10 Trends That Will Impact Your Site Selection Strategies in 2022
by King White, on Jan 18, 2022 10:46:27 AM
2021 was one of the toughest economic years in the past decade. Its wave of challenges impacted corporate site selection and expansion decisions across all industries, especially call centers, distribution centers, manufacturing plants, shared service centers, software development, and headquarters. For the most part, economic projections for 2022 are fairly optimistic for employment and business recoveries. Below are 10 significant economic trends that will impact corporate site selection strategies in 2022.
1. Extremely tight labor conditions.
In December 2021 the unemployment was 3.9%. More workers are expected to re-enter the workforce, especially as the pandemic fades and subsidies for Covid-19 relief have expired. Inflation will also force people back to work by driving up living costs. Retail will still be challenged since it is at the bottom of the labor market. With millions of Americans quitting their jobs to find better employment elsewhere during the Great Resignation, many employers are paying top wages to attract or keep employees.
2. Supply chain realignment.
Companies—especially manufacturers—are eager for more stable supply chains. Lead times for materials and products can take up to a year. Companies are restructuring supply chains to be shorter and easier to manage. To diversify and reduce risk from China, more manufacturers are re-shoring to the U.S. or near-shoring to Mexico. The Biden Administration has promised to support supply chains and make them safer and more productive. The U.S. and Mexico have agreed to collaborate on shared supply chains, especially for semiconductors.
3. Wage inflation slows.
Wages increased 10%-20% in 2020-2021 (in part due to the competitive job market created by the Great Resignation). Companies, eager to hire workers, are offering generous signing bonuses and other incentives. Most experts believe that wage inflation has peaked and that wages will flatten out, as evidenced by recent BLS numbers: for all employees, real average hourly earnings increased only 0.1% from November to December in 2021; for production and nonsupervisory employees over that same time period, earnings increased 0.2%. Over a full year, from December 2020 to December 2021, wages have actually decreased 1.9% for production workers.
4. Automation and technology.
Covid-19 accelerated the use of Industry 4.0 and the Internet of Things (IoT) technologies across multiple industries, including call centers, manufacturing plants, and distribution centers. Manufacturers utilized automation to improve operational performance, better manage supply chains, help with labor shortages on the assembly lines, and reduce costs. Call centers focused on artificial intelligence to reduce their workforce needs. In warehousing/distribution, automatic inventory systems, autonomous vehicles, and mobile robots reducing the need for workers and optimizing efficiency.
5. Office employers find the right balance of work-from-home (WFH) and on-premise employees.
Many companies discovered during the pandemic that working from home proved to be a highly successful and efficient venture despite the management challenges. Surveys show that many workers are very content working from home, at least several days per week. Companies are now struggling to find the balance between in-office and work-from-home (WFH) staff. Some want all workers back in the office; others are choosing a hybrid model where some office time is required for all employees. A battle seems to be brewing between what employers want and employees are demanding. Who wins the battle is yet to be seen especially once labor conditions stabilize.
6. Warehouse real estate inventory.
Just as the housing market across most of the country is red-hot, so too is the demand for warehouse real estate. Driven by a resurgent economy (4.1% growth in 4Q, for example) and booming e-commerce, retail sales are expected to be robust through 2025. If this happens, the U.S. will need an additional 330 million square feet of distribution space to handle the higher volume of goods. A key part in making this work is improved “last-mile” distribution, especially for one-day or same-day service. Logistics firms are looking at micro-fulfillment centers in rural parts of the country to expedite deliveries and increase capacity.
7. Office and retail real estate financing challenges.
Covid-19 temporarily stalled office leasing as businesses took a wait-and-see approach to understanding how their office needs might change. The office market today is largely still in a holding pattern, with one of the evolving factors being working from home, which greatly impacts office-space needs. In December 2021, for the first time in 18 months, the rate of delinquency among properties in various asset classes that secure debt in commercial-mortgage-backed securities loan portfolios rose from 4.38% in November to 4.57% in December. This could indicate that buildings with loans are going to be challenged to get refinanced if their occupancy rates have dropped and diminished their cash flow required to pay their note.
8. Housing costs will flatten.
Housing cost were up 20% and sometimes higher across the U.S. in 2021. Listing price increases hit double-digits several times during the year, especially in hot markets such as Salt Lake City, Indianapolis, and Seattle. Even with high prices and limited inventory, sales were brisk thanks to low mortgage rates. Housing costs will still rise in 2022, but at a slower rate. Realtor.com predicts that home sales growth in 2022 will be 6.6%, less than the previous year. A combination of higher interest rates, availability, and higher costs of construction will also slow down the housing market.
9. Inflation will taper off.
The consumer price index, an inflation gauge that measures costs across dozens of industries, rose 7% from December 2020 to December 2021, the fastest pace since June 1982. However, inflation should start to recede as supply chains stabilize, consumer demand slows, and interest rates increase.
10. COVID becomes the common cold.
J.P. Morgan reports that 2022 will be a great year: Covid-19 will fade and away and the economy will fully recover. Its annual global economic outlook predicts that S&P will gain 8% and emerging markets will see gains as high as 18%, with the virus “continuing to have a diminishing impact on economies and markets.”
The past two years have conditioned us to expect the next disaster—will there be a new virus? Will cyberattacks shut down economies around the world? Is the next natural disaster looming? Yet, we have also learned how to function, and even thrive, through the adversity. Even though we may be ready for the next crisis, let’s hope 2022 is a year of clear sailing.