There's lots of noise these last few years about companies bringing back some of their manufacturing to North America. Cheaper energy options, better on-time delivery, and increasing wages in countries labeled low-cost have been cited as the main motivating factors.
What kind of impact this is really having on the U.S. economy is up for debate, with some organizations and news agencies now discussing that the reshoring trend is less significant to the economy than it originally seemed.
Still, momentum around this shift continues to make headlines and remains on people's minds.
This leads to a practical question companies need to ask themselves when deciding to reshore manufacturing: Where will you put your factory?
Finding quality and affordable space for factories and warehouses has been one of the biggest challenges companies face when they decide to make the leap back, according to Cushman & Wakefield's 2015-2017 North American Industrial Forecast.
As the report points outs, there's a big contrast between sentiment and what's happening on the ground.
Here's the plus side. "U.S. manufacturing is making a highly anticipated comeback. The promise of cheaper domestic energy sources and rising labor costs around the world are prompting more manufacturers to set up shop locally. This phenomenon, known as reshoring or in-sourcing, is being adopted by a number of major companies now expanding operations stateside," the report stated.
The downside, though, is a dose of reality. "A lack of quality space remains one of the biggest challenges facing manufacturers in the U.S. Emerging technological advances, such as improved measuring/process control, advanced digital technologies and sustainable manufacturing, have made many older facilities functionally obsolete, opening the door for more speculative construction to take place within the next few years," the report noted.
This means rental rates and availability for manufacturing and warehousing spaces are squeezed. Here's how, according to the commercial real estate services firm's research:
About 35% of the manufacturing markets tracked by Cushman & Wakefield reported direct net asking rental rates above the national average. We see rental rates increasing for most manufacturing markets through 2018 in step with strengthening consumer demand.
With a 6.7% vacancy rate, the warehouse sector has now posted 19 consecutive quarters of declining vacancies. Strong market demand for high-quality class A space has led to tight supply.
2014, however, marked a turning point, and new construction is underway in various parts of the U.S. Although demand will continue to outstrip supply, places like Phoenix, Silicon Valley, Denver and the New Jersey metro area have been leading the way in adding flexible space square footage, Cushman & Wakefield said.
Has your company encountered any of these issues? What challenges have you experienced with reshoring efforts?