Rent, rates, racking and overhead turned into the storage rate a pallet has to bear, with utilisation and density as the levers that move it most.
The storage cost of a pallet is the warehouse's annual occupancy cost, racking included, divided by the pallets actually stored and by 52. On an illustrative 20,000 m² warehouse with 32,604 pallet positions, 85 per cent full, that is 1.78 a pallet a week, of which rent is 1.04; with a 15 per cent margin a third-party operator would need to charge about 2.05. Divide by the positions instead of the pallets and the answer drops to 1.51, a 15 per cent understatement that is the most common error in storage pricing.
Worked in full in Logistics and Industrial Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Contract logistics prices usually split into storage, charged per pallet per week, and handling, charged per pallet moved in or out. This calculation is the storage half: the cost of the building and the racking, which accrues whether or not anything moves. Labour, trucks and picking belong in the handling rate.
Storage cost per pallet-week = annual building and racking cost / (positions × average utilisation) / 52
Racking annualised = positions × cost per position × r / (1 − (1 + r)−n)
Excel: =(Rent+Rates+SC+Ins+Util+Overhead-PMT(7%,10,Positions*RackCost))/(Positions*Utilisation)/52
The building is the 20,000 m² warehouse at 12.0 m clear height from how many pallet positions fit in a warehouse, racked in wide aisle for 32,604 positions, 1.63 per m². Every rate below is illustrative.
| Line | Per m² | Per year | Per pallet-week | Share |
|---|---|---|---|---|
| Rent | 75.00 | 1,500,000 | 1.04 | 58.4% |
| Business rates | 18.00 | 360,000 | 0.25 | 14.0% |
| Service charge | 4.00 | 80,000 | 0.06 | 3.1% |
| Insurance | 2.00 | 40,000 | 0.03 | 1.6% |
| Utilities and maintenance | 8.00 | 160,000 | 0.11 | 6.2% |
| Racking, annualised | 13.93 | 278,525 | 0.19 | 10.8% |
| Site overhead, storage share | 7.50 | 150,000 | 0.10 | 5.8% |
| Total | 128.43 | 2,568,525 | 1.78 | 100% |
Racking costs 60 a position, 1,956,240 in all, written off over 10 years at a 7 per cent cost of capital. Average utilisation is 85 per cent: a warehouse running at 100 per cent cannot receive, so operators plan to a working capacity below the rack count.
Step 1, annualise the racking. 1,956,240 × 0.142378 = 278,525 a year, 8.54 per position.
Step 2, add the building lines. 1,500,000 + 360,000 + 80,000 + 40,000 + 160,000 + 278,525 + 150,000 = 2,568,525 a year, 128.43 per m².
Step 3, count the pallets actually stored. 32,604 × 85% = 27,713 on average.
Step 4, divide. 2,568,525 / 27,713 / 52 = 1.78 a pallet a week, about 8.88 a month once a 15 per cent margin is added.
Rent is 1.04 of the 1.78. The other 0.74 is invisible in an agent's rent quote but just as real: rates alone are a quarter of a unit per pallet-week.
| Average utilisation | Rent 60 | Rent 75 | Rent 90 |
|---|---|---|---|
| 70% | 1.91 | 2.16 | 2.42 |
| 80% | 1.67 | 1.89 | 2.11 |
| 85% | 1.57 | 1.78 | 1.99 |
| 90% | 1.49 | 1.68 | 1.88 |
| 95% | 1.41 | 1.59 | 1.78 |
Utilisation moves the answer more than rent. Falling from 85 to 70 per cent full adds 0.38 a pallet-week; a rent rise from 75 to 90 adds 0.21. Each extra 10 per m² of rent adds 0.1388 a pallet-week: a 13.3 per cent rise in rent is a 7.8 per cent rise in storage cost, because rent is only 58.4 per cent of it.
Density is the third lever. Racked in very narrow aisle, the same building holds 42,146 positions. At an illustrative 85 a position for the racking and 100,000 a year for the specialist trucks, the cost falls to 1.56, 12.7 per cent less, which is why a tall, flat-floored building can command a higher rent and still be cheaper per pallet.
An owner or an investor can turn the same arithmetic round. Suppose the operator can sell storage in this market at an illustrative 1.90 a pallet-week. Strip out the 15 per cent margin and the cost it can bear is 1.65. Deduct the 0.74 of non-rent cost and 0.91 a pallet-week is left for rent, which on 27,713 occupied pallets over 52 weeks and 20,000 m² is 65.62 per m². At 75 the building is 9.38 per m² too dear for a storage-led operator at that utilisation; at 95 per cent utilisation the supportable rent rises to 79.63. That is why an occupier's own utilisation forecast, not the comparable evidence, decides how much rent it will actually pay.
The rent a given height and specification can justify, net of racking and handling, is worked in the free workbook for this case.
Storage is usually priced per pallet per week to recover the building and racking, with handling charged separately per pallet in or out. On an illustrative 20,000 m² warehouse the storage cost is 2,568,525 a year over 27,713 occupied pallets, 1.78 a pallet-week, and a 15 per cent margin takes the charge to about 2.05.
Below 100 per cent, because a full warehouse cannot receive goods or slot new lines. Planning at an illustrative 85 per cent average, the storage cost is 1.78 a pallet-week; at 70 per cent the same building costs 2.16 and at 95 per cent 1.59, a swing larger than a 15 per m² change in rent.
In the illustrative case, a little over half: in the worked warehouse rent of 75 per m² is 1.04 of a 1.78 pallet-week cost, 58.4 per cent; business rates add 0.25 and annualised racking 0.19. A 13.3 per cent rise in rent therefore raises the storage cost by only 7.8 per cent.
This article is one calculation from Logistics and Industrial Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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