State of the Industry: The Latest Site Selection Trends Impacting Corporate Location Decisions

The economy continues to grow at a nice pace as most industries are locationally active due to factors such as customer demand, new technologies, logistics optimization, consolidation initiatives and other corporate strategies causing the movement of their operations. These factors are creating new challenges for companies trying to make location decisions. To handle this growth, a company will typically either expand their existing site(s) or open new site(s) which creates jobs and capital investment. These investments lead to the establishment of new operations such as call centers, data centers, distribution centers, headquarters, manufacturing plants and software development operations.

To help you develop a site selection strategy for these operations, the following provides a concise summary of the latest site selection trends to help you make smarter location decisions. (Alphabetically listed)

Call centers

• Onshore growth continues as demand for improved customer service quality levels and reshoring initiatives drive growth within the U.S.
• Nearshore locations remain very attractive and continue to grow; however, scalability could be challenging as many labor markets become too saturated.
• The Philippines is facing growing pains due to lack of labor availability, wage inflation, and increasing geo-political risks. As a result, BPO industry growth projections were reduced to 9% versus the historically high rate of 15%+.
• There is a shift to larger metro areas in the U.S. as companies seek more scalability and longevity of the labor market.
• S. labor conditions continue to tighten especially as minimum wage laws are increasing wages in highly populated call center states like Arizona.
• Vacated call center facilities in good labor markets have been picked over forcing many companies to convert and even build their sites.

Data centers

• The demand for data center space globally continues to grow at a rapid pace.
• Colocation providers continue to drive a huge portion of the growth as evidenced by Switch in Nevada and Michigan and by CyrusOne in several massive campuses in Dallas, Chicago and Northern Virginia.
• Large-scale enterprise data centers are also growing rapidly as evidenced by Facebook’s new 1.7 million-square-foot data center in Fort Worth, Texas, and Apple’s new 1 million-square-foot facility in Reno, Nevada.
• Speculative data center real estate developers such as Digital Realty have significant facilities under construction in anticipation of future demand. Another good example is the recent joint venture between T5 Data Centers and the Perot family at the new T5@Alliance project.

Distribution centers

• Consumer demand for faster delivery is causing demand for distribution centers to be located closer to the consumer.
• The e-commerce industry is driving significant growth as companies like Amazon and Wayfair continue to take down huge distribution centers to support their growth.
• Increasing minimum wage mandates in several key states such as Arizona is going to increase operating expenses of distribution centers located in those states.
• Availability of adequate buildings is challenged due to demand for higher ceilings to install taller racking systems.

Headquarters and regional operation centers

• The economic development project of a lifetime is on the street as communities vie to attract Amazon’s HQ2.
• California-based companies continue to leave the state for places like Texas as they seek a more desirable business climate.
• International companies are opening U.S. regional headquarters as they want to tap into the nation’s high-growth market.
• Fortune 500 companies have been bulking up their regional hub locations through consolidation in key cities like Dallas, Atlanta and Phoenix. These regional operation centers have been rapidly popping up. Examples include State Farm Insurance, Liberty Mutual, USAA and others who are consolidating and expanding in specific labor markets.
• Economic incentives continue to play an important role for these headquarters projects due to the large headcounts and payroll.

Manufacturing

• The “Industrial Renaissance” in the U.S. appears to be at full steam as activity across most manufacturing sectors continues to expand, creating unique opportunities and challenges for communities across the country.
• International manufacturers in a variety of industries continue to expand into the U.S. as they try to gain market share. Key sources include Western Europe, China and others.
• Skilled-labor shortages and diminishing wage gaps in smaller U.S. metro areas continue to create challenges for manufacturers, causing many of them to expand into larger labor markets versus rural America.
• Automation of manufacturing is enabling manufacturers to do more with less employees which frees up much of the labor challenges of operating within the U.S. and its larger metro areas.
• The Southeastern part of the country continues to be the hot spot for manufacturing.
• Economic development organizations in many states are offering significant economic incentives to attract capital intensive manufacturing projects as evidenced by the recent $3 billion economic incentive deal with Foxconn in Wisconsin.
• Wage inflation and employee turnover has weakened the value proposition of China.
• Availability of adequate buildings is a challenge as manufacturers demand more infrastructure (water and power) and ceiling heights of greater than 28 feet.

Shared service centers

• Global 1,000 companies continue to seek efficiencies in their finance, accounting, human resources, help desk and various internal shared service functions.
• A regional approach continues as these companies set up shared service centers in North America, South America, Europe and Asia.
• They tend to locate in very mature lower-cost offshore and nearshore locations where they can tap into a more skilled labor force at a lower cost.
• Some recent project announcements include Johnson and Johnson (Tampa, Florida), 3M Company (Costa Rica and Poland), and Republic Services (Fishers, Indiana).

Software development and engineering

• Growth in onshore and offshore software engineering and development continues as the demand for technical talent soars in an Internet and big data driven economy.
• Many of the offshore business process outsourcers are expanding in the U.S. for the first time. Wipro announced plans to hire approximately 10,000 employees in the next few years, which includes new sites in Indianapolis and Raleigh, North Carolina.
• The battle for technical talent in the major tech hubs (i.e. San Francisco, Austin, Dallas, Atlanta and Salt Lake City) is fierce which is causing higher wage inflation as compared to other occupation types.
• Since the average wage of software developers in the U.S. is around $100,000, many of these projects are eligible for economic incentives which many companies are overlooking.

Conclusions
It is a good time to be in the site selection business as the economy is growing and companies continue to expand their operations. Due to the complexity of location decisions, most companies are engaging professionals to analyze labor conditions, conduct logistics analyses, negotiate economic incentives and secure real estate. The key is to evaluate all aspects of the site selection process in an integrated way to optimize the operational and financial results.