Top Site Selection Trends Manufacturers Should Anticipate in 2018
by Josh Bays, on Jan 23, 2018 10:00:00 AM
Barring some unforeseen macro-economic (or political) event, it is difficult to imagine industrial growth in the United States will slow much over the next 12 months. The combination of corporate tax reform, strong consumer expenditures and overall economic growth, sets 2018 up to be even more active than 2017 as it relates to industrial site selection project activity.
Site Selection Group, a full-service location advisory, real estate and economic incentive services firm, monitors industrial project activity, and a substantial portion of our pipeline is represented by foreign companies making capital investments into the United States. Whether you’re a domestic or foreign entity seeking to establish new production operations in the United States in 2018, there are several trends that could heavily influence your location decisions. Site Selection Group has identified the top five trends that we think will be most impactful this year.
1. Expect to experience significant wage pressures among entry-level production workers.
American manufacturers have enjoyed flat to modest wage inflation for several years after the economic downturn of a decade ago. However, production operations across the country are already experiencing as much as a 5% annual wage escalation to hire and retain a qualified workforce. Increased economic activity, rising state minimum wage thresholds, wage hikes by large retailers such as Walmart, and the boom in e-commerce distribution will have a cumulative effect on entry-level production wages that have typically hovered in the $12-$14 per hour range.
2. Workforce analytics will be centered on assessing workforce development infrastructure.
The competition for a qualified workforce has never been this fierce in the modern era. Although all site selection exercises should employ a multifaceted labor analytics approach, companies will need to increase the emphasis they place on assessing a community’s workforce development infrastructure. Each day, it becomes more and more difficult to find 20 or 200 qualified production workers to immediately ramp up operations. Therefore, companies with aggressive growth plans will likely have to shoulder more of the burden associated with training workers. Evaluating a community’s ability to assist with the training process will be infinitely more important than evaluating the classic workforce statistics such as occupation presence, concentration and growth. However, there’s no single or simple number that points to one community offering “better” training support than another. As a result, it’s critical to work with an adviser who can help you compare training offers.
3. Production projects will gravitate toward the periphery of larger markets.
Site Selection Group has seen the operating cost savings that smaller markets once offered over larger markets diminish significantly in the last couple of years. Before the Great Recession, it was not uncommon to see smaller communities offer an overall operating cost savings (labor, facilities, taxes, utilities, etc.) of 20% or more as compared to large tier one markets. However, that savings has shrunk to perhaps 10% today. Given the tight national labor market, companies are finding it hard to justify the hiring risks associated with smaller markets if there is not a substantial cost tradeoff. Therefore, Site Selection Group believes the bulk of new production activity in 2018 will be destined for the periphery of larger markets.
4. Companies should make a priority of assessing competition in a market.
Given the boom in industrial activity across the country, especially in regions such as the Southeast, the competitive landscape in some markets has increased significantly. In addition, there has been a recent flurry of mega-projects in the marketplace, such as Foxconn, Toyota/Mazda, and Amazon’s HQ2, that will dramatically alter the selected region’s labor and cost profile. Similarly, mid-sized markets that are driven by the presence of a large OEM are becoming risky endeavors for new manufacturing entrants as well. Site Selection Group recommends increasing the emphasis placed on assessing the impact competitors will have on long-term sustainability.
5. Finding a quality second-generation production-oriented building will be challenging.
Nothing in industrial site selection has been more consistent over the last 10 years than the concern about speed-to-market. Given the often-large capital requirements and long-term commitments required by expansion projects, manufacturers are notorious for waiting until the very last moment to authorize their projects, thus commencing the site search. In addition, most companies correctly identify an existing building as being the most effective solution for shaving time off the site selection process. However, there is one significant challenge that hinders the vast majority of production-oriented projects: the lack of existing, quality manufacturing facilities. Unless your operation can be satisfied by a multitenant warehouse type facility, the odds strongly suggest that you’ll have to compromise project specifications or extend project timeliness to allow for a build-to-suit project.