Industrial real estate is fundamentally very simple. It creates an orderly and efficient supply chain aimed at moving goods from the point of production to the point of consumption. As the demand for goods grows (or decreases), the demand for warehouse space also increases (or decreases). It is easy to make warehouse space projection in line with reliable macroeconomic forecasts.

However, it can be difficult for warehouse users to accurately forecast warehouse demand during a sales season. Users determine adequate warehouse space based on average inventory counts. However, the amount of inventory held in this space during the sales season can fluctuate significantly. The largest fluctuations occur during the transitions of New Year, special days, and school opening seasons, when inventory levels are at their peak and place a significant amount of pressure on warehouse capacity. This seasonal capacity squeeze can cause the following for warehouse users:

1. The cost of spaces that are leased but not used outside of certain seasons due to long-term lease agreements made thinking of seasonal inventory congestion.

2. Rarely available and highly costly short-term sublease agreements for excess inventories during seasonal peaks.

The Rise of E-Commerce

The structure of the traditional warehousing industry is also not sufficient for e-commerce retailers, who tend to have more storage for faster and better service. With the development of the on-demand warehouse model in the market, warehouse companies with excess warehouse space and user companies that need this space on a short-term basis can be easily matched. This model can allow the retailer to adjust the warehouse space depending on demand, that is, to lease as much warehouse space as they need, in the preferred region, and for as long as they want.

The on-demand warehousing model, which is still in its infancy in the world and operates mostly in the US and UK markets, promises hope for the future of the logistics sector. Thanks to this model, companies using warehouses that experience seasonal peaks can find extra warehouse space and lease it only for the period they need. According to a study conducted by the US-based on-demand online warehouse platform company Flexe, in 2017, companies that experienced seasonal inventory peaks once a year improved their warehouse utilization by 100% and reduced their seasonal warehouse and inventory costs by 50% by using the on-demand warehouse model. On the other hand, the warehouse utilization of companies that experienced seasonal peaks several times a year improved by 40% and their costs decreased between 20-30%. (Source: Flexe Warehouse Capacity Economics and Trends 2017).