Mariwyn Evans writes about commercial real estate for REALTOR® Magazine. You can reach her at email@example.com.
Reshoring Takes Off
Commercial demand is on the upswing as U.S. manufacturing picks up. Jason Tolliver, Indianapolis-based regional vice president for Cassidy Turley, weighs in.
November 2, 2014
In recent decades, “industrial” has been synonymous with “warehouse.” Not anymore. The return of manufacturing activity to the United States, slyly nicknamed “reshoring,” is expanding the need for production space for the first time in decades. And the demand will continue to grow. Fifty-four percent of U.S.-based manufacturers with annual sales greater than $1 billion said they were either planning or strongly considering bringing some manufacturing back to the United States, according to a late fall 2013 survey by Boston Consulting Group. The Reshoring Initiative, a group that works to return manufacturing to the United States, estimates that 15 percent of new manufacturing jobs added between 2010 and 2013 were jobs that had previously been moved overseas. The trend bodes well for commercial real estate professionals.
What’s fueling manufacturing’s return to this country?
There are five or six key drivers, in no particular order: competitive labor costs as wages rise in China; proximity to customers, suppliers, and research and development; lower transportation costs; declining energy costs; need for better quality controls; and stronger legal protections of intellectual property in the United States.
How does this manufacturing resurgence translate into commercial demand?
Industrial absorption has been improving for the last few years. Cassidy Turley’s research shows that national industrial vacancies dropped from 10 percent in 2010 to 8 percent in the third quarter of 2014. Increased occupancy rates in manufacturing accounted for nearly one-quarter of that gain. Absorption is strong even though the footprint for most manufacturers is shrinking, according to Energy Information Administration data. The EIA estimates that at least 10.2 billion square feet of manufacturing space will be needed in 2020.
Is most of this new demand coming from larger companies?
Yes. According to data from the Bureau of Labor Statistics cited in a 2013 Congressional Research Services report, only 10 percent of new jobs in manufacturing since 2005 were created by small and mid-sized companies, compared with approximately 20 percent of new jobs in the professional and services areas.
How is the greater reliance on technology affecting demand for manufacturing space?
Many existing manufacturing facilities are too old and too big—functionally obsolete. So companies that are reshoring manufacturing are turning to new construction. According to the U.S. Census Bureau, manufacturing construction had increased to 122 percent of its prerecession levels by 2013.
The location of much of the new manufacturing is also changing. BLS research found that almost 80 percent of manufacturing job growth since the recession has taken place in the top 100 U.S. metros. When you focus in on advanced manufacturing, which relies on computers, automation, and cutting-edge materials and processes, the number of new jobs in major metros jumps to over 95 percent. Educated talent wants to live in or near cities, so manufacturers who need that talent have to follow.