Nearby Labor Essential to Industrial's Ongoing Growth

Proximity to labor will remain a key factor driving industrial occupiers’ site selection decisions, according to a new analysis from Moody’s Analytics CRE.

“One old adage continues to hold true: location, location, location,” writes Moody’s Senior Economist Ermengarde Jabir.  But now, a new refrain is leaping to the forefront: labor, labor, labor. While labor has always been vital to the CRE equation, the confluence of a tight labor market and inflation – which has caused prices for necessities, including food, housing, and gas to skyrocket – is underpinning the need for new warehouse/distribution properties to be located in close proximity to labor.”

Jabir notes that developers and landlords are looking to balance land costs with the proximity to an “abundant” workforce for potential tenants, with developers telling Moody’s that for every dollar spent on wages, an estimated $2 to $5 is spent on rent by tenants.

Development is being hindered somewhat by materials and labor shortages as well as community opposition to industrial properties, Jabir says. However, construction time for a new warehouse/distribution property is keeping with pre-pandemic norms at  about one year after groundbreaking, regardless of building size.

Newly developed industrial properties are around 98% pre-leased, according to Moody’s, with landlords inking shorter leases with 4-5% rent escalations.

“Expansion continues in high-barrier, coastal metros that tend to do well over the long run due to the combination of strong demand drivers coupled with inevitable supply constraints that spur rent growth,” Jabir notes. “The sector’s fundamentals remain optimistic for long-term growth, but recession fears exist. Population size and regional growth and warehouse inventory remains central to the success of the sector, from both the consumer and labor perspectives.”