COVID 19’s impact on real estate last year was an accelerator of trends, a disrupter — more than even the Black Swan event of the financial crisis in 2008 — and exposed dramatic weaknesses and vulnerabilities in many supply chains.
This year’s annual Corporate Survey gives light to some of these impacts and trends. Of the respondents, 60 percent of whom were either the CEO or owner, 57 percent were in the manufacturing or warehouse business, and 30 percent said they were going to expand operations.
More customers than ever had groceries delivered to their homes and the requirement for ultra-cold storage of COVID vaccines left the cold storage category with zero vacancy, even with its mostly outdated asset class. Projections indicate a need for 75–100 million square feet to fill this void. Changing family behavior patterns, with most restaurants closing, caused a shift in more home meal preparation, part of which is likely to stay, accelerating an existing trend for last-mile warehouses and increased food manufacturing capacity.
For several decades, the U.S. manufacturers and warehouses implemented just-in-time inventory controls, freeing up cash flow to their companies’ bottom line. Supply buffers became thinner and thinner. In a global economy many medicines, medical supplies, and component parts are made in the Far East and delivered just-in-time for needed production and distribution. This worked well when there were no trade wars or desperate demands for medical supplies with global jockeying for priority deliveries. It became clear the U.S. had real vulnerabilities in its supply chain for such things like key drug ingredients, medical supplies, and silicon chips.
Manufacturing and warehousing has expanded and is predicted to continue to expand in the coming years to add buffers to inventories ensuring uninterrupted production and supply chains and U.S. control over key pharmaceutical production. Where these facilities land is typically driven primarily by logistics costs and labor availability. The Corporate Survey supports this view and indicates that for new domestic facilities, 52 percent will be either warehouse or manufacturing.
The flexibility to work from home drove many to less expensive states from a taxation standpoint — many of which are in the southern half of the U.S. These expanding trends impact population growth and the demand destination for products, requiring the need to constantly re-evaluate the density of existing supply chain schematics. The respondents indicate they are not only looking at distribution and labor costs, but also the business environment in these states, with taxation selected as a key evaluative attribute.
Area Development’s annual Corporate Survey results are indicative of a rapidly changing real estate environment, with opportunities for many if they watch closely.