US Manufacturing has Dramatic Rebound

Manufacturing

The US manufacturing sector is experiencing a renaissance since it hit bottom in the 2008 Great Recession. During that time period total manufacturing output fell by more than 20 percent, officially ending US dominance as the world’s largest manufacturing nation. China supplanted the US as the leading manufacturer, adversely impacting all sectors of the US economy, including the commercial real estate sector. Between 2000 and 2009, 5.8 million jobs were lost as a result of factory closings and downsizing. The US manufacturing sector lost more than 60 million square feet of net occupancy and vacancy rates rose to 10 percent by 2009.

Latest Numbers and Trends in Manufacturing Sector

The latest Development Magazine cover story reports “there is great potential for manufacturing as it relates to industrial real estate, supported by positive trends in the development and occupancy of both manufacturing and warehouse/distribution facilities.” As wages increase overseas, in China and other global markets, it has become less cost effective to manufacture goods outside the United States. The U.S manufacturing sector has seen a steady gain in occupancy rates since 2010, with more than 106 million square feet of positive net absorption in the past five years. Vacancy rates in manufacturing facilities have fallen to 6.6 percent from a ten year average of 7.3 percent.

Manufacturers are repurposing existing facilities, and are more willing to lease their land and buildings. A Cushman & Wakeman report, “Where in the World? Manufacturing Index 2015,” found that the US ranks highest in the Americas and fourth globally as a desirable place for manufacturing. Canada ranks sixth, and Mexico fourteenth in desirability. Some of the factors driving this trend to relocate to the United States include:

• More advanced manufacturing technologies, higher quality standards and productivity.
• Stronger intellectual property protection, and transparent health, safety, and environmental standards.
• Direct access to the world’s largest consumer market.
• Significant land resources and raw materials to enhance production.
• Fallen energy costs, both in use of electrical power and gas
• Lower labor costs in the United States during the last 10 years (2 percent increase overall) compared to China (10 to 20 percent increase).
• Strong development in global supply chain infrastructure in the United States
• New business models in the U.S. have emphasizing rapid customer deliveries and shorter production cycles.

A growing number of companies, such as Nike, Wal-Mart, Apple, General Electric, and Ford Motor Co. are relocating and creating jobs at home. Foreign investors are also choosing to establish manufacturing operations in the United States. More than 50 percent of this reshoring to the US has come from China.

Source: Development Magazine, Spring 2016,”The US Manufacturing Renaissance: Driving a Resurgence in Industrial Real Estate”

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