HomeReal Estate NewsCommercialManufacturers’ new strategies provide boost for industrial CRE

Manufacturers’ new strategies provide boost for industrial CRE

More than 1,800 U.S. companies in a variety of industries returned their manufacturing operations stateside in 2022, according to a report from the nonprofit Reshoring Initiative. The shift wasn’t so much about bringing manufacturing back to the U.S., but rather a reaction to how the COVID-19 pandemic hindered supply chains around the world, said Richard Thompson, international supply chain director at JLL. The ongoing issues made manufacturers reconsider their sourcing strategies.

“This is more a story of risk management,” Thompson said. “The pandemic exposed how fragile our global supply chain was when reliant on one region. A more regionalized model allows companies to be nimbler when problems arise.”

Manufacturers’ reshoring strategy has been beneficial for industrial commercial estate, which had already seen a lot of success over the last decade, according to JLL. Manufacturing has not always been one most active leasing industries in the U.S., but JLL’s recent Industrial Demand study revealed activity had increased during the past two years. The entire manufacturing sector saw a rise  as businesses, automotive in particular, create more diverse portfolios. Researchers expect the trend to continue for years.

Talks of regionalizing supply chains have also increased for companies during the last two years, according to JLL. Businesses are looking to diversify their risk, and manufacturing in multiple countries or with different companies is one way to do so, Thompson said.

“Another reason (to regionalize) is that companies want to limit complexity in transit times and freight costs,” he said. “The closer your manufacturing or sourcing operations are to the end customer, you gain the benefits of lower freight costs and quicker transit times because you are not moving product as far.”

For example, Apple recently announced it will conduct its manufacturing in different countries to minimize supply chain interruptions. The tech giant moved its iPhone production to India and plans to shift its MacBook production from China to Vietnam by May, according to JLL.

The regionalization trend doesn’t just impact the manufacturing sector, however. Thompson noted that when a company takes its manufacturing to a new area, local suppliers get in line to service the new plant and distribution facilities.

The COVID-19 pandemic disrupted the supply chain and made manufacturers take another look at their offshore production capabilities. The acknowledgement that manufacturing needs to be advanced has also increased demand, according to the Industrial Demand 2022 study.

The report showed that increased demand for electric vehicles and the need to shift semiconductor production to the U.S. has created more activity. There is 19.35 million square feet of manufacturing demand on the market, according to the report. Additionally, JLL Research is tracking more than 77 million square feet of manufacturing facilities under construction across the U.S.

Chandranath Dey, who leads industrial and logistics in India for JLL, noted that companies like Apple moving manufacturing operations to India have considerably impacted land sales and leasing activity. India has also seen significant investment from different industries and nations. This includes metal manufacturers in Luxembourg and Switzerland to Asian automotive and electric vehicle manufacturers.

In the U.S. meanwhile, President Biden’s Build Back Better Act and the 2022 Inflation Reduction Act have motivated companies to bring manufacturing operations back stateside, according to Trevor Ragsdale, U.S. Head of JLL’s Industrial Occupier Services.

“These legislations coupled with rising energy costs in Europe, have made the U.S. the priority focus for EV and clean energy investments,” Ragsdale said.

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