Despite softening economic conditions, the US industrial warehouse market continues to perform well, posting record high rents, a robust development pipeline, and a continued strong demand. In fact, supply is only now beginning to reach parity with demand after a seven-quarter steep imbalance.
One aspect of the current landscape that deserves attention is the continued lack of visibility in the supply chain, especially in the form of real estate forecasting and labor cost data.
Real estate cost data has historically been tied to market transactions or anecdotal evidence. Given the record run-up in pricing, companies have had to act under duress to meet inventory spikes and supply chain bottlenecks. Forward stocking prior to peak season has also accelerated the need for agility of warehouse occupancy. There has been a tendency to look at these costs as variable and commodities and not as fixed events with imbedded financial underwriting constraints. Going forward, use of predictive real estate cost analytics and “mark to market” technologies will provide the planning savvy and visibility currently missing in the process.
Equally constrained and, especially acute, have been the labor shortages experienced by logistics operations across the country. Ironically, unemployment and vacancy currently both stand at approximately 3 percent. With labor representing as much as 30 percent of operating costs, what planning tools can be introduced to provide a better understanding of the competitive environment? Just as with facility cost data, the ability to forecast longevity and a location’s resiliency to labor market risks needs to move from anecdotal to having a sophisticated modeling and forecasting culture.
Looking forward to 2023, the stirring economic headwinds affecting supply chain real estate operations will bring modest relief to pricing and tight labor markets. Nevertheless, better visibility, forecasting, and analytics will be critical for operational success.