by Kelley Rendziperis, on Apr 20, 2022 8:11:38 AM
Market activity in 2021, specifically in the manufacturing and industrial space, was off the charts, even amid COVID-19. While some sectors were suffering the effects of COVID-19, others were capitalizing on growth opportunities caused by the pandemic. These growth opportunities were pursued with a sense of urgency like never seen before. 2021 also saw a handful of mega projects related to electric trucks, electric vehicle battery cell manufacturing, chipmaking, and research and development. Overall, approximately $9 billion in state and local economic incentives was awarded in 2021 across all industries and project types. Companies committed to investing over $178 billion and creating over 375,000 new jobs, resulting in an average return on investment of 5% and $23,700 per job. To help you develop an economic incentive strategy, Site Selection Group summarizes economic incentive trends, as well as market conditions, by the state in the 2022 Economic Incentives U.S. Market Report.
Economic Incentive Market Trends
Over the prior five years, the number of announced deals and value in incentive awards has generally declined. However, while the number of reported economic incentive awards declined in 2021 to 2,200 from approximately 2,600 in 2020, the value of awards nearly doubled. The table below summarizes this trend. In 2020, the total value of announced incentives was approximately $4.6 billion which increased significantly to $8.9 billion in 2021. The primary contributing factor to this increase was due to sizeable projects announced by Ford in Tennessee and Kentucky, Apple in North Carolina, General Motors in Michigan, and Samsung in Texas. These five projects in isolation accounted for over $3.6 billion of awarded incentives.
Source: IncentivesFlow, a Service from WAVTEQ Limited.
Economic Incentives by Project Type
The magnitude of economic incentives varies greatly by project type. Capital intensive projects such as manufacturing and infrastructure projects typically receive the greatest amount of economic incentives as they are heavily incentivized by property tax abatements and infrastructure grants. Conversely, employee-intensive operations such as headquarters and business services are incentivized by tax credits, training subsidies, and cash grants which are typically less valuable due to lower capital investment. The manufacturing sector once again led all industries in 2021 by garnering over $5.5 billion in economic incentive awards in exchange for an estimated $146 billion in capital investment and the commitment to create almost 145,000 jobs. Research, Design & Development projects were the second-largest project type with $1.5 billion in economic incentives, outpacing Headquarter projects from last year which mainly consisted of Centene’s new headquarters in Charlotte, North Carolina. While many of the Research, Design & Development projects are related to film credits, Apple’s new planned research and development campus in Wake County, North Carolina, accounted for most incentives earned in this sector.
Source: IncentivesFlow, a Service from WAVTEQ Limited.
Conclusion
Although reported economic incentive awards have declined, the value of the incentives announced nearly doubled. Economic incentives will continue to be required by companies to improve the return on investment of planned projects. Moreover, as the cost of materials skyrocket, the importance of state and local incentives in the site selection process continues to increase. 2022 will prove to be interesting as we head toward yearend to see if this impressive market growth will continue or whether it will stall out as prices and inflation rise. A word of caution in this regard: Companies should be conservative and realistic when committing to project parameters in exchange for incentives.
To learn more about the most utilized economic incentive programs in the U.S., as well as notable 2021 projects and a comparison of economic incentive conditions by state, please review our 2022 Economic Incentives U.S. Market Report.
Please contact me at krendziperis@siteselectiongroup.com with any questions or for additional information.
