Site Selectors Bullish on Logistics, Manufacturing and the Sun Belt

by RON STARNER

If you need to see evidence that the American economy is on a sustained upswing, look no further than the results of Site Selection’s annual site selectors survey.

According to this magazine’s annual poll of nationally prominent site selection consu ltants, 93% of respondents say they expect their corporate clients to either expand their facilities or hold steady where they are in 2020, and just 7% say they expect their clients to consolidate.

Survey 1

Coming off a highly productive 2019 that saw a flurry of corporate expansions, particularly in the last quarter, the site selectors we surveyed expressed optimism on several topics, but they were especially bullish on the Sun Belt and industrial growth.

When asked to select the region that had done the most to improve its business climate in recent years, the site selectors picked the Southeast as the most improved region, followed by the Midwest and Southwest. The Mountain West came in fourth, just ahead of the South-Central region of the country.

In terms of individual states, North Carolina garnered the No. 1 most improved business climate spot, with 10 total votes, while Arizona and Tennessee tied for second with nine votes each. Rounding out the top five were Texas and Virginia, tied with eight votes each, just ahead of Michigan and Ohio, which garnered seven votes apiece.

When asked to name the industry sectors that are showing the most expansion activity right now, site selectors picked distribution and logistics projects as the leading sector, with a total of 33 votes, followed by advanced manufacturing with 22, food processing with 18, biomedical and health care with 17, and data centers with 16. Headquarters and back-office projects finished just out of the top five sectors with a total of 11 votes.

Site selectors had a lot to say when it came to dealing with economic developers and the government jurisdictions they represent. Asked to name the most common deal-killers, respondents listed lack of responsiveness and poor governmental leadership as the top deal-breakers, with a total of 24 votes. Lack of buildings and sites came in second with 17 votes, followed by lack of skilled workers with 14. Rounding out the list of top five deal-killers were breach of confidentiality (eight votes), followed by lack of infrastructure (seven votes).

Chart 2

We also asked respondents to give us the one policy recommendation they would most advocate to a state or community. Improving incentives came in first, chosen by 44% of the site selectors, followed by implementing better permitting procedures and offering more workforce training help, which each garnered 10% of the votes.

The respondents’ comments on these topics were just as telling. Among the write-in votes on the most common deal-killers were these:

“Closed attitude of community members about foreign investment and outsiders.”
“Government over-regulation of small to medium projects. Large projects get the P.R. and cooperation, but the smaller projects get neither.”
“Breaking commitments made to the project.”
“Inability to deliver industrial buildings on time to meet corporate requirements.”

On the subject of policy recommendations, some of the respondents suggested these:

“A greater focus on housing and increasing immigration rates.”
“Incentivize capital expenditures. The world is moving to automation, and if you don’t recognize that, you’ll have an empty town.”
“Get serious about skilled labor training as a significant portion of the education budget.”
“Practice what you preach. If the economic developers are preaching ‘business-friendly,’ but the local permitting folks are strangling the project, there’s a disconnect.”
“Don’t try to over-market your location with gimmicks and overly produced websites. Just give us the facts.”
“All economic development organizations should have a development company on call with the necessary resources, experience and capital to immediately provide a proposal on the construction of an industrial building in a specific timeframe.”

Chart 3

Finally, the site selectors provided valuable feedback on how they go about their work. Some 82% of them said they turn to various online sources for information in their field — the No. 1 vote-getter. About 77% said they turn to economic development organization websites; and 64% said they talk to their peers for information on project work.

When asked to evaluate what they most want to see on an EDO website, respondents gave the highest value to name and contact information, scoring it a 4.09 on a 5-point scale. That topped the second highest-rated item, accurate and up-to-date data, which secured a rating of 3.89, followed by news on recent projects (3.79) and available buildings and sites (3.74).

Two Years After HQ2, Amazon Still Making Waves

Two years after Amazon dominated the site selection landscape with its much-ballyhooed HQ2 project, e-commerce is still the king of the real estate world.

That was the fundamental conclusion of two panels of experts last month at the Mid-America Economic Development Council’s Competitive Conference and Site Selector Forum in Chicago.

E-commerce represents 30% of all industrial space absorption in America and is growing at a 15% clip per year. When online apparel sales generate a 50% rate of return, the experts said, it’s impossible for bricks-and-mortar retailers to compete.

While the name Amazon wasn’t always cited, the online behemoth remained the undercurrent of the discussion, particularly when one considers that Amazon operates 470 distribution centers across the country and leases more than 154 million sq. ft. of warehouse space.

“The coming year should be a pretty good year for industrial real estate, especially for e-commerce space and U.S. manufacturing,” said Pete Anderson, executive vice president of investments and development for Becknell Industrial. “At the rate that e-commerce industrial leasing is growing, it’s driving everything else in the logistics development sector.”

Tony Creme, senior vice president of Hillwood Development Company LLC, agreed, noting, “We’ve done 30 buildings for Amazon around the country; and they show no signs of slowing.”

Nate Green, director of economic development for the Montrose Group, said the 4% vacancy rate in the industrial market in Columbus, Ohio, is an historic low, and it’s driven entirely by e-commerce users.

Creme said that the first question he receives now from any end-user is simple: “What’s your labor profile? That’s what they want to know, and you better be able to answer it.” Yet automation will become the future of the supply chain. “Autonomous trucks are coming,” he said. “It’s no longer a question of if; it’s a matter of when.”

As e-commerce has accelerated, many traditional retail outlets have gone by the boards, often leaving a gaping hole in the center of town or out in the suburbs as hundreds of regional shopping malls have failed. “I know of three malls that have been demolished and replaced with Amazon fulfillment centers in the Cleveland area in the last few years,” said Don Schjeldahl of DSG Advisors.

In the case of another failed mall in Texas, one site selector noted, the property now houses an economic development organization, senior center and technical workforce training center.

“All of these reuses are being driven by the marketplace,” said Joe Pilewski of Pilewski & Associates LLC. “We’re seeing malls being replaced by senior assisted living centers, medical offices, entertainment centers and restaurants,” he said. In Marion, Ohio, a former mall was converted into a hospital.

The other hot topic at Mid-America EDC was the emergence of the Midwest as a preferred business location. Shannon O’Hare, managing director for Cushman & Wakefield in Chicago, said the Midwest is attractive because “it’s hungrier for deals. After not having a lot of success for a decade, they’re competing to win now.”

Sean Ferguson, founder and principal of Silicon Valley-based Clark Street Associates, said, “We recently looked at a site in Detroit. There’s a surplus of sites available there. They have a commitment to make deals happen. It’s suddenly an attractive place to do business.”

Other site selectors concurred. Tracey Hyatt Bosman of Biggins Lacy Shapiro & Company LLC said the Midwest has an abundance of assets. Among them, she said, are its central location, available labor, lower costs, right-to-work status in key states, and a business-friendly climate.

On incentives, the site selectors said they’d like to see more self-funded programs and less burdensome compliance regulations. “We’d prefer to see all the expectations and requirements clearly set up on the front end,” said O’Hare.

“No one knows what their tax liability will be next year, much less 10 years from now,” said Bob Westover of Colliers International. “Most tax credits go unclaimed. In Illinois, just 25% of the EDGE Tax Credits that are awarded to companies are ever utilized.”

Chad Chancellor of Next Move Group in New Orleans cited Louisiana as an effective model for incentives. “Louisiana awards 25% payroll rebates for software jobs,” he said. “They’re using BP oil spill settlement money to help pay for that. It’s a quarterly cash rebate. That’s hard to beat.”

Ron Starner
Executive Vice President of Conway, Inc.

Ron Starner is Executive Vice President of Conway Data, Inc. He has been with Conway Data for 22 years and serves as a writer and editor for both Site Selection and the company's Custom Content publishing division. His Twitter handle is @RonStarner.