A supply chain consulting arm is essential to modern-day commercial real estate brokerage firms, says Joe Dunlap, managing director of the supply chain advisory of CBRE.

A supply chain consulting arm is essential to commercial real estate brokers today, Dunlap says. It provides crucial support for determining the number of facilities required, where they need to be, what goes on inside them, staffing levels and the business case. All such factors “are paramount before real-estate decisions can be made.”

Multiple criteria relating to the supply chain go into site-selection decisions today. They include total logistics costs, inbound and outbound transportation, labor expense and inventory-carrying costs. All must precede real-estate determinations, Dunlap says.

Having narrowed down potential sites to a “zone of indifference,” companies must then balance tradeoffs between labor availability and cost, and operational quality. Also key is deciding whether an existing building with tenant improvements will suffice, or an entirely new facility needs to be constructed as a “greenfield” project.

Warehouse operators today are confronting a dramatic increase in transportation costs, which are “more in the news than ever before in my career,” says Dunlap. He notes increases in ocean freight rates of 250% or more compared with the prior year, while ground transportation cost is up by 40% to 50%, and air freight by around 15%. All of that directly affects the price of real estate; Dunlap says an 8% to 10% increase in real-estate costs is required in response to a 1% increase in transportation expense. As a result, transportation becomes the primary focus, before planners can narrow down the options to an area that constitutes a “zone of indifference” with regard to other factors.

All of these calculations are taking place against the backdrop of a severe shortage of warehouse space, Dunlap notes.