Unused warehouse space comes at a high cost to businesses. With average annual occupancy costs above $6 per cubic foot or $9 per square foot, the costs of unused space quickly add up. After accounting for unused vertical space, it’s not uncommon for businesses to be paying tens of thousands of dollars in wasted rent, utilities, and other overhead expenses.
According to the research department of Prologis, warehouse occupancy rates in the United States reached a record high of 96.7% in 2022. Over 400 million square feet of warehouse space were purchased in 2021 and 2022, outpacing purchases in 2020 by 85%. The surge in demand for warehouse space comes with a hefty price tag for businesses that are unable to fill their warehouses.
With new warehouse development expected to decline by 65% in 2023, the competition for warehouse space is fierce. At the same time, e-commerce is regaining popularity as many retailers are no longer able to rely on brick-and-mortar stores. This shift is driving up rents and making it increasingly difficult for businesses to justify the costs of unused space.
Businesses are now forced to pay a premium for the space they need, and this cost is often neglected when calculating the total cost of ownership. And beyond the direct costs of maintaining unused space, businesses often incur indirect costs such as lost productivity and missed opportunities for growth and expansion.
So, how much is unused warehouse space costing you? The answer may surprise you. Use the steps outlined below to calculate the true cost of your unused warehouse space and prepare for a more profitable future.
Calculate the Total Storage Space Available
To assess the costs of your warehouse occupancy, the total storage space available must be calculated. Relying solely on CAD drawings or blueprints can lead to inaccurate estimations, as these documents often include office space and other areas that are not suitable for storage.
To measure the total storage space, the length and width of all available storage space should be physically measured and recorded. Storage space should exclude any necessary aisles and designated areas that are not suitable for storage. A laser measurement system or tape measure can be used to capture the exact measurements in feet. For larger warehouses, finding the square footage of non-storage areas first and subtracting this from the total square footage can make it easier to calculate.
Once the total available area of storage space is determined, this should be multiplied by the clear height of the building to determine the total cubic feet available for storage. Clear height is the vertical distance from the finished floor to the bottom of trusses or rafters. Sites with suspended lighting or fire suppression systems hanging from the trusses may have lower clear heights and thus reduced cubic storage capacity.
As an example, a warehouse with an available storage area of 50,000 square feet and a clear height of 30 feet would have a total cubic storage capacity of 1,500,000 cubic feet.
Calculate Total Utilized Storage Space
With the total cubic storage capacity determined, the next step is calculating the amount of warehouse space that is currently being used for storage. Using this data, warehouse storage utilization can be determined along with the cost of unused space under current conditions and with improved storage solutions.
The total utilized storage space is calculated by multiplying the length and width of every shelf, rack, pallet, or other unit that is being used for storage. The resulting area should be multiplied by the clear height of the building and then added together to determine the total cubic feet utilized for storage. It’s important to note that this assumes that each shelf unit is being fully utilized. If some shelves are partially filled or empty, the total utilized space will be lower than the calculations suggest.
For example, a warehouse with 800 shelves measuring 12 feet wide and 8 feet deep, each at a clear height of 20 feet would have a total utilized storage space of 1,536,000 cubic feet. If shelves are, on average, 90% filled, the total utilized space would be 1,382,400 cubic feet.
Calculate the Cost of Unused Space
Now that the total storage capacity and utilized storage space are determined, the costs associated with unused space can be calculated. First, calculate unused storage space by subtracting the total utilized storage from the total available cubic storage capacity.
Once the total unused storage space is found, this can be multiplied by the cost per cubic foot of occupancy to calculate the yearly cost of unused warehouse space.
For our example warehouse, this would result in 117,600 cubic feet of unused space if shelves are 90% filled. If the annual occupancy cost for this warehouse is $6 per cubic foot, then the cost of unused space would be $702,600 per year. While this example only includes the direct costs of occupying the warehouse, it’s important to consider other potential costs associated with unused space like missed growth opportunities.
Improving Your Warehouse Occupancy
Calculating the cost of unused space can be a powerful tool for improving warehouse occupancy and reducing costs. Armed with data-driven insights into the true cost of unused space, businesses can compare the cost of investing in advanced storage solutions against the costs of maintaining unused space.
In many cases, purchases are not necessary. Process changes to better utilize existing storage space, such as re-arranging or consolidating shelves, can help reduce costs without the need for any upfront investments. Efficient slotting of inventory and better utilization of vertical space with precision-engineered shelving solutions are other cost-effective options for reducing unused space.
Today, many leading warehouse management systems (WMS) also offer storage optimization algorithms and directed put-away methods designed to maximize storage capacity and uncover insights into space utilization.
In other cases, investing in advanced storage solutions can offer significant savings in the long run. Automated warehouse solutions, such as robotic palletizing and smart shelving, can improve storage utilization and spare businesses from the costs associated with unused space. For larger warehouses, automated storage and retrieval systems (AS/RS) often provide the highest return on investment. These advanced storage systems not only increase storage utilization but can also improve throughput and by extension, customer satisfaction.
By taking the time to measure and assess all available warehouse space, businesses can gain powerful insights into the cost of unused space and better understand how to improve storage utilization without breaking the bank.
Are you interested in learning how your warehouse could benefit from improved storage utilization? Contact Optichain today for a free consultation and learn how the right solutions can help you reduce costs and maximize warehouse storage capacity.
