Measuring Risk in Big-Box Industrial Markets

Today’s big-box industrial occupiers are prioritizing future workforce needs in their site selection analysis, rather than just focusing on the current economic and talent conditions. Industrial warehouse operators, in particular, prioritize building a talent-centric location strategy, which balances labor quality and cost.

Competition for industrial labor is fierce. To ensure success, companies must have access to the right labor pool at the right price. This approach is crucial as access to a skilled and experienced workforce is both a competitive edge and primary cost center.

Figure 1 illustrates how an occupier could save $1 million annually by adjusting either labor or real estate costs. Using the assumptions in the equation below, to achieve $1 million in annual savings, a company would need to reduce real estate cost by $2.08 per sq. ft. per year. Alternatively, the company can consider redeploying headcount to a market with slightly lower labor cost: Only $1 per hour less with 500 employees equates to $1 million in annual savings.

Figure 1: Two Ways to Save $1 Million per Year: Labor vs Real Estate

Futureproofing the Workforce

In 2023, North American Big-Box Industrial facilities saw slower leasing activity, higher vacancies and lower rent growth due to macroeconomic uncertainty and a surge in construction completions. Occupiers signing new leases prioritized factors such as supply chain resilience, proximity to growing population centers, automation-ready workspaces and e-commerce fulfillment. However, U.S. industrial leasing activity fell 8.8% while supply expanded by nearly 1.2 billion sq. ft. in response to a pandemic-induced spike in occupier demand.

To understand a market’s long-term feasibility, industrial occupiers ask questions related to a market’s longevity and scalability. Common questions include:

• How much will I be able to scale my headcount in the location?
• For how many years can I successfully hire in this market?
• What wage levels will I need to pay to remain competitive?
• How can I evaluate the labor availability near this industrial site?
• How can I measure competitors’ demand for industrial warehouse labor?
• Should I renew my lease in the market?

How to Measure Risk in Today’s Economic Environment

In today’s fiercely competitive business landscape, an understanding of workforce strengths and weaknesses empowers organizations to make informed decisions about recruitment, training and employee retention. Companies can pinpoint areas for improvement and growth by conducting a comprehensive workforce analysis, leading to better business performance.

One highly effective approach to assessing workforce dynamics involves leveraging proprietary models like CBRE’s LaborPlan™. Specifically designed to evaluate workforce longevity within specific markets, LaborPlan™ helps businesses that need to make decisions about new facilities, such as warehouses.

The model relies on critical operational assumptions, including projected headcount, starting wages, annual turnover rates and applicant-to-hire ratios. Using this data, it estimates the duration—measured in years—that a market can sustain recruitment and turnover demands for a business and its competitors.

For instance, if a company is exploring the establishment of a new warehouse facility, LaborPlan™ can compare workforce longevity and risk across different big-box industrial markets. This analysis provides valuable insights into the available talent pool, aiding strategic decision-making.

Applying the Methodology

In the 2024 Big-Box Industrial report, CBRE assessed North America’s top 25 core, gateway and emerging markets to understand demographic details, logistical drivers, big-box inventory numbers and state and local incentive details.

Applying a sample risk profile enables the ability to measure how well these 25 markets can accommodate a moderate-sized industrial facility.

The hypothetical facility includes 500 general manufacturing and supporting logistics roles, with an average starting wage of $17.00 per hour, an annual turnover rate of 35%, and an applicant-to-hire ratio of 10:3 (the number of applicants applying for a position compared to the number of people hired for that position).

Understanding Longevity and Risk

The data illustrates a wide spectrum of risk and scalability for an industrial facility placed in a subset of big-box markets. This chart identifies the big-box markets that can comfortably support the hypothetical operation without adjusting labor assumptions. Each offers a favorable level of risk for the proposed operation, due to a combination of talent available and/or average industrial wages.

Figure 2: Markets with Favorable Longevity

Markets with favorable longevity and scalability rely on large workforces with an average wage that is below starting wages assumed for the proposed operation. With the exception of Savannah and Nashville, the proposed operation can scale to more than twice the 500 full-time employees (FTEs) without jeopardizing longevity or risk. While Savannah has the lowest average wage of these markets, scalability is limited by its smaller workforce.

Markets with higher average wages (above the proposed $17.00 /hour) favorable scalability and manageable risk benefit from a large labor pool. Such markets have enough talent supply to support both the current headcount and potential growth, including doubling the planned headcount. However, offering below-average market wages could negatively impact the quality of applicants, increase turnover and harm the company's reputation in the market.

Markets that have more challenges when locating the proposed operation may offer abundant talent, but high costs and tight labor conditions limit buying power. While Kansas City and Indianapolis can support a fraction of the planned headcount under the current assumptions, wages or headcount need to be adjusted to increase longevity and reduce risk.

Figure 3: Markets with Below-Average Longevity

Assessing Risk Levels

Total Labor Force: Most markets with a preferred level of risk boast a labor force of more than 1 million workers. However, Memphis’ favorability is driven by its lower labor cost, providing greater buying power.

Weighted Average Market Wage: For markets like Long Beach, whose weighted average wage is significantly above the hypothetical company’s starting wage ($17.00/hr), its risk score is based on a labor pool that exceeds 5.4 million. It should be noted that while the supply of talent is great in markets like Long Beach, paying below-market-average wages could increase turnover and diminish its ability to attract new talent.

Figure 4: Market Wage vs. Years of Longevity

Making Adjustments: Markets like Ontario, Stockton and Seattle have the highest risk category because their weighted average wages exceed the hypothetical company’s assumed starting wage by at least $1.50 per hour. While these markets have deep labor pools, the company would have to raise starting wages to compete for talent and improve their longevity. The annual cost to close the wage gap and achieve a favorable level of risk could exceed $1.5 million in these markets.

Figure 5: Markets with Wage Sensitivities

Competitive Positioning: Often a forgotten variable when assessing labor markets and scalability, competitive positioning plays a critical role in achieving a preferred risk level. Markets with substantial manufacturing and logistics talent pools—such as Long Beach, Ontario and Houston—have labor forces that exceed 2.5 million workers. These large pools provide resilience against competition from new employers that enter the market or those that are expanding, as evidenced by the flat trendline in the chart.

However, smaller labor markets like Savannah are more sensitive to increased competitive headcount. As demand on the supply intensifies, longevity decreases. For instance, Savannah transitions from a favorable risk level to an average level when 200 new jobs are added, and drops to a moderate level when 700 jobs enter the market. To withstand competition in these hot industrial markets, companies should monitor competitive positioning and evaluate compensation packages, perks and incentives to attract and retain talent.

Looking Ahead

Understanding labor variables is essential for companies considering new warehouse facilities in big-box industrial markets. CBRE’s Workforce Risk Analysis (LaborPlan) provides a valuable tool for assessing workforce longevity and scalability. The analysis highlights the diverse landscape of risk and longevity across emerging U.S. markets. Large markets with abundant talent pools can mitigate risk, but paying below-market wages may lead to higher turnover rates. Conversely, markets with higher risk levels may require increased wages, reduced headcount or lower turnover to achieve favorable longevity and scalability outcomes.

Seeking answers from an advisory partner enhances success. They analyze local labor pools, growth projections and regulatory factors, helping to scale the workforce effectively. Additionally, understanding labor availability near an unoccupied or spec industrial site is essential. Demographics, commuting patterns and local labor dynamics inform site selection, and assessing demand for industrial labor allows strategic positioning and anticipation of workforce challenges.