The wave of globalization started back in the 1960s and 1970s, as businesses found that moving certain aspects of their operations overseas allowed them lower production and operational costs. For manufacturing companies especially, it became overwhelmingly popular to outsource jobs to outside countries as a cost-saving measure, officially referred to as ‘offshoring’. This trend was driven by the substantially lower wage rates available in countries outside of the United States, coupled with the advancements in transportation and communication technologies which made managing overseas operations more feasible.
However, recent trends indicate that we’ve begun moving the opposite direction- many companies are beginning to bring their operations back to the United States, or ‘reshoring’. This change is motivated by various challenges and strategic needs that have emerged in international business operations.
Factors Driving the Reshoring Movement
Several critical factors are influencing the decision for companies to reshore manufacturing and other services. Firstly, global supply chain inefficiencies have become more pronounced, exacerbated by international crises such as the COVID-19 pandemic. Companies have experienced delays, increased logistics costs, and difficulties in quality control, all of which have encouraged looking closer to home for production.
Inflationary pressures and rising wages in traditionally low-cost countries have also diminished the cost advantages of offshoring. As the economic landscapes in these countries evolve, the gap in operating costs between offshore and domestic options has narrowed, making reshoring a financially viable option.
Geopolitical tensions and economic policies, including tariffs and trade wars, have further influenced reshoring. Companies are increasingly wary of the risks associated with geopolitical instability and are seeking to mitigate these by investing in domestic operations.
Finally, consumer preferences have shifted towards supporting local businesses and sustainable practices. A 'Made in the USA' label tends to attract consumers interested in supporting domestic economy and jobs, as well as those concerned about the environmental impact of long-distance shipping involved in offshoring.
Implications and Opportunities in the Nevada Market
In light of these factors, business owners and operational managers are critically reevaluating their international operations. The move towards reshoring is not only seen as a strategy to reduce risk and potential costs but also as an opportunity to boost brand image and customer loyalty by aligning more closely with consumer preferences and values. As this trend continues to develop, it signifies a notable shift in how companies strategize their manufacturing and production approaches to cater to an evolving market landscape.
The implications for commercial real estate are substantial, particularly in the manufacturing sector, where demand for specialized facilities is on the rise.
As companies increasingly opt to localize production, Nevada is emerging as a hotspot for manufacturing growth. The state, recognized for its robust job growth, finds itself at the forefront of this industrial resurgence. Manufacturing facilities, once outsourced to other countries, are now being constructed at an unprecedented rate within the U.S., leading to a burgeoning demand for industrial spaces that can accommodate modern manufacturing processes.
What does this demand look like? According to the US Census Bureau, construction spending on manufacturing facilities rose to $114.7 billion dollars annually in 2022- a 40% YoY increase and 63% increase over the past five years. As of July 2023, manufacturing spending was 74% higher than July of 2022. The rate of construction of manufacturing facilities across the United States is now outpacing all other types of commercial properties, and indicates a deeper economic shift towards revitalizing the manufacturing industry within the nation's borders. (McLaughlin & Peterson, 2023, MIT Sloan Management Review)
As industries expand and the manufacturing sector receives more spotlight, the implications are substantial not just for the real estate market but also for the job market. The increasing construction of manufacturing facilities is anticipated to generate approximately 350,000 new jobs, significantly impacting local economies (Reshoring Initiative Data Report, 2022). Remarkably, Nevada has emerged as a leader in this aspect, currently ranked #1 in the nation for job growth (World Population Review, 2024).
Manufacturing companies stand at a critical juncture where they can leverage this upward trend. By actively engaging in the expansion and construction of new facilities, they can capitalize on the growing market demand. Moreover, this strategic expansion is not solely about scaling up operations but also about contributing positively to economic growth and employment in the local community.
Strategic Considerations for Manufacturing Companies
Companies in the manufacturing sector should consider several strategic factors to maximize the benefits of the current market dynamics. First, the selection of location is paramount. Regions like Nevada offer considerable advantages due to their favorable economic policies, infrastructure readiness, and burgeoning workforce. Companies should conduct comprehensive analyses through thorough regional research and consultations with local CRE experts to evaluate the potential of different locations before committing to construction projects.
Moreover, with the rise in job creation, there is a pressing need for these companies to invest in workforce development and training programs. This will not only help in filling the newly created jobs but will also ensure that the workforce is skilled enough to meet the demands of modern manufacturing processes. Partnerships with local educational institutions and the implementation of apprenticeship programs can be effective strategies in this regard.
In conclusion, the construction of manufacturing facilities is a robust indicator of economic vitality and presents numerous opportunities for real estate developers and manufacturing entities alike. By understanding and strategically navigating this landscape, companies can not only expand their operational capacity but also play a pivotal role in shaping the economic future.
Navigating the Future of Commercial Real Estate with Street CRE
In the constantly evolving world of commercial real estate, staying ahead of market trends is imperative for success. For commercial real estate brokers, this isn’t just about being informed; it’s about being proactive in a landscape that’s as dynamic as the clientele they serve. It is crucial that brokers are aware of how these trends can impact market demand and supply to navigate effectively through the complexities of real estate transactions. As the market continues to develop, professional advisors like those at Street CRE remain essential to both seasoned investors and newcomers.
Street Brokers are not only observers, but active participants in the real estate market. This deep involvement provides us with firsthand knowledge of what drives the market, from shifts in economic policies to changes in consumer behavior and technological advancements. Our expertise allows us to foresee potential challenges and opportunities, providing our clients with strategic advice that aligns with current market conditions. Our brokers make it their mission to guide clients through the intricacies of commercial real estate with up-to-date, accurate, and relevant information.
We invite potential clients to reach out for a free consultation to discuss their commercial real estate aspirations. Whether you’re exploring options for investment, looking for a new location for your business, or need insights on the latest market trends, our team at Street CRE is here to assist. We pride ourselves on our strategic insights and client-centered service, ensuring that every client receives a detailed, hands-on experience tailored to their specific needs.
