-party logistics (3PL) occupied facilities. The main purpose of a 3PL is to store and deliver a wide range of products. The partnership of a 3PL with co-warehousing facilitators to fill any unused wracking, maximize warehouse locations and efficiently utilize labor is an enticing option.

However, it’s important to note that direct retailers and wholesalers are less likely to market available space on co-warehousing platforms due to zoning issues and labor. These companies focus on their own brand and have uses already set for their particular product — unlike 3PLs who typically distribute multiple brands and product types in one location. Because of this, partnering with co-warehousing facilitators to fill up unused space in direct retail or wholesale distribution centers is not practical.

The second trend that is causing an increase in demand for co-warehousing facilitators is trade. Constant fluctuation in trade policy is creating disruptions in supply chains and is leading companies to take another look at long-term warehouse space for excess inventory, especially in preparation for the holiday season. Instead of turning to long-term space, many are using co-warehousing facilitators to find short-term solutions. Walmart, for example, utilized a major co-warehousing facilitator to secure a whopping 1.5 million square feet of short-term warehouse space during the 2018 holiday season — by-far busiest time of the year for retail.

Major Players in the Co-Warehousing Arena

Who are some of the major players in co-warehousing and why are they successful? One of the top co-warehousing companies in today’s market is FLEXE, who offers co-warehousing solutions for e-commerce fulfillment, retail distribution and inventory overflow. The Seattle-based company boasts the largest on-demand network of space, with more than 1,000 warehouses in their inventory throughout the U.S.

Flowspace is another co-warehousing company with a model similar to FLEXE, providing on-demand warehousing to a variety of users. The company’s co-founder, Ben Eachus, ran a fulfillment center for an e-commerce company and consistently ran into the problem of needing more space during peak times for inventory overflow. Flowspace has a footprint of hundreds of warehouses in every major metro area in the U.S. and offers pricing on a month-to-month basis without space minimums.

Another notable name in co-warehousing is STORD, an Atlanta-based startup that has grown its footprint to more than 250 warehouses throughout the U.S. since 2015. STORD’s mission is to “empower modern shippers to move products brilliantly.” With a smaller inventory in comparison to FLEXE, STORD focuses less on short-term space and more on flexible and customized solutions with STORD’s CEO, Sean Henry stating that the company “concentrate(s) primarily on retailers, [consumer packaged goods] shippers and industrial shippers.” He adds, “You’re most successful with us if you put all your volume on our platform, so then we can look more granularly at optimizing placement.” STORD also stands out in how they have responded to the current economic and political climate. In early 2018, the startup helped a Chinese solar-panel supplier temporarily increase their New Jersey storage operations by fivefold, during a time when tariffs on foreign-made solar panels were high.

What’s Next for Co-Warehousing?

James Breeze, Colliers’ national director of Industrial Research in the U.S. says, “The use of technology, like what is used by FLEX, STORD, and other emerging co-warehousing companies to find warehouse space and market excess space, will increase and evolve in the coming years. While trade worries may calm down, the need to service consumers, especially in highly populated areas, will not.”

Because of this, record low vacancies in markets with large population centers will continue. 3PLs, who remain the top occupiers of industrial space in the U.S., will also utilize co-warehousing facilitators to maximize its location and labor. If co-warehousing facilitators increase demand for 3PLs, this can also increase the demand for industrial real estate in the coming quarters. One thing is for certain: just like in office and retail, the use of facilitators like FLEXE and STORD will increase in the coming years and will become an integral part of the industrial real estate landscape.

This article was written by the U.S. Colliers Editorial Board, whose mission is to produce new and noteworthy commercial real estate thought leadership pieces to create conversation around proactive content. The Editorial Board focuses on CRE trends in the United States, and is comprised of Colliers marketing, research, communication and service line leaders.