Onshoring and nearshoring activity is stimulating demand for manufacturing space and associated logistics facilities, Lisa DeKnight, managing director of national industry research at Newmark, said at I.CON East in Jersey City, New Jersey, this week.
DeNight and Liz Berthelette, CRE, director of Northeast Research and National Life Sciences Research at Newmark, co-authored a report for the NAIOP Research Foundation on the impact of manufacturing growth in North America and shared key takeaways during the session.
“Manufacturing is experiencing incredible growth and it's an exciting time to be in the industry. There's a major shift in where goods are made and where they're sold,” DeKnight says. “This generational shift is the second biggest industry disruptor of the 21st century, after e-commerce.”
DeKnight and Barthelet studied the topic over a three-year period, examining announcements of major manufacturing facilities with a minimum investment of $100 million announced since 2020 and collecting over 300 unique manufacturing announcements pledging a total of more than $400 billion in initial investment, supporting 210,000 new jobs and adding a minimum of 250 million square feet of manufacturing space over the next decade.
Growth is being driven by four key sectors, each critical to national security, energy and sustainability, and our future health.
High Tech/Digitalization – mainly semiconductors, but also satellite manufacturing, power tower manufacturing. Automotive/Transportation – mainly electric vehicles, autonomous forklifts, rail vehicles. Energy – think solar panel and battery projects. Biomanufacturing – mainly pharmaceuticals.
“Businesses have faced four years of unprecedented disruption after disruption,” DeKnight said. As companies grapple with the fact that there's more risk than ever before, the pandemic has exposed what she called a “web of interconnected risks.” This contradicts decades of offshoring of manufacturing, driven by the development of the modern shipping container in the 1950s, the passage of the North American Free Trade Agreement and China's admission to the World Trade Organization in 2001.
Many companies are seriously thinking about bringing manufacturing back to the United States or our allied nations. The federal government has created incentives to make this happen with unprecedented levels of spending, such as the Infrastructure Investment and Jobs Act (November 2021), the CHIPS and Science Act (July 2022), and the Combating Inflation Act (August 2022), totaling more than $500 billion in tax credits and grants. States are offering massive manufacturing incentives, including investments in the workforce, creating construction-ready sites, and infrastructure spending to attract job-rich projects.
Investments in manufacturing facilities are coming in through a variety of channels, DeKnight explained, discussing the terms reshoring (when a company with facilities in another country brings some of them back to the U.S.), nearshoring (when a company moves its supply chain or manufacturing to Mexico), domestic expansion (when U.S. manufacturers expand domestically instead of overseas) and foreign direct investment (when foreign companies invest in manufacturing domestically to be closer to U.S. consumers).
“The United States is the largest recipient of foreign investment in manufacturing,” DeKnight said. “There's a lot of interest and capital going into infrastructure investment. […] Energy and infrastructure spending will continue to accelerate, with infrastructure spending likely to reach its highest level in modern history over the next decade.”
Barthelet said growth is concentrated in the Midwest and Southeast thanks to low land, wage and power costs. Among metro areas, Phoenix leads the way with 14 projects announcing about 16,000 jobs since 2020. Syracuse, New York, tops the mid-size market, and Savannah, Georgia, tops the small market.
Barthelet said existing talent is a key location consideration, with some smaller cities having surprising concentrations of advanced manufacturing jobs. One example is Kokomo, Indiana, a small metropolitan statistical area with a population of less than 100,000, but with a large inventory of existing manufacturing space, one of the highest in the country. It is also close to the Purdue University talent pool and just 100 miles from the Class A logistics market of Indianapolis.
U.S. manufacturing construction spending is surging to new records. Between March 2023 and March 2024, the South will lead the nation in manufacturing construction spending, reaching $108 billion. This investment is roughly equal to the rest of the country combined, with the Midwest at $55.7 billion, the West at $51.8 billion, and the Northeast at $7.2 billion.
The biggest beneficiary from this would be Mexico, but its market size is just 1 billion square feet, roughly the size of the Dallas-Fort Worth market, DeKnight said. Northbound traffic from Mexico into the U.S. is growing, and opportunities abound along the I-35 corridor, which handles many of the 6 million truck containers that cross the border.
DeKnight said nearshoring does reduce transportation times, noting that a package from San Luis Posti, Mexico, to Chicago would take 35 hours by truck and 98 hours by rail. Shipping goods from Shanghai to Chicago by ocean carrier and rail would take 456 hours.
There are currently eight rail border crossings between Mexico and the United States: two in California, one in Arizona and five in Texas.
Barthelet said he's very optimistic that manufacturing growth will continue. With more manufacturing construction starts in the U.S. than ever before, it's clear that the manufacturing pipeline will continue to grow.
She identified three markets poised for growth due to their very high rates of advanced manufacturing employment, the significant number of businesses already based there (specifically marine manufacturing in this case), low electricity costs, and manufacturing markets within 100 miles. These markets are Bremerton, Washington, Norwich, Connecticut, and Palm Bay, Florida.
Brazil and Colombia have emerged as the leading candidates when it comes to what Barthelet calls “Mexico's Mexico.” Both are located in the Western Hemisphere and are strong manufacturers of textiles, automobiles, food and cosmetics. Both have large employment bases, and Colombia is a short three-day sailing to most deepwater ports in the United States.
DeKnight and Barthelet concluded that the sector is not without challenges, citing huge demands for electricity to supply large manufacturing projects and projected growth of data centers.
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