Andy Mace, Managing Director, Global Business Consulting , Cushman & Wakefield Business Consulting (Winter 2011)
Once again, Area Development's Corporate Survey reveals shifts in site selection factors and corporate planning that are interesting manifestations of broader economic and investment trends. Consistent with today's slow-growth recovery, the responses contain some mildly optimistic indicators. The results also exhibit persistent corporate focus on cost avoidance and the struggle for meaningful growth following the severe recession that officially ended more than a year ago.
Signs of Growth, Albeit Slow
The economic recovery has brought encouraging developments: greater corporate profits, increased truckload and container shipping volumes, and a consistently positive U.S. GDP. Last year, more of the surveyed companies (22 percent) added to their facility networks than reduced them (17 percent), and 41 percent of the respondents intend to expand their current facilities in the next two years. Employment growth and facility expansion activity could remain quite low, however, given that 85 percent of those surveyed believe significant economic improvement will not arrive until 2012 or beyond, and 77 percent of the planned new facilities will have fewer than 100 employees.
In our own site selection practice, we witnessed a significant project-activity uptick in 2010, and several (but not all) projects that were de-activated in 2008 were re-activated. Our substantive industrial projects were limited to Internet fulfillment centers, and manufacturing facilities in the food, renewable energy, and life sciences industries. Encouragingly, all projects but one represent net new capacity.
The Declining Importance of Energy and Labor - For Now
Expectedly, cost-related factors dominate the top 10 site selection factors, along with highway accessibility and skilled labor availability. Two surprising changes are the substantial drops in importance ratings for labor costs and energy availability and costs (both down nearly 6 percent). The rating for unskilled labor availability also dropped 10 percent. These results suggest that respondents' historically high emphasis on labor availability and costs has subsided due to continued high unemployment, static or declining wages, and anemic facility expansion levels. Further, all other labor-related site selection factors are lower-rated this year, including training programs, skilled labor availability, and proximity to a technical university.
The reduced emphasis on energy availability and costs is more surprising; it has been displaced by occupancy and construction costs, and state and local incentives. This could be a product of last year's lower fuel costs and production-capacity levels, or because the respondents' operations are not particularly energy-intensive. Indeed, 47 percent of respondents indicate that rising energy costs have no impact on operations. In what seems somewhat like a contradiction, respondents are quite focused on sustainability efforts: 85 percent have made energy-saving facility modifications.
Next Year May Bring Renewed Focus on Supply-Chain Factors
Although railroad service and waterway or oceanport accessibility are the two lowest-ranked site selection factors, their ratings rose 8.6 percent and 4.2 percent, respectively, this year. Several trends suggest that next year's ratings for these and other supply-chain factors will again rise. As overseas production centers continue to evolve into consumption markets, worldwide container-shipment volumes have surpassed 2008 levels, and U.S. truckload-shipment volumes have reached 2007 levels (but not 2008 peaks). U.S. road-transportation costs may increase dramatically as fuel-oil costs rise, driver and equipment shortages continue, and environmental and safety regulations strengthen. As the economic recovery progresses, supply-chain cost drivers may displace competing industrial site selection factors in the equation for optimal facility locations.