Originally published by Adam Roth for the Spring 2023 Issue of NAIOP Development Magazine.

The “Rule of 1.5” explains the impact of transportation costs on industrial real estate.

A recent Q&A in the Wall Street Journal with Marie-Christine Lombard, CEO of international freight-forwarding firm Geodis SA, includes a comment that sums up the current state of the global logistics industry: “The entire supply chain is being rethought and recalibrated and re-costed.”

Lombard is correct. Risk is being assessed differently and the supply chain is changing, which means industrial real estate will follow.

For example, when transportation costs 10 times more than rent, transportation will dictate site selection. It is far and away the biggest determining factor that goes into where companies locate industrial real estate. Specifically, there is a concept called the “Rule of 1.5,” which is defined as whatever affects transportation will impact industrial real estate a year and a half later.

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Originally published on October 12, 2022, by Ed Finkel for NAIOP.

Supply chain, logistics and transportation play a major role in site selection for industrial real estate, which has been disrupted along with many other economic sectors by the COVID-19 pandemic but remains in a strong position overall, said Adam Roth, CCI, SIOR, executive vice president of NAI Hiffman, at CRE:Converge 2022.

Corporations make site selection decisions by balancing the costs of industrial real estate with the percentage of suppliers and consumers they want to be able to reach same day and next day. They make algorithmic calculations that result in hub-and-spoke supply chain maps outward from central nodes where warehouses are located, Roth said.

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