Reshoring: Rerouting the Path for Industrial

The industrial real estate market has experienced significant changes in demand drivers following the pandemic. E-commerce fueled a surge in demand for distribution centers and therefore industrial property. However, as companies seeks to reduce exposure to supply chain uncertainties and global conflict risks, they are increasingly looking to move their manufacturing operations out of East Asia and return them to the US, or nearby countries. This trend, known as reshoring or nearshoring, is changing the shape of the industrial real estate market, with less need for distribution centers and more need for factories.

The US manufacturing growth outpaced the rest of the world towards the end of 2022, according to Atlantic Council GeoEconomics Center data reported by Axios. This reshoring and nearshoring trend is supported by the billions of dollars the federal government has allocated for the production of semiconductors via the CHIPS Act and multibillion-dollar investments in electric vehicle battery manufacturing and assembly facilities from automakers.

Boston-based Plymouth Industrial REIT is betting on a more centrally located section of the country known as the Golden Triangle, extending from the Great Lakes to Texas, Texas to Florida, and Florida back up to Chicago, to be where the majority of reshoring and onshoring will take place.

However, the Inland Empire which is likely the strongest industrial market due to its proximity to the ports of Long Beach and Los Angeles, is not expected to benefit as much from reshoring or nearshoring compared to other parts of the country, nor are cities in the Northeast.

There is also some skepticism around the notion that reshoring will be a significant demand driver, at least in the long run, due to the lack of industrial availability and a general sense that the US labor force is not necessarily interested in manufacturing work. Further, the demand for e-commerce distribution centers remains high, with markets like Chicago and the Inland Empire continuing to experience low vacancy rates.

However, nearshoring in particular also has the potential to trigger an increase in industrial demand, similar to reshoring. A vast transportation network of railroads, ports, and interstates also allows the South, Southeast, and Midwest to benefit from nearshoring – the process of moving manufacturing processes further from East Asia and close to America, most often Mexico.

Considering there are many factors to these trends and the future of industrial, it is important to consider the design of your distribution center in order to retain its value and potentially accommodate the need for a manufacturing facility.