#173 – Inside Our Industry – Challenges Impacting Reshoring & Nearshoring

Posted on | Inside Our Industry

Cushman & Wakefield, a global leader in commercial real estate services, recently posted a new article as part of their Maintain the Chain series that uncovers the latest supply chain trends and examines the impacts on industrial real estate. We are sharing below portions of one section of the report, Challenges Impacting Reshoring & Nearshoring. Click on the link at the bottom for the full report.

Challenges Impacting Reshoring & Nearshoring

The U.S. Needs More Manufacturing Space – With the revived effort to begin reshoring and nearshoring manufacturing to and toward the U.S., the composition of real estate will need to change. Currently, manufacturing vacancy makes up 10.3% of total vacant available space in the country.

With only 59.9 msf of space currently under construction, of which 36% will be owner-occupied and 35% is non-owner-occupied build-to-suit, this is not likely to improve anytime soon. 

Tight leasing market conditions will be an issue for occupiers who have not already secured their facilities.

Infrastructure Improvements are Necessary – Alongside the real estate component, other parts of the U.S. infrastructure will need to change. Manufacturing requires a lot of power, and many greenfield land sites lack sufficient power to host the manufacturing sites needed. Limited land options for commercial real estate make selecting a new site difficult, but it will be more challenging for manufacturing users.

In addition to struggles with power, the American Society of Civil Engineers (ASCE) gave the nation’s infrastructure a grade of C-minus on its 2021 quadrennial infrastructure report card. ASCE says the U.S. is spending only half of what it needs to invest in infrastructure improvements to bring systems up to par and predicts an infrastructure funding shortfall of $2.59 trillion over the next 10 years.

Certain Types of Workers in Short Supply: Need the Right Skills in the Right Locations – These projects and investments are creating new job opportunities, helping to lift manufacturing employment to 13 million as of midyear 2023, its highest level since 2008.  That represents only a 1.3% increase from the same period in 2019, compared to a 3.5% increase in employment across all sectors.

Overall trends aside, there are several pockets of manufacturing that provide some upside to the employment picture. The sectors that have added the most jobs since 2020 include manufacturing of motor vehicles and parts (75,800), pharmaceuticals and medical equipment (48,700), industrial machinery (16,800) and semiconductors (13,700).21  Although these industries make up less than 14% of total manufacturing employment, they are also where we have seen the largest capital investments in the wake of reshoring initiatives.

Labor needs for manufacturing can be very specific, especially given the shift toward more high-tech products. There are natural supply constraints, given that manufacturing is among the fastest-aging labor sectors in the country, and a shift in the geographic locations where manufacturers operate presents additional hiring challenges.

Job demand on an absolute basis is strongest in California and Texas, with unique job postings at 24,000 and 17,000, respectively. The Midwest is the region with the largest number of job postings (66,000), which is up an impressive 28% YoY. This growth rate is only behind the Southeast, which increased 31% YoY and exceeds 44,000 in the middle of 2023.

The Midwest continues to be a pillar of U.S. manufacturing employment, but the center of gravity is shifting southward toward the Sun Belt, particularly the Southeast. Much of this is tied to the strong growth in auto-related manufacturing; the 50 metro areas with the highest concentration of employment in auto-related manufacturing are all located in either Southern or Midwest states.

The U.S. has a long way to go before larger reshoring and nearshoring trends take hold. Does it make sense to relocate parts or the entirety of an operation? If so, how do we know the U.S. is the right place? As it becomes more possible to diversify supply chains and bring manufacturing back to the U.S., it will be important to consider the state of manufacturing real estate. Working strategically on location, understanding labor needs and the cost of operations and materials will be more important than ever—the planning should start now.

Full report