Real estate isn’t cheap. That holds true for warehouse space as well. The cost for warehouse facilities in the United States jumped 8.3% from $7.96 per square foot in 2022 to $8.31 in 2024, according to a 2024 WarehousingAndFufillment.com survey. Rising demand and inflation are likely to blame, but whatever the reasons, the rising costs of storage underscore the need for companies to make the most of their warehouse capacity.

Warehouse space utilization, a metric for tracking how much of a company’s available storage space is in active use, helps businesses maximize their spending in this area. Although it’s a relatively straightforward operational metric to calculate, warehouse space utilization becomes somewhat more complex when used to determine the best use of warehouse space for a given business and situation. Understanding key considerations, common challenges, and best practices for optimizing warehouse space allocation—as well as the tools and processes that underpin effective warehouse space management—is critical to balancing warehouse space usage and operational efficiency.

What Is Warehouse Space Utilization?

Warehouse space utilization is a measure of how much of a warehouse facility’s available storage capacity is being used to hold inventory, goods, or equipment. This key performance indicator (KPI) is expressed as a percentage representing the capacity that’s in use in relation to the total available storage space.

Companies don’t usually seek 100% warehouse space utilization, since some amount of free area is required for worker safety and picking and packing, as well as for the movement of goods, warehouse equipment, and people throughout the facility. Rather, utilization rates tend to range from 40% to 85%, depending on the types of items being stored, turnover rates, and the storage systems and equipment being used. Tracking warehouse space utilization helps refine capacity usage to achieve greater efficiency, lower overhead costs, improved order fulfillment, and—ultimately—increased revenue.

Key Takeaways

  • Warehouse space utilization is an important metric used to optimize storage usage and costs while maintaining efficient warehouse operations.
  • There’s no single best warehouse utilization rate for all companies or warehouses.
  • Ideal warehouse utilization depends on various factors, such as inventory turnover rates and vertical space usage.
  • Some common hurdles to greater warehouse space utilization are poorly designed layouts, overstocked inventory, and outdated technology.
  • Proven best practices for augmenting warehouse space utilization include enhancing demand forecasting, refining inventory categorization and arrangement, and rationalizing stock keeping units (SKUs).

Warehouse Space Utilization Explained

Warehouse space utilization is a KPI—recorded as a usage ratio—that helps a business measure and hone its ability to use its warehouse capacity effectively. The KPI is calculated by dividing the amount of space actively being used by the total amount of warehouse space available, then multiplying that figure by 100 to express it as a percentage.

Because warehouse space utilization directly affects efficiency, costs, order fulfillment, and customer satisfaction, it’s essential for companies to set goals for optimal warehouse space utilization and keep tabs on the metric to identify and address any emerging complications. The ideal warehouse space utilization percentage for a given business depends on a number of factors, including the design or layout of the warehouse, what types of racking or shelving systems are in place, how much vertical space can be used, the types of inventory being stored, and the company’s inventory management practices.

A company with a high warehouse space utilization rate is one that is making good use of its storage capacity and, therefore, is cutting back on its overhead costs. This, in turn, may result in being able to keep more (or a greater variety) of inventory on hand, reducing the likelihood of stockouts and allowing the business to capitalize on sales opportunities that keep its customers happy. Greater space utilization may also indicate a well-organized warehouse layout that improves the speed at which orders can be picked and packed.

How to Calculate Warehouse Space Utilization and Capacity

As previously noted, warehouse space utilization is a relatively straightforward metric to calculate. The most challenging aspect is determining the total available space in the facility and keeping tabs on how much space is in use at any given time.

To determine the total space being used to store inventory, add up the volume of all inventory currently in storage to ascertain the area in use in terms of cubic feet. Investing in robust enterprise software systems to accurately track inventory as it enters and leaves a warehouse goes a long way toward easing the burden of this step.

To determine the total available space (or warehouse capacity), first measure the square footage of floor space in the warehouse, subtracting any area(s) that cannot be used for storage (such as office space and restrooms). Then multiply that figure by the facility’s clear height—that is, the distance from the floor to whatever the lowest obstruction is, such as a ceiling beam or light fixture that would get in the way of vertical storage or racking—to derive the total warehouse capacity in terms of cubic feet.

To calculate the warehouse space utilization KPI, divide the warehouse area actively being used to store inventory by the total warehouse space available. The formula to express warehouse space utilization as a percentage is:

Warehouse space utilization = (Used space / Total available space) x 100

Fo example, if a toy retailer has total usable warehouse space of 500,000 cubic feet, and its toys occupy 315,000 cubic feet of that space, its warehouse space utilization rate would be calculated as:

Warehouse space utilization = (315,000 / 500,000) x 100 = 63%

Warehouse Space Utilization Considerations

Warehouse space utilization is not a one-size-fits all metric. The optimal use of warehouse capacity will depend on a variety of operational, physical, and industry- and business-specific factors. Companies must also balance maximizing the use of their warehouse capacity with other considerations, such as safety, product accessibility, and workflow. In addition, businesses may need to accommodate changing inventory levels or product types to meet seasonality challenges and customer demand. The way in which a warehouse is laid out or configured and the technology in use also have an impact on warehouse space utilization.

Some of the most common warehouse space utilization considerations include:

  • Pallet size: The dimensions of storage pallets and their uniformity will influence how efficiently they can be stacked and stored in a warehouse. Oversize or nonstandard pallets can limit their storage use and result in wasted space, whereas standard pallets can lead to greater storage density.
  • Total number of pallets: Although using more storage pallets may improve space utilization, packing too many pallets into a warehouse can hamper maneuverability and slow down warehouse processes. Companies must strike the right balance between the number of pallets they use versus operational efficiency.
  • Vertical space: The more a company can store its inventory items vertically, the more it can increase its warehouse space utilization (without expanding the physical footprint). However, what goes up must come down. Storing items vertically necessitates appropriate racking systems and equipment so employees or lifts can safely access them.
  • Inventory turnover: How quickly a company sells and replenishes its inventory also influences what ideal space utilization looks like. A grocery chain with quick-turnover, perishable items will need to make sure those items are readily accessible, requiring allowances for frequent retrieval and movement throughout the space, which may increase flow but decrease space utilization. Low-turnover items, on the other hand, can often be stored at greater density.
  • Receiving and shipping zones: Warehouses are meant to be temporary storage facilities; items are expected to come in, then go out. Therefore, it’s necessary to designate sections for receiving goods or inventory and shipping them out, which reduces overall space utilization rate.
  • Warehouse layout: A warehouse should be designed to maximize storage space and streamline function. A poorly conceived layout can create dead space and operational bottlenecks, which hinders both space utilization and procedural efficiency.

Warehouse Space Utilization Challenges

A number of hurdles stand in the way of achieving prime warehouse space utilization. For instance, ineffective space management can result in unused capacity, increased congestion, and higher costs. Poor inventory tracking or management practices may be to blame, leading to overstocking or slow-moving products taking up valuable space. Here are some common warehouse space utilization challenges and how to plan for them:

  • Poor layout design: A suboptimal warehouse layout can increase travel time for workers, create warehouse bottlenecks, and—of course—result in low space utilization rates. Telltale signs of an inefficient layout include aisles that are too wide or too narrow, dead or underutilized space (particularly vertically), and disorganized storage areas. Companies would be wise to invest their time and energy in a thorough warehouse layout analysis, with an eye toward delineating proper aisle widths, vertical space, and operational flow to advance good storage and movement.
  • Overstocked inventory: Holding too much inventory can consume valuable warehouse space, spike storage costs, and even create inefficiencies by making it harder to locate and retrieve products. Overstocking also runs the risk of inventory obsolescence (where items become outdated, unusable, or unsellable), which will tie up cash that could be put to better use elsewhere in the business. Implementing better demand forecasting and real-time inventory tracking, along with conducting regular inventory audits, can help companies shine a light on slow-moving inventory so they can enact strategies to clear out excess stock and free up warehouse space.
  • SKU complexity: Maintaining a large number of SKUs adds to warehouse management complexity, which can lead to picking errors, wasteful use of space, greater warehouse congestion, and inventory tracking challenges. Businesses can rein in this complexity by rationalizing SKUs (that is, reviewing the product catalog to determine which items should be kept, upgraded, or discontinued), grouping similar items together in the warehouse, and developing strategies for assigning storage locations on the basis of product turnover or size.
  • Substandard demand forecasting: Accurate demand forecasting is essential to prevent overstocking or stockouts, either of which can be costly to the business and result in poor use of warehouse space. Substandard demand forecasting can create warehouse congestion during times of peak demand and underutilization of warehouse space during slower periods. Implementing an ERP system that centralizes sales and market data and offers advanced demand forecasting tools can arm decision-makers with up-to-date forecasts that result in better warehouse space utilization.
  • Poor employee training: While warehouse design and technology capabilities may be top of mind when improving the use of warehouse space, the human element is another key consideration. Subpar warehouse-employee training can lead to ineffective handling of goods, incorrect use of storage systems, and increased safety risks. If employees don’t know how to follow the latest processes or operate warehouse equipment and technology, productivity and warehouse space utilization rates can plummet. It’s vital to enact regular, updated training programs to make sure everyone is competent enough to apply current best practices for storage, safety, and equipment usage, which helps prevent mistakes while maximizing the use of warehouse space.
  • Outdated warehouse technology: Outmoded or siloed technology systems impede inventory visibility, decelerate warehouse processes, and stand in the way of the adoption of advanced, space-saving capabilities. Investing in current technologies, such as modern warehouse management systems, the latest material handling equipment, barcode scanning, and automated storages systems, empowers companies to track inventory more accurately and effectively, thereby increasing productivity and speed and optimizing the use of space.

How to Optimize Warehouse Space Utilization: 12 Tips

Proficient use of (increasingly costly) warehouse space can help businesses trim unnecessary expenses, strengthen their workflows, and scale their operations without having to invest in additional storage facilities. Following are 12 tips that can help companies make the most of their warehouse space investments.

  1. Evaluate Warehouse Layout

    Regularly assessing and redesigning the warehouse layout to suit a company’s product mix, order volumes, and other requirements can offer significant returns. Implementing a robust warehouse management system with simulation capabilities simplifies this step. Periodically revisiting the layout can help identify fresh opportunities for space savings as inventory and business needs evolve.

  2. Use More Vertical Space

    Although the obvious place to start when maximizing warehouse space may seem to be the easily accessible floor areas, don’t overlook storage space above. Companies can take advantage of vertical storage by using taller shelving units or mezzanines to increase usable storage area without changing the warehouse footprint. Selecting racking systems that are suitable for the company’s inventory and investing in appropriate safety measures and equipment, such as forklifts, help assure that vertically stored items will remain safely accessible.

  3. Narrow Aisle Widths

    Overly wide aisles can quickly eat up warehouse space, so minimizing aisle widths may allow for more storage possibilities. It’s important, however, to verify this as a viable option as narrow aisles may require specific equipment, such as narrower forklifts, and thoughtful planning may be needed to maintain inventory accessibility and worker safety. Analysis of warehouse traffic patterns and product movement can help warehouse managers and designers determine correct aisle dimensions.

  4. Reduce SKU Redundancy

    SKU complexity can create a number of challenges, including inventory tracking and picking difficulties, warehouse congestion, and inefficient use of space. Taking the time to eliminate redundant or obsolete SKUs can simplify inventory management and open up warehouse space. Companies should schedule regular SKU rationalization reviews, analyzing historical sales data and customer demand to determine which SKUs to keep—for example, high-value or fast-moving items.

  5. Move Excess Inventory

    Hand in hand with detrimental redundant inventory is excess inventory just sitting there gathering dust in the warehouse. Clearing out these slow- or nonmoving items can ease warehouse congestion and make way for products in higher demand. Implementing an inventory management system simplifies identification of superfluous items so companies can execute strategies to move them via deep discounts, liquidation sales, or returns to suppliers, if possible.

  6. Categorize Inventory

    Sorting inventory using ABC inventory analysis—which categorizes goods based on demand, cost, and risk data—can yield significant warehouse utilization returns. By ranking items in this way, a business can make sure that high-turnover items are easily accessible, which increases picking speed and alleviates congestion. Initiating regular inventory reviews and categorization empowers companies to make more data-driven decisions when adjusting storage assignments to match product movement patterns.

  7. Implement Slot Optimization Strategies

    Warehouse slotting, sometimes called inventory slotting, refers to the strategic organization of inventory in a warehouse or facility in order to maximize space, increase picking efficiency, or facilitate better material handling. Warehouse slotting is typically determined by product type or SKU. Companies can analyze inventory and warehouse movement data to assign the best storage locations, but make sure to regularly revisit slotting plans as demand may shift.

  8. Improve Forecasting Accuracy

    Accurate demand forecasts are integral to preventing overstocking or stockouts, which can be costly to businesses and negatively impact warehouse space utilization. Implementing leading enterprise software with advanced forecasting capabilities using real-time sales and inventory data, as well as continuously refining demand models, can have a significantly positive effect on warehouse space utilization.

  9. Integrate Cross-Docking

    Cross-docking is a strategy wherein goods are transferred directly from an inbound vehicle to an outbound vehicle, thus minimizing or eliminating warehouse storage time and cutting down on product handling. Implementing a cross-docking approach for certain fast-moving items can free up significant warehouse space and reduce labor demands.

  10. Consider Modular Shelving

    Modular shelving systems can be reconfigured as inventory and warehousing needs shift, providing greater flexibility and maximizing warehouse space. Companies should look for adjustable-shelf solutions and train warehouse employees on how to reconfigure them for optimal adaptability.

  11. Standardize Employee Training

    Providing consistent and regular training for warehouse staff makes certain that they will follow the latest procedures and best practices for storage, picking, and safety, which limits human error and increases space utilization. Developing standard training programs and updating them regularly is important because it lets employees keep pace with newly implemented processes and technologies. In fact, greater workforce productivity/efficiency and employee retention, training, and performance were the third and fourth top priorities for the next 12 months, according to warehouse decision-makers surveyed for AutoStore’s 2024 state of the warehouse management and fulfillment market.

  12. Update Your Technology

    Modern warehouse management systems, automation, and data analytics tools can secure a solid foundation for increasing warehouse space utilization by providing real-time visibility into inventory and warehouse operations and identifying opportunities to streamline processes. Investing in a leading ERP platform that includes those capabilities and integrates with other enterprise software modules, such as HR and finance, can grant significant returns. Warehouse automation systems and robotics can elevate space utilization, too. In fact, 61% of decision-makers responding to the AutoStore survey reported using significant or total warehouse automation, up from 49% in 2023.

Maximize Your Warehouse Space With NetSuite WMS

Investing in a modern warehouse management system (WMS) is a must for companies seeking to improve their warehouse space utilization and productivity. NetSuite Warehouse Management System is purpose-built to tame the complexity that can accompany the management of hundreds or thousands of SKUs, as well as day-to-day warehouse operations.

Because NetSuite WMS natively integrates with NetSuite’s inventory management, order fulfillment, and manufacturing systems, everyone can access the same accurate and real-time information. Companies can track inventory as it enters, moves through, and leaves the warehouse. Built-in space utilization functionality allows warehouse decision-makers to be sure products are stored most usefully, placing fast-moving items near fulfillment areas and grouping similar items together. NetSuite WMS also helps warehouse managers create streamlined picking paths and arrange multiorder picking to increase order fill rates, rationalize fulfillment processes, and keep products moving in order to open up more space. The end result: better space planning and utilization, enhanced warehouse productivity, and increased customer satisfaction.

Optimizing warehouse space utilization is paramount to boosting efficiency and cutting expenses at a time when warehouse and labor costs continue to rise. Well-conceived space utilization also has a direct impact on customer satisfaction, as a well-designed warehouse layout allows items to move in and out seamlessly. While ideal space utilization rates will vary based on multiple factors, such as types of inventory stored, total number of SKUs managed, inventory turnover rates, and other requirements, best practices and technologies for enhancing space utilization apply across the board.

Warehouse Space Utilization FAQs

What principle is essential for optimizing space in a warehouse?

There are many best practices for optimizing warehouse space, but a core principle for successful warehouse space utilization is to design the facility layout and inventory systems in a way that maximizes usable space and streamlines product movement.

What is the ideal warehouse utilization rate?

The ideal warehouse utilization rate, often expressed as the percentage of available storage space actively used for inventory, depends on several factors. These include the type of products being stored, inventory turnover rates, total SKU count, and other business- or industry-specific operational requirements. While 100% space utilization is never advisable (because it leaves no margin for staging, picking, or handling), a rate between 80% and 85% is considered good for standard operations.

What percentage of a warehouse should be empty space?

The right percentage of empty space in a warehouse will depend on the type of inventory being stored and the operational needs of the business. Typically, no more than 85% of a warehouse should be utilized, which leaves at least 15% of space available for staging, picking, handling, and moving products.