Corporate Survey Analysis: Costs Still Top Concern, But Building Availability Importance Growing by Kathy Mussio, Atlas Insight
Cost concerns still lead the Corporate Survey's top site selection factors, but building availability is becoming more important.
Kathy Mussio, Managing Partner, Atlas Insight, LLC (Winter 2011)
Most of us would agree that the past few years have been a challenge to the site selection community with respect to corporate relocations. This has been due to a variety of factors, including uncertainty in the global economy, uncertainty with the U.S. tax environment, and the tightening of capital markets.to name a few. From the end of 2008 through the end of 2010, overall increases in the number of new facilities have been down - and from the survey responses - may continue to be down for several years to come.
Two words that ruled the day in 2010 were "consolidation" and "optimization." Whether through company mergers or simply existing portfolio optimizations/rationalizations, companies were looking for ways to shrink footprints and shed lower-performing/higher-cost locations as part of cost-cutting measures. This has clearly been a trend that will continue through 2011 and beyond. Consolidation and optimization are two reasons why it is notable, once again, that those companies that are undertaking expansions do not anticipate a large number of new jobs to be created. Executives responded that this is the trend both domestically and abroad. In the current uncertain economic environment, many companies are taking baby steps into new markets, with smaller capital expenditure initiatives, rather than taking on the risk.
It's not surprising that seven of the 10 top ranked site selection factors are cost-related. Finding ways to reduce or control costs has been the name of the game in 2010. Incentives continue to trend up in importance over the past few years, with about 90 percent of respondents citing state and local incentives and tax exemptions as important site selection factors for projects. Anecdotally, we have found this to be true, with our clients placing a much greater weight on the incentives factor than in past years. Straight tax credits have been much less appealing to companies, with much more importance placed on "usable" incentives, such as grants or refundable/saleable credits.
Also notable is the increased importance of availability of buildings, now ranking 10th among the site selection factors. The cost and time involved in "ground up" is prohibitive in most cases - and since there has been a shortage of viable existing manufacturing buildings available in certain communities, this has been a source of frustration for companies.
While consolidation of existing locations will continue to be strong for 2011 and beyond, the immediate prognosis for new facilities looks weak. In 2009, more than 70 percent of the executives responding to the Corporate Survey believed that the economy would significantly improve by the end of 2010 or in early 2011; now, only 15 percent of the executives surveyed in 2010 believe the economy will improve early this year. At the risk of sounding too "bearish," it is unlikely that the site selection community will attain the pre-2007 new project expansion numbers until 2013 or beyond. Be prepared for a very shallow upward slope economic recovery, which will translate into fewer new jobs and true expansion projects.