5 Predictions That May Reshape Site Selection & Economic Development Strategies in the Next Decade
by King White, on Jan 22, 2020 9:08:02 AM
As we roll into the next decade, it is evident that exponential growth in technology and economic conditions will be key drivers in the changes over the next decade that will impact workforce, real estate and logistics, among other things. These changes will have a dramatic impact on site selection and economic development strategies as we try to adapt to the new global economy. To help prepare for some of these changes, we have identified the following five key predictions that may change site selection and economic development in the very near future.
1. Logistics reimagined
From autonomous electric trucks to drone delivery, the logistics industry has major changes ahead over the next decade. The whole supply chain model is going to look a lot different which will have an impact on site selection and economic development strategies. The following summarizes some of the possible impacts:
- Unskilled talent will decrease in importance – Automation within distribution centers will ease the pressure of attracting and retaining low-skilled talent. It will also allow distribution centers to locate in higher-cost labor markets, closer to consumers and locations with a less desirable business climates due to taxes, minimum wages, etc.
- Increased capital investment – Capital investment to set up a distribution center will increase as automation will drive up the capital investment which in turn will create more tax revenues on equipment as well as drive the need for economic incentives such as tax abatements and credits.
- Multistory distribution centers – Amazon is pioneering the multistory distribution center as it expands into urban areas so it can be closer to customers. These facilities will be more expensive to build but require less land. It will create a whole new dynamic for real estate developers and investors.
2. Exponential technological advances
Technological advances in automation, 3D printing, artificial intelligence and driverless transportation will infiltrate multiple industries and create massive changes in site selection strategies and workforce needs. Some possible changes include:
- Increased manufacturing reshoring – The manufacturing industry may soon see an even greater domestic resurgence as automation, 3D printing and artificial intelligence will minimize the need for semi-skilled workers and enable companies to dramatically reduce logistics costs by shifting manufacturing back to the U.S. Obviously, there are some products that this trend may not apply to due to source materials or a global customer base. If this happens, then we could see massive capital investments in these facilities which may begin to cluster into the larger metro areas to take advantage of accessing their customer bases more directly.
- Declining growth of offshore and nearshore call centers – Call centers will be impacted by automation and artificial intelligence. Automation has already been reducing call volume in the industry while artificial intelligence for call centers is in its very early stages. The impact of these technological advances could rattle the offshore and nearshore call center markets. Companies have historically offshored their easy and less complicated calls while onshoring the more complex, higher-level calls. The end result could diminish the offshore markets and push higher paying call center and back office jobs into the U.S. and Canada where the highest quality of workers can be found.
The roll-out of 5G networks across the U.S. is going to dramatically change how we do everything including how we build things, how we deliver them and where we store our data. It will be the backbone that will enable automation and artificial intelligence to really take hold. Some of the effects include:
- Smart manufacturing and distribution – 5G will allow manufacturers to design, build and deliver a true just-in-time model. The impact will be similar to automation and artificial intelligence which will change site selection strategies, increase capital investment in facilities and change overall facility design of manufacturing plants and distribution centers.
- Drastic changes in transportation – Autonomous cars, trucks, buses, boats and planes are coming fast. 5G will enable these modes of transportation to be safely rolled into reality. Companies will require less parking at their buildings, high demand occupations like truck drivers will no longer be needed, and future commercial real estate development will need minimal parking. In addition, this could also be the future solution to the national truck driver shortage problem.
- Edge data centers – Edge data centers that support cloud applications allow data to be processed as close to the source as possible. Because it doesn’t travel as far, it can be processed much faster, making things like autonomous vehicles safer to drive. 5G will provide high speed, low latency data transmission that will enable edge data centers to support anything from smart cities and factories to retailers for real-time analytics. The ultimate impact will create plenty of opportunities for future capital investment in large and small data centers across all metro areas of the U.S., not just the typical top 10 data center cities.
The regulatory environment for economic incentives issued by economic development organizations to companies and real estate developers has slowly become more sophisticated over the last decade. The c-suite and media have really latched onto economic incentives now so it is only natural that more transparency will be required in the future.
- Roll-Out of GASB 77 – The Governmental Accounting Standards Board (GASB) Statement No. 77 could be expanding in interpretation to encompass state and local governments to disclose key information about their economic incentives that have not been consistently or comprehensively available before. The release of this economic incentive data and the company receiving them will create a whole new level of accountability which will require economic incentive software management platforms like IncenTrak which was developed by Site Selection Group.
- SEC reporting requirements – The Securities and Exchange Commission (SEC), via proposed Accounting Standards Update (ASU) 2015-340, Government Assistance (Topic 832): Disclosures by Business Entities About Government Assistance in November 2015, is also likely to require publicly traded companies to disclose economic incentives they are receiving from governmental bodies. This means companies will have to report on their financial statements how much they are receiving from tax abatements, tax credits, training grants, sales tax abatements, training grants and other related programs. This will create more transparency to shareholders, but also make companies more focused on compliance.
If anything, we learned over the last decade what prolonged, slow economic growth looks and feels like. It is likely there will be much of the same with a few light recessions along the way. The following summarizes some of the good and bad things that might happen:
- Moderate economic growth – It is projected that the growth rate of the U.S. economy will be around 1.7% through 2029, according to the Federal Reserve. This may be due to the expectation that the labor force will grow slower than in past years. This isn’t great news but it sure isn’t bad news.
- Healthcare focused economy – Healthcare costs will continue to increase which will continue to put a strain on workers and make it more important for employers to try and help. The healthcare engine will in turn continue to create and deliver new services and products that will drive growth in the medical device manufacturing sector, call centers supporting the industry, and continued growth in medical office building development to keep up with demand.
- Peaking oil demand – It is projected by the U.S. Energy Information Administration that oil demand will peak around 2027 and remain at that level through 2040. Oil prices will reach $90-100 per barrel which will only create more demand for electric vehicles and more mass transportation. The demand will only support the growth of the production of electric vehicles.
- Stable site selection activity – We should see a steadier economy which should equate to a steady supply of new projects fueled by many of the items outlined above including new manufacturing plants, distribution centers, call centers, data centers and other corporate facilities.
Predicting the future is not a science but it’s definitely interesting to think about what our world might look in the next 10 years and how it might impact site selection and economic development. Hopefully, you will find this glimpse of the future compelling and find a way to plan for your next site selection project