While the COVID-19 pandemic has been clouding the US for nearly two years, it also has some silver lining.
For one, the pandemic’s disruption of the global supply chain has triggered a renaissance in US manufacturing, with many manufacturers expanding or onshoring production of high-value and essential products. The trend is bringing high-paying jobs to many areas of the country, including communities that were financially devastated decades ago when factories closed under pressure from offshoring.
According to ThomasNet’s most recent annual survey of 709 manufacturers, 83 percent of respondents said they are likely or highly likely to restart their production operations and plan to add US suppliers to their supply chains. Huh. The ongoing reshoring trend is reflected in $204 billion in RFQ sourcing requests over the past 12 months, compared to just $69 billion in 2018.
The Biden administration is openly supporting the onshoring initiative, which proposes funding $600 billion in its 2022 budget to support US-based manufacturing jobs. And it was before China reimposed lockdowns that are now more massive than those installed when the pandemic began, leading to what Fortune calls “supply chain chaos.”
The question is, what does all this mean for the American industrial sector?
Today, demand for industrial real estate in the United States is dominated by e-commerce tenants. But increasingly onshoring efforts over the next few years will impact demand growth for the industrial sector as more US businesses turn reshoring plans into reality.
Demand for US manufacturing space was strong with nearly 40 million square feet in 2021. feet of positive net absorption for the year, more than double the 17 million square metres. Absorbed in 2020 and the highest since 2016, according to James Breeze, senior director and global head of industrial and logistics with foot real estate services firm CBRE. CBRE data shows that year-on-year during the third quarter of 2021, 13 percent of total industrial absorption in Mexico was attributable to nearshoring. Firms estimate that the companies most likely to engage in onshoring or nearshoring include automanufacturers, manufacturers of medical supplies and pharmaceuticals and manufacturers of semiconductors and other technology components.
Several major companies have already announced plans to expand their US manufacturing operations. For example, General Motors plans to spend more than $4 billion to expand its electric vehicle and battery production plant in Michigan, The New York Times reported. Toyota plans to set up a $1.3 billion battery plant in North Carolina, and Samsung plans to invest $17 billion in a new semiconductor plant in Texas – the largest US investment to date.
The Phoenix Investors report suggested that reshoring activity is already creating competition among warehouse users for industrial space, as there is a significant overlap in properties that can meet both logistics and manufacturing needs. “Companies prefer to have distribution centers near the point of manufacture to save money on transportation cost. Because of this, local industrial markets will benefit from increased manufacturing activity,” says Breeze.
Demand for modern, Class-A industrial space exploded with the onset of the pandemic, notes Fred Regnery, principal at Colliers International’s Chicago office and a leader in the firm’s national logistics and transportation group. With industrial vacancy near zero in coastal markets, they expect increased industrial development in the Midwest, where there is more raw land for new development and lower costs of doing business. Over the next five years, the move to onshoring could expand to 10 million square feet across 68 metro markets in the US and Canada, according to a December report from commercial real estate services firm Sevilles. foot or more of new industrial facilities. Cities in the Sunbelt and the Midwest that are close to rail and port facilities are most likely to see this type of development, Saviles forecast. Savannah, Ga., for example, could see an addition of 53.6 million square feet. ft. of industrial space between 2022 and 2026. Chicago could see up to 125 million square feet. ft. in new industrial facilities.
Regeneri suggests that local governments in the secondary and tertiary markets that actively invest in infrastructure such as roads and sewers to support the automation requirements for modern manufacturing facilities should be most affected by the wave in the expansion and recharge of manufacturing. would benefit.
Today, the most popular markets for manufacturing expansion include Phoenix in Texas, Nashville and Memphis, Tenn., and Tucson, Ariz., Austin and San Antonio. and Louisville, Ky., Georgia and South Carolina, in addition to various markets, notes Breeze.
“Looking for a manufacturing facility location today is akin to looking for a new distribution center,” he added, noting that manufacturers want labor, reliable and affordable utilities, proximity to a major transportation hub and access to land for construction. .
The Phoenix Investors report also noted that there is an opportunity for industrial investors to restore or redevelop manufacturing facilities in former urban manufacturing centers, when production moved offshore years ago.