As one of the longest running bull markets continues to rally, it is critical to understand what trends will impact corporate site selection decisions and economic development strategies going into the new year. No one has a crystal ball to predict the future; however, one thing is for certain — political, economic and technological changes are happening.
As a result, it is critical to be aware and prepared in order to make the optimal site selection decisions for call centers, distribution centers, manufacturing plants, shared service centers, software development, headquarters or whatever type of operation that is needed to deliver your services and products. To help you stay abreast of these trends, Site Selection Group has identified 10 trends to look for in 2018 as you prepare for the new year.
1. Shortage of skilled labor will be the No. 1 challenge
With unemployment at historic lows and the economy poised for further expansion, the shortage of labor will be the No. 1 factor creating the biggest challenges for both employers and economic development organizations. The shortage will occur in high-demand, skilled occupations such as software developers, software engineers, technical support, skilled manufacturing, welders and skilled construction trades in metro areas with the most labor competition and lack of workforce development initiatives. Companies need to carefully evaluate where they plan to expand.
2. Wage inflation in high-demand occupations and states with increasing minimum wages
Despite what you hear from the media, wage inflation is already happening in metro areas with labor shortages in the high-demand occupations mentioned above as well as in states with new minimum wage laws taking effect. Wage data will begin to reflect these wage increases in 2018, and the wage inflation will continue as labor shortages persist and the minimum wage increases take hold. This doesn’t mean there is blanket wage inflation for all metro areas across the U.S. The inflation will be generally isolated to specific metro areas where the demand is the greatest for specific skill sets in both blue- and white-collar occupations. Popular metro areas such as Atlanta, Dallas, Denver, Phoenix, Salt Lake City, Tampa and other large, lower-cost metro areas will see the greatest impact. Similarly, states with increasing minimum wages such as those identified on our whitepaper (The Impact of Minimum Wage Increases on Corporate Location Decisions) will see more pressure on wage increases.
3. Automation helps offset demand for skilled manufacturing jobs
Technological advances in the manufacturing sector may help to offset the shortage of skilled labor; however, the long-term implications may create other problems for the workforce as automation continues its rapid evolution in the manufacturing process. The positive is that capital investment in the required machinery will generate additional tax revenues for communities; however, many jobs may be displaced along the way or the workforce will need to be retrained for robot repairs and maintenance.
4. Artificial intelligence advances begin to erode low skill call center jobs
Artificial intelligence (“AI”) capabilities have been made possible by the massive increases in data and computing power. AI has quickly advanced over the last couple of years, which has enabled computers to learn faster and become far more accurate. AI enables facial recognition, analysis of social media, and the ability to listen, speak and understand emotions. The economic development impact could be far-reaching, especially in call centers as computers may begin to allow companies to reduce their call center workforce that handles more simple call types and tasks. Just imagine Alexa taking customer service calls. It will happen.
5. Real estate cost will increase as construction costs inflate
The leap in steel prices, shortage of construction workers, rise in land costs and demand for modern office and industrial buildings will continue to push construction costs up further in 2018. Companies should anticipate rental rates for newly constructed buildings to be 10 to 20% higher than older, existing buildings. It is important to budget for these increases when developing your project budgets.
6. U.S. manufacturing growth may be peaking
In 2016, over 156,000 manufacturing jobs were added in the U.S. and nondefense capital goods orders were up 7%. Economists are forecasting that U.S. manufacturing will increase faster than the general economy. Production is forecasted to grow 2.8% in 2018 then slow to 2.6% in 2019 and 2% in 2020. Finding the optimal locations for this expansion will be critical to the long-term success of these operations.
7. A surge in growth fueled by Trump’s new corporate tax policies and increased foreign investment
There is plenty of skepticism about the impact of Trump’s tax policies. The assumption is that by lowering the corporate rate, companies will have more money to spend on investments like equipment and wages as well as companies will bring operations back from overseas. Both parties are likely correct, which may lead to an initial surge of investments by companies that have been sitting on the sidelines waiting; however, these investments will begin to fade away going into 2019 and beyond. There will also likely be increases in investment by foreign companies as a result.
8. Economic incentive reporting requirements will intensify
Economic incentives have long gone unreported or not monitored. Those days are coming to an end as financial reporting requirements are potentially changing. Government watchdog groups such as the Pew Research Center are making waves, and political pressure is being applied at the state and local level for more transparency on economic incentives such as tax abatements, tax credits, training subsidies and cash grants. These incentives are awarded to companies in exchange for their capital investment and job creation. Both the companies and the economic development organizations are going to have invest in reporting technology such as IncenTrak® to effectively manage their economic incentive receivables in preparation of providing accurate data on economic incentives.
9. Massive tech advances fueled by exponential growth in computing power
There are massive advances in technology that are going to begin to reshape site selection and economic development strategies. A prime example is driverless cars and trucks. This technology will impact parking requirements of buildings, traffic patterns in communities, and the entire logistic networks of companies across the world. It is critical to think five or 10 years into the future as you develop your site selection and economic development strategies in order to stay ahead of the market.
10. Solid growth potential in targeted industries
There are several industries worthy of mentions going into the new year as consumer demand changes, technology advances and political ideologies flux. The following five industries are ones we recommend watching:
Food manufacturing and processing — The food industry is a fast-growing staple of the U.S. economy. There is a lot of activity for a variety of traditional food processing operations to new, highly engineered plant-based food types.
Automotive — The auto industry continues to re-engineer itself and redefine how it operates. Look for additional growth in North America as well as a shift to driverless and battery-powered vehicles. The industry needs new talent and is significantly altering its traditional logistic networks of the past. This, in turn, is greatly changing its location strategies.
Data centers — The demand for data center capacity continues to fuel the development of large hyperscale enterprise and colocation data center facilities across the U.S. There are new technology advances in server densities and cooling requirements, which could create new opportunities across a much smaller data center footprint.
Aerospace and defense — Global defense spending is expected to rise 4%. Expanded spending by the Trump administration may drive market growth. (The U.S. represents about a third of the world’s defense spending.) Many U.S. aerospace suppliers face swelling backlogs. The industry braces for commercial space travel as Google, Virgin Galactic and SpaceX jockey for position.
Ecommerce — Amazon’s acquisition of Whole Foods and Walmart’s alliance with Google are representative of a new world order in the retail sector. The Economist predicts global ecommerce will grow by a whopping 20% in 2018. About 50% of ecommerce sales will be conducted in China, as merchant Alibaba is expected to grow by more than 40%. As a result, be on the lookout for more distribution centers, data centers and call centers to support industry growth. And don’t forget about the further shake-out of brick-and-mortar retailers.