As we celebrate the 10th anniversary of the longest running bull market in history, it is very likely that 2019 will bring more challenges than we have seen over last decade. As a result, there will likely be an impact on corporate site selection and expansion decisions for your call centers, distribution centers, manufacturing plants, shared service centers, software development, headquarters and similar employee- and capital-intensive projects.
Be prepared to face some headwinds going into 2019. It is important to understand what some of these economic drivers look like and how they may impact your site selection decisions this year. The following list identifies 11 trends that may influence where, how and why you select the next location to expand or relocate your company.
1. Extremely tight labor conditions
With unemployment at all-time lows and the economy peaking, employers will be faced with the tightest labor conditions they have probably ever seen. Some economists are projecting the unemployment rate to drop further to 3.5% in 2019. The labor shortage will impact high-demand, skilled occupations the most. These occupations include software developers, software engineers, technical support, skilled manufacturing, welders and skilled construction trades. Metro areas with the most labor competition and lack of workforce development initiatives will have the greatest impact. Companies need to carefully think through their site selection strategies to help mitigate the risk of entering a labor market that won’t support their workforce demand.
2. Long-term effect of the Amazon HQ2 saga
Now that Amazon has selected New York City and Northern Virginia for the infamous HQ2, the media exposure that this project created is going to have a lingering effect on how executives make site selection decisions. Every executive faced with making a site selection decision is going to be asking about economic incentives and will likely have misaligned expectations on what economic incentives they should receive. The end-result of the Amazon HQ2 project is that it made site selection and economic incentives boardroom agenda items that didn’t exist in the past.
3. U.S. political gridlock and election uncertainty
With Congress in gridlock, the likelihood of any significant legislative changes combined with the uncertainty of the 2020 elections will potentially delay some site selection and expansion decisions. Some companies and industries are impacted more than others by politics, so might see a slow-down in certain industries and project types due to the imbalanced political climate.
4. Peaking commercial real estate markets
Office and industrial real estate conditions are peaking across most U.S. markets. Capital markets will begin to pull back on investing in new developments as interest rates increase and demand begins to slow down as many of the bigger leases and relocations were completed over the last few years. However, the demand for modern office and industrial buildings will continue to be in high demand and, as a result, many tenants may have to settle for second-generation space.
5. Unknown impact of tariffs
Both manufacturers and consumers could be impacted if any significant tariff policies are implemented. Many companies have stayed on the sidelines trying to figure out the impact on their business. This uncertainty can cause project delays and revised growth plans for companies waiting to see the actual impact.
6. Scramble for tech talent
As discussed above, labor markets will be extremely tight in 2019 with the tech sector under the greatest amount of pressure for talent. In an exponential growth type economy where innovation is one of the biggest drivers in corporate expansion strategies, companies will face hard decisions on where and how to attract the right talent. The recent article on the Tech Industry Site Selection Activity Creating Huge Strain on Labor Markets provides a great summary of what to expect as companies battle for tech talent.7. Volatile stock market
As we enter the 10thyear of the bull market, extreme stock market volatility became the norm in late 2018. People have become numb to the huge swings in stock prices from day-to-day. It is likely that 2019 will not be much different and most economists project the S&P 500 to be flat or slightly up for the year. With relatively stagnate growth in the stock market, it could trigger a slowdown in the private business sector and consumer spending especially for high income consumers.
8. Interest rates increasing to 3%
The Federal Reserve increased fed fund interest rate to 2.5% at the end of 2018. It is projected that they will increase it to 3% in 2019 but leave it alone going into the near future. As a result, this could slow some consumer spending and create a further slowdown in the residential mortgage sector.
9. Low oil prices
The end of 2018 saw a steep drop in oil prices which only recently recovered. It is projected that oil prices will remain relatively low at around $60 a barrel in 2019. Low oil prices will remain a positive for consumers; however, it will prove negative for energy sector job creation which has been a huge economic driver during the economic recovery.
10. Global economic growth slows down
Slowing growth in China, Europe and emerging markets will negatively drag down overall global growth projections. As a result, foreign direct investment could slow down which could impact site selection activity and corporate investment domestically and internally.
11. Looming recession
Many economic and financial experts are expecting a mild recession in late 2019 or 2020. The impact should not be significant, but it could cause a slowdown in site selection projects as companies try to digest all of the investments and growth they had over the last few years. Recessions of any type can often create a psychological barrier for companies who get nervous about expanding so the impact is yet to be seen.