A manufacturing resurgence is underway in the U.S. After years of outsourcing to countries with lower labor costs, production is returning—or “reshoring”—to America as companies aim to reduce risk, ensure quality, and meet growing consumer and regulatory demands for sustainability.
Several factors are driving U.S. companies to reconsider their production locations. The COVID-19 pandemic, in particular, highlighted the weaknesses in global supply chains, causing delays, shortages, and increased transportation costs.
“This is more about risk management,” explained Richard Thompson, international supply chain director at JLL. “The pandemic exposed the fragility of our global supply chain when reliant on a single region. A more regionalized model allows companies to respond more quickly when issues arise.”
Rising labor costs in traditional manufacturing centers, along with changing trade policies, have also made U.S.-based manufacturing more attractive. National security concerns and environmental considerations further fuel the reshoring trend as companies recognize the advantages of a more localized production approach.
The CHIPS Act, Inflation Reduction Act, and Infrastructure Investment and Jobs Act collectively represent about $400 billion in federal spending to accelerate manufacturing development—an investment unlike anything seen in U.S. history. A recent report by Newmark revealed over 300 new major manufacturing facilities announced nationwide since 2020.
As manufacturing returns to the U.S., industrial real estate is undergoing a transformation. Demand for warehouses, distribution centers, and manufacturing facilities is surging in both traditional industrial hubs and emerging markets.
This shift is reshaping markets as developers and investors seek new ways to meet growing manufacturing needs. The high costs and limited space in many major industrial hubs are pushing companies to explore secondary and tertiary markets. Cities in the Midwest, Southeast, and Southwest, offering more affordable land and proximity to transportation networks, are seeing an increase in industrial real estate demand.
The Midwest remains the most established U.S. manufacturing region, accounting for about 35% of the nation’s manufacturing inventory. However, the South—particularly the Southeast—is the fastest-growing manufacturing area. Over the past decade, the South has added more than 100 million square feet of new manufacturing space, and nearly half of all manufacturing space under construction in the U.S. is now in the South, according to CoStar data.
Alongside reshoring to the U.S., nearshoring to Mexico and Canada is also on the rise. This trend has boosted demand for logistics and complementary manufacturing facilities along the U.S.-Mexico border, leading to decreased vacancy rates and new construction near border crossings like Laredo, Texas.
Nearshoring is already making an impact. According to Newmark, Mexico surpassed China as the top advanced manufacturing exporter to the U.S. in the first half of 2023, with imports from China dropping by 23% compared to the previous year.
The construction of large manufacturing facilities, like electric vehicle (EV) plants, can have a powerful “multiplier” effect, transforming smaller communities. Brownsville, Texas, serves as an example. When Ford’s 2.4-million-square-foot BlueOval manufacturing complex opens next year, it will employ 6,000 workers—more than the entire existing workforce in Brownsville in 2023. This is just one of three major manufacturing announcements in the city near the Mexican border.
South Korea-based Enchem America will also build a $152.5 million EV battery plant in Brownsville, while Magna International will establish a facility for battery enclosures, frames, and seats for EV trucks. Both companies chose the area to support nearby automotive manufacturing partners, demonstrating the multiplier effect in action.
However, Newmark cautions that the multiplier effect is not guaranteed across all projects. It depends on the project’s sector, existing supplier networks, labor demographics, and more. Even with reshoring, global supply chains remain complex and difficult to relocate. The construction of a massive facility doesn’t always result in an immediate shift in its supply chain.
The automotive sector, in particular, is expected to generate significant demand for industrial space, given its reliance on large quantities of parts and materials from numerous suppliers.
The multiplier effect extends beyond industrial real estate. Communities that attract large manufacturing plants also see increased demand for multifamily housing, retail, hospitality, and sometimes office space. During peak construction, thousands of workers often flock to these areas, boosting demand for housing and hotels. Long term, regions can also benefit from an influx of highly skilled workers, with key manufacturing occupations often paying over $100,000 annually.
Despite the positive impact of reshoring, industrial developers face several challenges. Securing land suitable for industrial use is a significant hurdle, especially in high-demand regions where zoning laws may limit industrial growth. Cities that embrace zoning policies supporting manufacturing expansion will have an edge in attracting reshoring projects.
California recently set an example of restrictive industrial development with the passage of Assembly Bill 98 in October. The new law imposes stricter requirements on industrial landlords and operators, including minimum distance regulations between loading bays and community spaces like residences, schools, and hospitals. Warehouse operators exceeding 250,000 square feet will also need to submit truck route plans to local authorities before receiving a certificate of occupancy.
Although California’s new laws are particularly stringent, similar legislation and local opposition to industrial development have emerged nationwide as reshoring continues. As the “Not In My Backyard” (NIMBY) movement grows, developers may need to employ strategies from the multifamily sector to address resistance to industrial projects.
Despite these challenges, the reshoring movement is likely to continue reshaping U.S. industrial real estate. This shift creates numerous opportunities for developers, investors, and local communities. As the U.S. strengthens its manufacturing sector, industrial real estate will play a crucial role in supporting the country’s economic growth and resilience.
Source: propmodo