How Supply Chain Volatility Will Impact Industrial Real Estate

Higher fuel costs, tariff uncertainty and geopolitical instability are once again pressuring global supply chains.

From furniture retailers to automotive manufacturers, companies across industries are faced with rising transportation costs, disruptions and changing inventory strategies.

A recent article by Cushman & Wakefield’s Head of Supply Chain & Logistics Advisory, APAC & EMEA, Michael Carson, explained that fuel prices are only the tip of the iceberg. Those costs could “cascade through supply chains and ultimately influence network strategy,” he wrote.

Nor is the current supply chain environment going away anytime soon. “It is a compounding pressure across cost, cash and operational risk, rather than one disruption you can wait out,” Cushman & Wakefield’s Head of Industrial Consulting, Americas, Benjamin Harris, told Connect CRE.

It’s also changing how industrial real estate is designed, located and valued.

Structural Shift, Not Temporary Disruption

Supply chain inefficiencies aren’t new. They date back to the late 20th century, when companies increasingly offshored manufacturing to lower labor costs. While cracks in the system appeared over the years, the pandemic revealed vulnerabilities throughout the global logistics networks. Shipping disruptions, container shortages and inflation rattled supply chains worldwide.

By 2023, many of those operational issues had normalized, according to Harris. Ocean freight rates stabilized, throughput improved, and container availability recovered.

But the deeper structural issues stuck around.

“Many occupiers are still operating with the footprint, inventory positions and sourcing assumptions they put in place reactively during 2021 and 2022,” Harris explained. “Labor availability in core distribution markets has also not fully recovered to pre-pandemic productivity, and capital costs are materially higher than they were in 2019.”

As a result, companies continue to deal with overextended networks, higher inventory costs and rising operational expenses.

At the same time, energy volatility, tariffs, geopolitical realignment, labor shortages and tighter capital markets are hitting supply chains simultaneously, creating pressure across nearly every stage of distribution and manufacturing.

Industrial Buildings Designed for Yesterday’s Economy

The industrial properties developed over the past decade were largely designed for a more predictable operating environment.

Most modern bulk-distribution facilities offer 36-foot clear heights, cross-dock configurations, office buildouts and parking ratios intended for single-shift operations.

“The buildings themselves are sound,” Harris said. “What’s changed is the operating profile inside them.”

Today’s occupiers are looking for something different, such as increased trailer storage, additional power capacity for automation and EV fleets, and more dock doors to accommodate smaller, more frequent shipments.

Occupiers are also targeting facilities that can flex between traditional distribution and light manufacturing as reshoring efforts increase.

Additionally, warehousing, logistics and manufacturing operations are bearing the brunt of these supply chain pressures.

Tariff uncertainty and reshoring initiatives are forcing companies to reconsider where products are manufactured, how supplier networks are structured and where inventory should be stored. Meanwhile, transportation providers and third-party logistics firms continue to pass rising costs through the supply chain.

“Warehousing is bearing the consequence of both: higher safety stock, more SKU complexity, longer dwell times on import goods and a structural bias toward ‘just-in-case’ inventory,” Harris said.

This means that, even in a softer leasing environment, well-positioned industrial assets near ports and inland logistics hubs continue to outperform.

How Owners and Developers Can Adapt

Cushman & Wakefield’s research suggests that companies can no longer rely on temporary fixes. Instead, many are moving toward long-term network redesigns to improve resilience and operational flexibility.

For industrial owners, developers and investors, Harris offered three pieces of advice.

#1—Underwrite Operations, Not Just Market Comps

Buildings that support changing occupier operations will likely outperform in the next cycle. Features such as trailer storage, enhanced power infrastructure, automation-ready floors and redundant fiber connectivity are becoming increasingly important.

“Spec-built product that ignores these is going to face a re-tenanting penalty,” Harris said.

#2—Prioritize Supply Chain-Critical Locations

Occupier demand is concentrating around inland rail-served markets, port-adjacent logistics hubs, nearshore U.S.-Mexico manufacturing corridors and regions with strong power infrastructure.

By contrast, generic logistics product in oversupplied submarkets could experience greater pricing pressure.

#3—Build Flexibility Into Assets

Industrial facilities that can accommodate both distribution and light manufacturing — while also supporting EV charging, on-site power generation and future operational upgrades — are expected to command rent premiums.

The New Normal for Industrial Real Estate

According to Harris, today’s supply chain pressures aren’t going anywhere anytime soon.

“The drivers underneath it are structural, not cyclical; geopolitical realignment, the energy transition, demographic-driven labor constraints, climate impacts on infrastructure and a permanently higher cost of capital relative to the 2010s,” he said.

Companies that continue treating supply chain instability as temporary could experience ongoing higher operating costs. Those that redesign logistics networks around resilience, flexibility and capital efficiency could gain a long-term advantage.

“The single most important shift for our industry to internalize is that real estate decisions and supply chain decisions are no longer separable,” Harris said.

As such, developers should build for evolving supply chain needs, investors must evaluate assets based on future network demand rather than historical performance, and brokers should take the opportunity to advise clients strategically rather than simply market space.

“The occupiers who get this right will outperform,” Harris said. “So will the real estate that serves them.”