NAIOP Research Foundation trustees, visionaries, and distinguished fellows met in Minneapolis this spring to discuss nearshoring/reshoring and upcoming research topics. Moderated by Gary Weiss, vice president and national director of business development and strategic initiatives at ARCO/Murray, the panel explored how the rapid expansion of manufacturing capacity is impacting industrial real estate markets in the U.S. and Mexico.
Lisa DeKnight, managing director of national industrial research at Newmark, shared findings on the scope and scale of recent manufacturing announcements in the U.S. from a report she co-authored for the Foundation, “Building the Future: Manufacturing Growth and Its Impact on North American Industrial Markets.” Newmark identified nearly 300 facility announcements with construction values exceeding $100 million each. Cumulatively, these projects represent more than $400 billion in direct investment and, when completed, will create 250 million square feet of manufacturing space and directly employ 210,000 workers. Most of these projects are in secondary and tertiary markets and are expected to create additional demand for logistics, multifamily and retail real estate.
Salomon Noble, CEO and Executive Director of Intermex, noted that two main factors are influencing the shift of goods production from China to Mexico: rising tariffs have increased the costs of supply chains originating from China, and recent supply chain disruptions due to China's zero-COVID policy have increased the risk of dependency on Chinese manufacturers. Now, a long-term trend of de-risking supply chains has led to a rapid expansion of manufacturing capacity in Mexico, with companies looking to take advantage of its proximity to the United States and the low tariffs afforded by the United States-Mexico-Canada Agreement.
Panelists also noted that broader concerns about risks to supply chains from climate change, international conflict, and armed conflict are encouraging supply chain managers to relocate manufacturing to North America, and agreed that U.S. government infrastructure spending and subsidies for electric vehicles, clean energy, and semiconductors are also driving much of the development taking place on both sides of the U.S.-Mexico border.
Daniel Quesada, senior associate of development at Affinius Capital, offered insight into manufacturing development trends in Mexico, noting that recent projects have been split 50/50 between custom homes and speculative developments. Most speculative manufacturing buildings are around 50,000 square feet in size and 32 feet tall. Occupants are typically looking to open new factories within 12 months, and it can be difficult to find a location that meets water and power needs within that time frame unless it's within an existing industrial park.
Looking to the future, the group suggested possible topics for future research, including how the power grid will meet the power needs of data centers, manufacturing facilities, and electric vehicles, best practices for commercial real estate development in Mexico, best practices for development in fast-growing secondary and tertiary markets, retrofitting older data centers to meet current market needs, and the impact of drone delivery on the last-mile delivery space.