Location has moved to the top concern for industrial users. New research from Prologis reports that pricing elasticity on rents has declined as location selection becomes increasingly important.

The new trend is two fold. First, rents make up a small cost in the overall supply chain, leaving tenants room for flexibility. Second, urban population growth and changes in consumer expectations, both in online and in-store shopping, has driven user demand near population centers.

Industrial rent makes up only about 5% of the supply chain, and in most cases, strengthening the supply chain will help boost revenue and meet consumer demand. This increase in productivity is generally enough to warrant increased real estate costs, according to the Prologis report. In fact, savings on transportation costs alone could offset increase rents. The report estimates that proximity to population centers has the potential to reduce supply chain costs by 50%. A recent MIT study supports the claim, finding that when industrial facilities are located near population centers, transportation emissions are cut in half compared to out-of-town facilities.