Reshoring Jobs

By on Feb 26, 2020 in News

A thriving job market is great for commercial real estate, especially when it demands industrial sites. After decades in China, several American-owned manufacturers are bringing their jobs back to American soil. Property developers and owners in a few unlikely areas are benefitting from reshoring efforts.

Why the Switch?

The American skilled labor workforce has always had its appeal. That skills, however, sometimes came at a cost that seemed prohibitive to many manufacturers. Times are changing.

Manufacturers are discovering that automation may help them experience significant savings on labor costs. Automated plants, staffed by a small group of highly qualified tech professionals, can cost less than foreign factories with thousands of laborers.

A growing number of companies are finding that the costs of manufacturing—coupled with transportation and distribution expenses—don’t offer the savings that they once did. Tray Anderson, lead of logistics and industrial services in the Americas for Cushman & Wakefield, suggests that reverse logistics are a key factor in reshoring decisions.

“Typically, we see an appetite for reshoring if there is an eight to 12 percent difference in overall costs [compared to manufacturing products outside the U.S.],” said Anderson. That margin has decreased when manufacturers consider capital investment, labor costs, logistics, storage, depreciation, operations, and product returns as well as losses from product obsolescence that occurs when shipping products between continents, he says.

Then there are the tariffs. A poll issued by the American Chamber of Commerce and its partner in Shanghai reveals the impact of recent tax. This year, about 40 percent of respondents state that they “are considering or have relocated manufacturing facilities outside of China.” Comparatively, the 2018 survey stated that only 30 percent of manufacturers had considered “partial relocation.”

America has further sweetened the pot for companies with local and state tax incentives that further reduce the cost of operating. Simultaneously, the cost of operating in China has increased as wages for factory workers have improved.

NREI Online offers a deeper look at the catalysts for reshoring. Conversely, Industry Week offers insights on why several companies are not reshoring.

A Warm Welcome

Many states are exploring beyond tax incentives to attract manufacturers. Other types of incentives include local regulatory waivers, taxpayer-funded upgrades to infrastructure, educational opportunities through local institutions. Such perks may influence a company’s location once it has already decided to reshore.

Consumers are offering a warm welcome in their own way. Research suggests that “Made in America” and “Made in USA” branding carries a premium. A survey issued in 2017 by Reuters and Ipsos concluded that 70 percent of Americans polled thought that it was “very important” or “somewhat important” to buy U.S.-made products. About 60 percent of those consumers were willing to pay more for the products. American made branding also carries a sense of quality control that is perceived as lacking in Chinese products.

Between the change in costs, tax incentives, local perks, and the support of consumers, reshoring may be more than a trend.

Winning Locations

Competition for warehouse space has manufacturers exploring smaller towns with logistical advantages. Small markets that demonstrate economic growth and offer a few key features such as proximity to ports and a trainable labor force are performing well alongside core markets, reports Jack Fraker, vice chairman and managing director of real estate services firm CBRE, a Yardi client.

Small towns in states such as Indiana, Michigan, Ohio, Illinois, Iowa and Wisconsin have won contracts with many manufacturers relocating from China. These towns, known for their past ties to the auto industry, provide a trainable workforce, existing infrastructure for manufacturing, and easy access to major thoroughfares.

The real winners, however, are Southern states. North Carolina, South Carolina, Georgia, Alabama and Texas are among the states winning the most reshoring bids. Without unions and with lower taxes, these states offer well-educated and trainable workforces as well as lower land costs. Brands such as BMW, Toyota, Michelin, Boeing, Mazda, Mercedes, Hyundai, and Honda are just a few of the companies that have reshored in the South in recent years.

Preparing for the Future

Construction costs are still higher in the US than in China. To promote longevity, developers are creating spaces that are scalable, adaptable, and multifunctional from the start. Such spaces can be used as plants or warehouses with minor additions and renovations.

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