The industrial sector witnessed unprecedented growth during the COVID-19 pandemic, driven primarily by the surge in warehousing demand fueled by e-commerce. However, as the market normalizes from these record highs, industry stakeholders seek new avenues for growth.
To this end, the spotlight has begun to shift to the manufacturing sector as a leading source of new demand. Resurgent interest in space for advanced manufacturing operations results from the culmination of pandemic-era plans to improve supply chain resiliency by regionalizing supply chains.
Onshoring Shows No Signs of Stopping
While interest in a manufacturing resurgence has existed for years, it never quite felt financially feasible for U.S.-based companies. However, onshoring efforts have now been incentivized by the U.S. government through multiple pieces of legislation, such as the Inflation Reduction Act, CHIPS and Science Act, and Infrastructure Investment and Jobs Act.
While current efforts have largely focused on green energy solutions and semiconductors, the success of these initiatives has spurred interest in encouraging other industries to reshore as well. For example, a new bill proposed in the Senate, the Americas Act, would incentivize fashion retailers to divest from China and build a more sustainable, circular textile supply chain here in the United States.
With its current momentum, reshoring will increase the size of the current U.S. manufacturing base by more than 10% over the next decade (roughly 500 million square feet), according to a report from NAIOP.
What the Reshoring Movement Means for Industrial Real Estate
This level of demand will have a multifaceted effect on the industrial real estate market. Here are some of the impacts we can expect to see in the next few years:
- More advanced factories – Demand for manufacturing facilities that can support high-tech production will continue to climb. This trend will spur the sector to modernize outdated facilities and build new structures that appeal to the needs of advanced manufacturing tenants.
- A resurgence of logistics real estate demand – While the factory demand itself is significant, the industry will also benefit from ancillary demand for logistics and distribution facilities associated with newly established U.S. factories. Nearshoring to Mexico and Canada will also fuel demand for logistics facilities along the border to support cross-border operations.
- The return of factory towns – In the heyday of U.S. manufacturing, factories provided huge economic benefits to the local area—a benefit that was sadly lost as companies outsourced manufacturing to distant countries. With a lack of space in and around major cities, many of today’s new factories will be established in secondary and rural markets. Suppliers, vendors, and logistics facilities will likely spring up in those areas to support them, creating new job opportunities and fueling local economies.
- Infrastructure improvements across the U.S. – Advanced manufacturing and logistics facilities use a lot of electricity, and utilities will need to update grid assets to support the growing power needs of new factories. Similarly, highways will need improvements to accommodate higher traffic and internet providers will need to bring broadband to new areas.
- Growing demand for data centers – The growing labor shortage in the U.S. is probably the largest threat to the reshoring movement. To combat this, many factories will turn to automation. As the use of automation, artificial intelligence, machine learning, and related technologies grows in manufacturing and logistics, demand for the data centers needed to host cloud solutions will grow alongside them.
As businesses navigate the ever-evolving complexities of the global supply chain, the shift towards domestic manufacturing holds the key to unlocking new opportunities and driving sustainable growth in the industrial real estate sector. As the industrial real estate market stabilizes in 2024, industry stakeholders should embrace the opportunities presented by onshoring and leverage its potential to drive growth and renewal in the industrial sector.
About Phoenix Investors
Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations and public stakeholders, Phoenix has developed a proven track record of generating superior risk adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost efficient solutions, and a reputation for success.