Warehouse construction declines by 25 percent

There has been a 25 percent decline in new warehouse building starts in North America and Europe in 2023.

According to new research from Interact Analysis, the drop in warehouse construction is having a knock-on effect on demand for end-to-end automation projects.

However, the slowdown is expected to be short-lived and warehouse construction is predicted to pick up again by 2025. The APAC region has been less affected by the current macroeconomic volatility; however, Interact Analysis expects a slight slowdown in growth for this region in 2023.

The mobile robot market has enjoyed exponential growth in recent years and will continue to do so over the next five years. Interact Analysis has increased its forecast projection for this segment of the market despite forecasting a slight downward trend for fixed automation demand.

“The market for fixed and mobile automation is certainly a dynamic one. While demand for end-to-end automation has decreased, demand for mobile robots continues to rise,” said Rowan Stott, research analyst at Interact Analysis.

“This is because many companies are reluctant to spend on large automation projects due to rising inflation, so mobile robots offer the ability to automate some of their processes at a more affordable cost. As a result of the changes that we have made to our forecasts we predict the total market size for warehouse automation (including mobile robots) will be six percent lower in 2027 than initially predicted in our forecast last year.”

The slowdown in e-commerce growth has had a direct impact on the demand for automation from the grocery, apparel and general merchandise segments. Traditionally, these have been the fastest growing segments, while vertical markets upstream in the supply chain, such as manufacturing, have experienced slightly slower growth.

However, in 2022 demand for automation from grocery, apparel, and general merchandise slowed down as a result of the decline in e-commerce, while upstream vertical markets like durable manufacturing and food & beverage have experienced strong growth, driven by near-shoring.

It is expected that e-commerce growth rates will soon return to double digits. Interact Analysis has found that e-commerce sales haven’t in fact come down, despite seeing a declining share of e-commerce sales as a percentage of total retail sales. This suggests that demand for fulfillment capacity is likely to grow at a similar rate to that of pre-pandemic levels.

The shift from just-in-time to just-in-case supply chains will also have an impact on the growth of warehouse construction. Many companies now factor in a greater degree of unpredictability, and this has a knock-on effect on warehouse construction, with companies requiring higher inventory and therefore more storage capacity. This is likely to drive an increase in warehouse construction during 2024 and 2025, and, ultimately, growth in warehouse automation revenues in 2025.

“The uptick in warehouse construction will have a significant knock-on effect on the demand for warehouse automation,” said Rueben Scriven, research manager at Interact Analysis.

“Investments are expected to increase towards the end of 2023 and into 2024, with automation revenue growth returning to double digits in 2025. Specifically, we expect the demand for unit storage systems to increase as a result of the shift towards JIC supply chains, particularly in the US.”