While the economy continues its recovery, (the pace of which is debatable depending on who is reporting it) long term lease tenants contemplating renewals for large amounts of space are increasingly looking for flexible alternatives to meet their requirements.
The news media has given a lot of exposure to this phenomenon in the residential real estate market where many people are still feeling the pain of their home ownership experience and are determined not to let that happen again. Because of this the rental market is getting increasingly tight.
On the other side, many tenants in industrial real estate found themselves struggling with underutilized space during the economic downturn. They were forced to pay rent on buildings that were half full at best while waiting for the economy to turn around. It wasn’t just offices with less people in them, but also attached storage or warehouse space that was under utilized. Fixed rental payments along with the other guaranteed expense payments took their toll on the income statements of industrial real estate users. With all the struggles of recent years fresh in their minds tenants are now looking for alternatives as their current leases come up for renewal.
The flexibility of a 3rd party logistics provider can become a very attractive alternative. Low minimums, flexible terms and a broad scope of service offerings are extremely valuable to former Lessors especially if:
- Space requirements are expected to vary due to seasonality or spikes in sales
- Timing and extent of growth is uncertain but readiness to respond to new opportunities remains essential
- Risk aversion is key to one’s strategy requiring the ability to shrink quickly in response to a potential downturns in business
- Financial strategy includes a desire to shift expenses from “fixed” to “variable” scaling cost to reflect changes in business whether up or down
Let the 3PL provide both the space & people
Depending on the amount of space required, a 3PL has multiple options to consider. Public Warehouses operated by a 3PL store product for multiple clients under one roof. The advantages include shared resources, scalable cost, and access to best practices in inventory control and management. These Agreements often include a 30-day term providing maximum flexibility.
A dedicated facility managed by a 3PL partner is another option to be considered when a dedicated facility is required or preferred. While the contract term is typically longer (often 2-5 years), the same expertise of a 3PL is available to manage the operation supporting very specific requirements.
Keep the building, outsource the expertise
If terminating a long-term lease or selling existing real estate is not an option, a 3PL can still provide flexible options to help control cost and improve quality. In the instance of Evans (and other 3PLs) specially trained staffing resources can be provided including forklift operators, material handlers, drivers/switchers, quality personnel, etc. This option provides the ability to flex resources up and down as business demands, and as a result, you get a more reliable and cost-effective staffing solution .
It’s inevitable that the market conditions for virtually every industry will have ups and downs in the future, so if you find yourself wondering how you can help your company remain agile you just might want to explore the options a 3PL can provide.
If you are interested in discussing your current requirements for space or if you could use some logistics expertise we would be happy to help. You can reach us by phone at 313-827-9921 or email us at sales@evansdist.com.