U.S. manufacturing has been declining for many years – both as a share of GDP and as a share of total employment – yet the value add per worker has increased over time. In spite of its overall decline, manufacturing remains a critical driver of the U.S. economy, contributing over $2 trillion annually, according to Jason Tolliver, J.D., head of industrial research, Americas with Cushman & Wakefield, in a presentation on “Manufacturing Renaissance: Fact or Fiction” at NAIOP’s Commercial Real Estate Conference 2016.
In a Cushman & Wakefield survey of 100 global manufacturing firms analyzing costs, risks, conditions and new developments in the manufacturing sector, this can range from looking at the jib crane foundation requirements to the construction of a new building on site, “cost is the most important driver for manufacturing companies,” Tolliver said. “Without question, all 100 firms had labor as the number one consideration for site selection.”
Technologies like robotics can be transformative tools for manufacturing but require a highly skilled labor force, which can be challenging to find. Manufacturing companies need to find the right site location that balances costs and has the ability to attract top workers. Incentives can make a difference between two equally viable sites – however they can’t make an unworkable site work. Sustainability, long an important consideration for CRE, remains part of the corporate agenda but continues to be dictated by long term cost considerations.
In terms of site selection, the survey revealed three key drivers:
- Reducing the total cost of operations.
- Reducing the risk of business interruptions.
- Improving speed to market.
Top location factors cited:
- Availability of skilled labor.
- Infrastructure and connectivity.
- Energy availability/cost.
- Availability of buildings/land.
- CRE occupancy/construction costs.
- Corporate tax rates/incentives.
How does the U.S. stack up against other countries across the globe for manufacturing costs? “The delta between high cost and low cost is closing, and it’s closing very quickly,” Tolliver noted, spurring companies to return operations to the U.S. On-shoring and near-shoring are driven by low costs in Mexico where goods are produced and then shipped north to the U.S. That movement has always happened, but this is top of mind right now. Since 2012, there has been an uptick in organic growth of U.S. manufacturing and vacancy rates have fallen over that time, Tolliver said.
Whether it’s on-shoring, re-shoring or near-shoring, for CRE, “at the end of the day, there are full buildings and empty buildings, and we want full buildings,” said Tolliver. Some of the sectors coming back require different skill sets, different locations (particularly for near-shoring), and different CRE design and footprint requirements. The type of manufacturing that has returned to the U.S. and that is growing organically is increasingly tech-driven, much of which requires specialized skills.
“There is a world war for talent,” said Tolliver, “a tremendous demand for high-tech training and a shortage of those workers – a trend that will only grow over the coming decade.” The labor shortage will get worse before it gets better, he predicted. Manufacturers might bring their operations to where their workers are and use the supply chain to ship back to the U.S. The clear winners: Texas and the Southeast, driven by transportation companies.
What can you do as a developer? How can you make buildings more adaptable for light or heavy manufacturing? Tolliver’s perspective: The reality of creating a multifaceted and multifunctional plant is often more challenging than the theory.