2022 U.S. Industrial & Logistics Occupier Survey

Introduction

The U.S. industrial market is experiencing unprecedented demand. Companies are adding warehouse and distribution space to protect inventories, diversify supply chains and process growing online retail sales. As a result, we’re seeing historically low vacancy rates, record rent growth and robust leasing activity, all of which has fueled significant development nationwide.

Are these trends sustainable? While the secular drivers of demand endure, uncertainty about the economic outlook, labor markets and supply chains has impacted occupier sentiment and decision-making.

To gauge future demand, CBRE surveyed 100 major industrial occupiers throughout the U.S. on their upcoming plans. The key takeaway: occupiers are still expanding their real estate footprints, particularly in the Southeast, Southwest and Midwest, but are facing challenges due to supply chain disruptions, labor shortages and high occupancy costs.

The survey also explores other pressing topics, such as sought-after building features, ESG plans and more.

Type of Occupiers Surveyed

Diverse Array of Industries Represented

• One hundred industrial occupiers participated in the survey, the majority of which distribute and/or manufacture within the supply chain.
• Nearly 87% of the respondents are 3PL, General Retail & Wholesale, Buildings Materials & Construction, Food & Beverage and Manufacturing companies.
• Within the 3PL segment, Electronics, Apparel and Health & Beauty are among the sectors represented.

Figure 1: What sector does your company operate in?

Source: CBRE Research, October 2022.

Are occupiers planning to expand their logistics footprint?

• Sixty-four percent of respondents plan to expand their U.S. logistics footprint.
• Forty-seven percent plan to expand by more than 10%.
• Twenty-nine percent plan no change, while 7% expect to downsize.

Figure 2: How do you expect your total warehouse footprint in the U.S. to change in the next three years?

Source: CBRE Research, October 2022.

Expansion Plans by Industry

Percent of occupiers within their industry who are expanding ±10% in the next three years

• Eighty-one percent of 3PLs plan to expand their footprint over the next three years, while 75% of both Food & Beverage and Building Materials & Construction companies will do the same.
• Most manufacturers plan no change In their footprint, with only 25% expecting to expand.

Figure 3: Percent of occupiers within their industry who are expanding ±10% in the next three years

Note: Calculated as a percent of total responses within each industry type.
Source: CBRE Research, October 2022.

How To Achieve Expansion Goals

Figure 4: If needing more space, how does your company plan to achieve expansion goals?

Note: Represents the top four choices. Respondents could select more than one answer. Percentages calculated as a proportion of total responses and therefore do not add up to 100%.
Source: CBRE Research, October 2022.

Target Regions

• Over a third of respondents plan to expand in the Southeast over the next 12 to 24 months, as the region has several large logistics hubs serving growing population centers, large affordable labor forces and seaport connectivity. This region also benefits from a supportive business climate for manufacturers.
• Growing industrial markets like Atlanta, Nashville, Orlando, Charleston and Charlotte are attracting occupiers in need of more warehouse or manufacturing facilities.
• Other regions that ranked high for expansion include the Southwest and Midwest, where markets like Reno, Phoenix and Minneapolis have become optimal locations for occupiers due to their strong demographics and infrastructure, which supports industrial demand.

Figure 5: Which region are you looking to expand in over the next 12 to 24 months?

Note: Respondents could select more than one answer. Percentages calculated as a proportion of total responses and therefore do not add up to 100%.
Source: CBRE Research, October 2022.

Location Strategies

Top decisive factors for building selection

• Nearly three-fourths (74%) of respondents cited occupancy cost (rent) as the top factor when selecting a building within a market, followed by lease options (50%), transportation (47%) and building design (45%).
• Other factors considered during site selection, but weighted less heavily, include quality of local infrastructure, developer or owner reputation and sustainability rating.

Figure 6: What are the most important factors that drive your building selection within a market?

Source: CBRE Research, October 2022.

Location & Building Preferences

Critically important building features to occupiers

• The top five building features for new warehouses are clear height, number of dock doors, power supply, column spacing and capacity for expansion.
• Major distributors and e-commerce occupiers require highly functional properties to process high volumes and need modern buildings containing such features. This is a major factor fueling the record 662 million sq. ft. of new development underway in the U.S.
• The average age of a U.S. warehouse building is 43 years, and 28% are more than 50 years old.* Given the continued growth of e-commerce and retailer omnichannel offerings, warehouses approaching obsolescence in these markets will present opportunities for redevelopment, particularly in infill locations that support last-mile delivery.
• Power supply is also top of mind given heavy use of electricity from manufacturers and warehouse operators; and this will continue to drive site selection.

Figure 7: When selecting a new warehouse, how important are the following building features?

Note: Respondents could select more than one answer. Percentages calculated as a proportion of total responses and therefore do not add up to 100%.
Source: CBRE Research, October 2022.

Supply Chain Challenges

• Sixty-one percent of respondents report that labor availability is a major impediment for the growth of their business, while 58% are most concerned about rising rents.
• Forty-eight percent of all respondents point to challenges from higher transportation costs.
• Occupancy costs accounts for just 3 to 6% of total logistics spend, whereas transportation costs account for about half or as high as 70% of total spend. However, rents are rising rapidly, so occupiers clearly have sticker shock.
• Top industries that were represented in this question include 3PLs, Electronics & Appliances, Building Materials & Construction, and food & bev.

Figure 8: Which of the following factors represent the biggest concern for the growth of your business?

Source: CBRE Research, October 2022.

Concerns by Region

• The Midwest was the only region where respondents ranked labor availability and skill shortages as their biggest concern.
• Concerns about rent were highest in the Northwest and Northeast, followed closely by the Southwest.
• Occupiers located in the Northeast and Southeast were less concerned about cost escalations than those in other regions.

Figure 9: Top 3 Concerns Broken Down by Region

Note: Respondents could select more than one answer. Percentages calculated as a proportion of total responses and therefore do not add up to 100%.
Source: CBRE Research, October 2022.

Supply Chain Strategies

• Seventy-eight percent of responses pointed to improving wages and conditions and 49% to improving training programs.
• The fact that occupiers are improving conditions for workers and looking to increase automation means they are expecting leaner operations with more skilled labor.
• Less important strategies to respondents included wellness programs or promoting the company’s sustainability credentials.

Figure 10: What have you implemented or plan on implementing to address labor shortage and skills gap?

Note: Respondents could select more than one answer. Percentages calculated as a proportion of total responses and therefore do not add up to 100%.
Source: CBRE Research, October 2022.

Meeting Net Zero Carbon Targets

• Main ways occupiers are planning to meet their net zero carbon targets via their real estate footprint include switching to LED lighting, using alternative energies on-site and using electric material-handling equipment.
• Fewer responses pointed to electric charging points for delivery fleets or capturing rainwater.

Figure 11: How is your company planning to meet its net-zero carbon target via your real estate footprint?

Note: Respondents could select more than one answer. Percentages calculated as a proportion of total responses and therefore do not add up to 100%.
Source: CBRE Research, October 2022.

Sustainability

What rent premium are occupiers willing to pay on their current facilities to switch to green sources of energy?

• Three-fourths of occupiers would be willing to pay higher rents to switch to green energy. The majority would pay more if the savings on future operational costs would be matched.
• Still, over a quarter said they would not pay a premium to switch to green.

Figure 12: What rent premium would your company be willing to pay on your existing facilities to switch to green sources of energy?

Source: CBRE Research, October 2022.