Small Warehouse to Rent or Use a 3PL? Read This First

Renting a small warehouse is a fixed commitment, usually for years, and your orders are not fixed. A unit lease costs the same in a quiet January as in a busy December, and it keeps costing the same if your product stops selling. A 3PL charges mostly by what you actually store and ship. That difference, fixed against variable, is the main thing to weigh before you sign.

This guide shows what a unit really costs, what the lease can lock you into, and how to compare it fairly with a fulfilment provider. It is general information, not legal advice. Have a solicitor read any commercial lease before you sign it.

What a unit costs beyond the rent

• Rent. The headline figure, often quoted per square foot per year.

• Business rates. A tax on the property, paid by the occupier. Check the unit's rateable value and whether any relief applies to you.

• Service charge. On an estate, a share of the costs of the roads, lighting, security and shared areas.

• Buildings insurance. Often charged back to you by the landlord.

• Your own insurance. Stock, contents, public liability and employer's liability if you hire.

• Utilities. Electricity, water, internet and heating.

• Fit-out. Racking, benches, lighting, a packing area, a label printer, scanners, a pallet truck.

• Deposit. A rent deposit is common, and some landlords ask for a personal guarantee.

• Repairs and dilapidations. Many leases require you to hand the unit back in good condition, and the cost to put it right can be large.

Then add the people. A unit with nobody in it ships nothing. Our guide to 3PL versus in-house fulfilment covers staffing and management time.

The five year sum

A typical commercial lease for a small unit might run for several years. Put the numbers together over the full term, not per month.

Rent £1,800

Business rates £500

Service charge and building insurance £350

Utilities and internet £250

Contents and liability insurance £100

Total before staff and equipment £3,000

These figures are made up to show the method. At £3,000 a month the unit costs £36,000 a year and £180,000 over five years, before a single order is packed. If you ship 600 orders a month, the space alone is £5 an order. If you ship 200, it is £15.

Your own numbers will differ. Use them. The point is that the cost per order falls as your volume rises, and rises as your volume falls, and you have no control over the rent either way.

What the lease can lock you into

• Term. How many years, and whether you can leave early.

• Break clause. A right to end the lease at a set date, usually with notice and conditions. Without one, you pay until the end.

• Rent reviews. Whether the rent can rise during the term and how it is set.

• Personal guarantee. If your company cannot pay, you might be asked to.

• Renewal rights. Some commercial leases give you a right to renew and some exclude it. Ask your solicitor which applies.

• Subletting. Whether you can pass on space you do not use.

What a 3PL charges instead

A fulfilment provider charges for what you use: receiving, storage, picking and packing, packaging, carrier costs and returns. Most of these rise and fall with your sales. Contracts vary, so ask about minimum monthly charges, notice periods and exit terms. Our guides to what a 3PL costs in the UK and pick and pack pricing list the lines to expect.

To compare fairly, ask three providers to price the same sample month of your real orders, and set the total next to your full cost of running a unit for the same month. Our guide to running a 3PL tender shows how.

When renting a unit still makes sense

• Your volume is steady and high enough to fill the space and the people all year.

• You need hands-on work a provider cannot do, such as made-to-order or heavily customised products.

• You have the management time to run it and a plan for covering holidays and sickness.

When a 3PL is the safer choice

• Orders swing with seasons and promotions.

• Your product range is still changing and some lines may stop selling. Our guide to dead stock shows what that does to storage costs.

• You do not want a multi-year commitment before you know your demand.

• You want your own time back for sales and product.

Questions to ask before you sign either

• What is the total monthly cost, all in, at my lowest month and my highest?

• What does it cost to leave, and how long does it take?

• What happens to my stock if something goes wrong?

• Who covers holidays, sickness and peak?

People Also Ask

How much does it cost to rent a small warehouse in the UK?

It varies by region and size, so check local listings. Add business rates, service charge, insurance and utilities to the rent, then add equipment and staff, to get the real monthly cost.

How long is a typical commercial lease?

Terms vary, and some small units are let on several years with a break clause. Read the term, the break dates and the rent review clause before you commit, and ask a solicitor to check them.

Is it cheaper to rent a unit or use a 3PL?

It depends on volume and how steady it is. A unit is a fixed cost and a 3PL is mostly variable. Price the same sample month both ways and compare the totals.

Finding the right 3PL partner

FulfilQ's advisor, Logan, matches brands to verified providers by order volume, product type and region. Tell Logan what you ship and where it goes, and you get a shortlist to price against your lease. Start at fulfilq.com or browse the full provider directory.