The bloom may be off the rose of the top-performing U.S. industrial sector as a result of current market conditions. But a growing onshoring trend is expected to temper the economic headwinds facing these properties and help position them for significant growth this decade and beyond.
Supply-chain disruptions caused by the COVID-19 pandemic and rising geopolitical tensions are spurring an increasing number of U.S. companies to rethink a longstanding practice of planting all or some of their manufacturing operations in faraway lands, such as China, the largest exporter of goods to the U.S. Other Asian countries and Mexico also have benefited from companies uprooting manufacturing facilities from China.
China is perhaps feeling the greatest pain of this trend’s impact as more companies jump on the onshoring bandwagon due to strict pandemic-related rules that upended the country’s manufacturing industry, causing supply-chain havoc in the U.S. and other countries. Concerns over China being ground zero for future global pandemics and other major disruptions also have contributed to current and planned pullouts of manufacturing operations in China.
China’s latest economic woe is reflected in a UBS survey of corporate executives.The survey said a whopping 90 percent of the respondents said their companies were either in the process or considering the possibility of moving production out of China, with 80 percent of them saying they were thinking about bringing at least some of the manufacturing to the U.S.
Consulting firm Deloitte echoed similar sentiments on this issue. The firm released a report saying there is “increased intent in moving manufacturing closer to the end consumer” to reduce the risk of disruption of manufacturing goods.
Escalating shipping and fuel costs are also factors driving U.S. companies to seriously consider locating production closer to home.
With momentum building to onshore more production in this country, it would mean more U.S. facilities will be needed for the production and distribution of goods.
That scenario is already becoming more of a reality than a pipedream. A Bloomberg article cited a Dodge Construction Network report last year that said the construction of new U.S. manufacturing facilities has increased more than 100 percent over the past year.
According to the latest industry figures, there is over 10 billion square feet of U.S. industrial space stretching from coast to coast. In 2022, approximately 420 million square feet of warehouse and distribution center space was projected to be delivered.
Technology companies seem to be leading the onshoring charge for some of its manufacturing plants. Some examples include Intel’s planned $20 billion chip factory in Ohio, Micron’s commitment to building a $100 billion facility in New York, and Texas Instruments proposed $50 billion chip plant in North Texas. The CHIPS and Science Act of 2022 is playing a key role in the onshoring movement, investing $280 billion to boost U.S. semiconductor capacity as well as technology research and training.
If this onshoring trend continues at its current pace, the country’s demand for industrial space could easily blow through record levels reached in recent years. Robust demand for U.S. industrial space has been largely underpinned by torrid growth in e-commerce shopping. E-commerce has been expanding at a rapid clip for years, but its use skyrocketed during the height of the pandemic when many stores closed or limited their operations.
There has been much speculation that a slowing economy this year will deflate some of ballooning demand for online shopping and, in turn, trim demand for industrial space. However, e-commerce is destined to resume its upward trajectory on a rebounding economy forecasted as early as the latter part of this year. Add more companies bringing back manufacturing to the U.S. to the mix, and the industrial market is poised to reach new levels of growth in the years ahead.