Reshoring Is Poised To Reshape Industrial

Reshoring is poised to make over the red-hot industrial sector as geopolitical events and supply chain pressures roil the broader economic markets and challenge domestic manufacturers.

“Understanding that production and supply chains are complex systems that do not change overnight, we are looking at reshoring to be another contributor to the demand in industrial real estate, particularly in lower cost areas in the Southeast and Midwest,” says Peter Kolaczynski, CommercialEdge operations senior manager. 

There are more workers in the manufacturing sector now than at any point since 2008, according to CommercialEdge, and the sector’s employment growth exceeded 3% year-over-year every month this year, a pace not seen since November 1984. But reshoring will bring with it a unique set of challenges, the firm’s analysts say, chief among them staggeringly low vacancy across major industrial markets here.  The national vacancy rate currently clocks in at 4.1%.

And “a tight labor market means that site selection will not only be dependent on infrastructure but also on labor pools,” CommercialEdge analysts say. “American labor costs are also much higher than in places where manufacturing has been offshored, meaning firms will explore automation solutions and likely increase costs for their products to strike a balance. Production and supply chains are complex systems that take years to reshape — reshoring is not a quick fix for firms struggling in the current global economy.”

Last month, national in-place rents for industrial space averaged $.6.64 per foot, an increase of 5.5% year-over-year. Among port markets, rents grew most in Southern California’s Inland Empire (8.8% increase for in-place rents over the last 12 months), Boston (8%), Los Angeles (7.4%) and New Jersey (7.4%).  Phoenix had the highest rent growth among markets without a port, with in-place rents ticking up 7.2% over the last 12 months.

New leases were $1.44 more per foot than in-place leases, clocking in at a national average of $8.08 per square foot.  Top cities were Los Angeles (new leases at $4.75 per square foot more than in-place rents), Orange County ($4.38), the Inland Empire ($4.27) and New Jersey ($4.22).

According to CommercialEdge data, 703.5 million square feet of new industrial space was under construction at the end of August.