Powering operational excellence

After several years of unprecedented growth, owners, investors and occupiers are strategically reassessing assets and location strategies ahead of the next market cycle. At the same time, power availability and security are emerging as top priorities for many occupiers in the sector. Increased automation, fleet electrification, the surge in advanced manufacturing, and competition with data centers for limited energy resources are collectively reshaping market dynamics. Occupiers are prioritizing cost efficiencies and seeking innovative ways to elevate business practices, and owners are pre-emptively evaluating methods to remain competitive. At the nexus of this market shift are increasingly complex energy markets paired with growing pressures to materialize on carbon reduction goals.

Occupiers have typically focused on technical requirements (e.g., ceiling height, loading docks, etc.), but as they prioritize operational excellence, requirements are becoming increasingly specific and standard warehouses are no longer fit-for-purpose. Spaces that deliver broader solutions, especially around energy management, resilience and broader sustainability, will gain competitive advantage in the coming years.

Additionally, advanced manufacturing - the use of innovative technology to improve products or processes – is a rapidly growing segment in the industrial sector. Companies involved in battery, electric vehicles (EVs), renewables and climate tech are emerging as significant drivers of this growth and are especially hungry for spaces that align with their core business of sustainability and decarbonization.

Building owners willing to leverage sustainability could capitalize on this shifting demand to create economic value, while keeping up with tightening regulations and evolving stakeholder expectations. A strategic pivot towards energy management, sustainable building practices and comprehensive tenant engagement can transform leasing dynamics, ensuring that industrial spaces are fit for the future.

Supply-demand dynamics vary across industrial markets. More calibrated markets, like the UK and Sydney, show greater alignment between owners and tenants on decarbonization efforts, driven by regulatory pressures and carbon commitments. In these markets, owners who neglect carbon performance risk facing a ‘brown discount’ and greater challenges relating to liquidity when it comes to selling their properties. Conversely, imbalanced markets, such as Chicago and Belgium, characterized by energy-intensive outdated stock and limited clean energy availability, present unique challenges. For owners in these markets, acting promptly to improve a building’s energy performance can position them as market-leaders, enabling them to secure high-quality tenants and ensuring tenants don’t opt for other locations like build-to-suit sites.

Global energy demand is rising more rapidly than anticipated, raising significant concerns about energy security and pricing for businesses and people worldwide. Access to adequate power is already the top concern for many industrial occupiers as an increasing number of companies require high-capacity energy solutions. Moreover, energy prices have surged in recent years. Over the last five years, they have increased by 29% in the U.S., 71% across the European Union and 54% in the UK; while in Australia, year-over-year energy prices increased by 25% in 20241. In contrast to other asset types, industrial users are more vulnerable to fluctuations in energy costs due to their transportation-dependant and/or energy-intensive operations. As a result, many are turning to the spaces they use for solutions.

Given complex supply chains and operations as well as a greater presence in areas more vulnerable to extreme weather events, a warming climate presents acute challenges for the industrial & logistics sector. For example, across the U.S., 69% of industrial inventory sits in the top 10 markets most exposed to climate risk, compared to 57% for offices. In Europe, 49% of industrial inventory lies in the region’s 10 most exposed markets, compared to 42% for offices. Occupiers in this sector will increasingly look for properties that ensure business continuity and employee safety through enhanced physical resilience and onsite energy solutions.

In recent years, the surge in e-commerce, accelerated by the pandemic, drove unprecedented development for industrial real estate, particularly for logistics and warehousing uses. An important distinction for the sector overall, compared to offices, is that shorter construction timelines have allowed developers to be more responsive to changing market demands. Yet, 2025 is beginning with little to no new construction across major markets globally as development levels stabilize.

At the same time, inventory is aging rapidly in most established industrial & logistics hubs. In the U.S., 76% of stock is over a decade old, compared to 69% in Europe and 75% in Australia. Although some buildings over 10 years are still considered high quality, much of this aging stock will require some form of improvement to maintain competitiveness. Moreover, the scarcity of developable land in many industrial markets across the world, coupled with constraints on new supply, reinforces the imperative for upgrading existing facilities. These factors collectively strengthen the case for retrofitting as a key value-add strategy in the industrial & logistics real estate sector.