After declining steadily for 30 years, manufacturing employment in the U.S. is stabilizing and will have a positive impact on the economy and on demand for industrial real estate space in the coming decade, according to a study by the NAIOP Research Foundation.
The study by L. Nicolas Ronderos, “Stabilization of the U.S. Manufacturing Sector and Its Impact on Industrial Space,” was released this week at the NAIOP industrial real estate conference in Los Angeles.
The conclusions reached in the report are significant for the ocean shipping, seaport, inland transportation and warehouse/distribution industries because the materials used in manufacturing processes and the inventory generated by manufacturing create a demand for the movement and storage of products.
Also, an increase in good-paying manufacturing jobs fosters consumer spending, which also contributes to an increase in the movement of freight and demand for warehouse and distribution space.
Between 1979 and the end of 2009, the U.S. manufacturing sector lost 41 percent of its jobs as a number of industries outsourced their production to China and other low-wage countries in Asia.
The bleeding in the manufacturing sector stopped with the end of the recession in 2009. In fact, in 2009-10, manufacturing output grew at twice the rate of gross domestic product, the report stated.
Ronderos said the manufacturing sector is stabilizing and will remain stable during the study period ending in 2020. Manufacturing output declined $200 million between 2000 and 2010, but the decline has stopped and output is projected to increase by $1 billion between 2010 and 2020.
Growth in the manufacturing sector will be uneven, with some sectors expected to expand while others stabilize or decline somewhat. Generally, manufacturing of non-durable goods such as apparel, which have high labor content, will not increase.
Production of certain durable goods will increase in the coming decade. The industries that are expected to grow and therefore increase their need for industrial space include fabricated metal products, plastics, wood products, nonmetallic mineral products and furniture products, according to the report. Some of the growth will result in re-shoring, or a return of manufacturing to the U.S. from other countries.
When all economic factors such as labor content, the cost of energy and transportation, proximity to market, etc., are considered, manufacturers will continue to outsource some production, but they will return production in other industries to North America. The balance for the U.S. manufacturing industry as a whole is described as “right-shoring.”
As industrial production in the U.S. expands, the expected result will be a growth in manufacturing in urban areas because of the proximity to markets and labor.
Companies will base their decisions on where to locate manufacturing plants and warehousing and distribution space on strategic factors such as transportation costs, proximity to consumers for delivery of finished products, access to both skilled and reasonably-priced labor and proximity to ports for the import of materials and export of finished products.
Stabilization in the manufacturing sector in the coming decade will generate a demand for more space, and this trend will have “major implications for industrial real estate products,” the report stated.