Much of the US is running out of attractive, properly prepared industrial land. Twenty-five years ago, the issue of site availability for expanding companies was not usually a major concern. When a client needed a fairly conventional property of perhaps a hundred acres, there was usually a range of choices. Virtually every community or region had an industrial park — often owned or controlled by a local economic development organization — at a reasonable state of readiness. Many of these sites and parks reflected wise action taken years earlier, when communities selected and preparing the land to be attractive to industrial prospects.
Recently, however, there is a noticeable and worrisome decrease in the availability of high-quality industrial sites and parks that are ready for immediate development. More and more properties proposed by state and local economic developers for new business and industrial facilities have significant shortcomings. Companies are frustrated and hurt when their facility expansion projects find only unsuitable properties, poorly or incompletely planned industrial parks and other dead ends.
How Sites Fall Short
Some sites represented as industrial property fairly scream that they are leftover parcels, passed over during the community’s earlier stages of development. And usually this was for good reason, such as rough topography, obvious constructibility problems, odd shapes, difficult road access, a location hidden behind other development so that the site is virtually invisible. Some sites have unresolved environmental problems. Some are poorly located relative to local development — you worry when a proposed industrial park is on City Dump Road.
The most common situation, however, involves properties that do, in fact, show promise for eventual industrial use but have not yet received the attention and effort needed to bring them to full preparedness. In an era when many new industrial facilities must be built on a very fast-track basis, “half-readiness” is a big problem. This article argues that many states, communities and economic development organizations are not as thoughtful and aggressive as they should be in planning and acting to provide a home for new industry.
How Serious?
At first glance, it might seem that worries about land availability in the USA are overblown. The argument might go like this: “The apparent shortfall of land is actually a favorable condition, reflecting the fact that we have been very successful in recent years expanding our industrial sector. Any lack of availability of suitable land is simply a supply-demand imbalance that will be corrected by the market. North America remains under-developed compared with major industrialized nations of Europe and Asia, and still has plenty of developable land.
“The whole notion of public involvement in the industrial land business is questionable under current conditions,” the argument continues. “In bad economic times, maybe it makes sense for the public sector to develop industrial parks as an incentive for companies to expand domestically, but U.S. industry is making money now and should be expected to pay for growth on its own. With all the compelling economic conditions now promoting industrial growth in North America, any fears that states and communities are not meeting industries’ needs are groundless.”
Both statistical data and practical experience offer evidence that the industrial land supply problem is real. In spite of good general business conditions in the USA and a favorable competitive position for U.S. manufacturing relative to other industrialized nations, the rate of domestic manufacturing growth is well under half that of the economy as a whole.
For example, over the last five-year period for which consistent data are available, the number of U.S. manufacturing plants grew only 3.1 percent, while the total number of the nation’s business establishments grew 7.1 percent. Of course many conditions contribute to this disparity, including lean manufacturing (doing more with fewer people), a serious labor shortage and other factors. But the difference is great enough to be troubling.
The problem is not based on inherent, natural, unavoidable conditions. It is evident from the onset of a siting project that finding a large, flat site is tough in parts of West Virginia; that some arid areas in the Southwest are not a good fit for chemical plants consuming much water; and that hourly jet service to New York City from north central Nebraska does not currently exist. The heartbreak, rather, is when you find a property that is outstanding in many important ways, but that also has problems of a legal, regulatory or administrative nature.
Consider site X, which represents an actual site in the Southeast. It’s well-located with excellent constructibility, road and rail access, nearby infrastructure and other critical characteristics. Three other industrial plants had recently started up nearby; this was a good sign. But, in order for a client to use this site, first there would have to be a change in the county’s land use plan to allow industrial use of this site. Then, the zoning would have to be changed. Then, the property would have to be annexed to city limits in order to obtain utility and public safety services. And then, the city council would have to go through a complicated and time-consuming process to fund extension of water, sewer and gas lines.
This was probably a six-month effort, with potential for an even longer time since public hearings and other complicated reviews were required at every step. The client agreed that it was an attractive piece of property, but that the development timing was unacceptable. There was a small but significant risk that the property would never be approved for industrial use.
Why the Shortage?
Many causes contribute to the slow development and replenishment of suitable manufacturing property: Chief among these are faster land absorption and slower resupply, reluctance to invest, deregulation and misplaced use of community resources. This section will examine these causes in more detail.
Faster Land Absorption, Slower Resupply. 1998 sales of industrial land in many parts of North America were higher than they had previously been for decades. Even some areas that experienced little growth for a long time are now seeing significant industrial development and commensurate land sales. This is good news. But it also means that the land supply must be replenished, and this is not happening in many places.
A cherished belief is that the marketplace will make any needed supply-and-demand adjustments. But the marketplace can be a cruel teacher. Stimulus for industrial land development should be intelligent forethought, not the sentiment, “Our company would love to build its new plant in your community, but we have decided to make this investment in Argentina, because you have no place for us.”
Land development can require a long lead time. Many communities now enjoying business growth are benefiting from actions taken years or decades ago. But they may be hurting their future opportunities by failing to identify land replenishment as a critical element of economic development, complacency due to recent success, or simple procrastination. The future is approaching much faster than many realize.
Reluctance to Invest. Like private industry, economic development organizations and public agencies seek to operate on a lean, just-in-time basis. They face pressure to avoid tying up funds in fixed capital investments like industrial parks, sites and speculative buildings. Some public officials without experience in economic development may feel an urge to wash their hands of the site preparation business entirely, perhaps hoping that private real estate firms will step in and meet the demand.
This works — sometimes. Unfortunately, certain characteristics of industrial real estate projects may make them less attractive to investors than other types of deals, such as retail and residential. It is not realistic or fair to expect the private sector to be motivated about the broad community benefits industrial development can generate, including new jobs, expanded tax bases, markets for existing firms and so forth. Land development decisions made purely by the marketplace may not optimize the general public good and are sometimes a reason for a reduced supply of industrial land.
Deregulation. Surprisingly, deregulation is another cause of reduced industrial land availability. Preparation and financing of industrial sites and parks have traditionally benefited from participation by a large number of shareholders — utilities, railroads and so forth. Some previously important players are, regrettably, now less motivated.
For example, deregulation of the natural gas industry meant that most large industrial customers are no longer retail customers of the local gas company. Instead, plants are likely to buy their gas directly from a broker. The local distribution company gets only a small fee for transporting the gas to the client’s plant. This has resulted in many local and regional gas companies feeling that they no longer have much of a stake in local industrial development.
Misplaced Use of Community Resources. It is often reasonable and fair for a company to share some of the benefits which its investment creates for the community and state in which it locates. Such incentives, however, must not divert attention away from other development efforts, and take away public money that should be spent on industrial site development.
Incentives serve their intended purpose only when they make a deal work or break a tie among locations that have already been shown to offer a fundamentally good fit with a new facility. Availability of a prepared site or park is usually high on the list of features vital to that basic fit.
Whenever possible, communities should have funds to contribute to an appropriate incentive package for suitable business and industrial prospects. It is a mistake not to use an appropriate part of the economic development budget to get the community’s sites and other infrastructure ready for development. Otherwise the prospects are unlikely to come in the first place. Wise economic development agencies will make an enlightened and balanced allocation of their funds to these two causes.
Moving Forward
The site availability problem, while well known to professional siting specialists, has fortunately not yet evolved into a full-blown crisis. In most locations, the problem is still at a point where prompt and aggressive action can fix it.
Showing prospects an industrial park or site or speculative building that is fully prepared for immediate use is among the best things a community can do to attract new investment. It shows the community’s willingness to invest in itself and makes the prospect comfortable about its ability to get into operation quickly. Experienced corporate real estate executives, statewide developers, and site selection consultants often consider such a publicly owned facility to be one of the best overall indicators of a community’s interest in and readiness for new business and industrial growth. Of course, making such a statement and then being proven wrong is one of the worst things a community can do. Unpleasant surprises stop or delay development and create mistrust.
Communities and states should complete the following three-step process in order to assure site availability and maximize their region’s ability to support economic development. First, assess existing site conditions thoroughly. Second, based on these findings, address the shortcomings. Third, document and validate site availability conditions. These following section expands on these steps.
Site Assessment. There is a need for a thorough and frank assessment of sites and industrial parks which a state or community has in its portfolio. This means a tough, comprehensive investigation. The benchmark to use in the assessment is a property which is truly ready to be sold to a prospective investor, with all technical, ownership, and regulatory issues neatly resolved.
What is not suitable and will quickly turn away prospects, is the pasture of a farmer who “might be interested” in selling, with water and sewer five miles away; and an environmental assessment consisting of “I drove by the site last month and didn’t see a single snail darter.” It is essential for the developer to walk in the mud-caked boots of an overworked corporate facility locator who needs firm assurance that the site holds no surprises.
The second issue is best addressed by having a choice of prepared sites that are owned by an appropriate economic development organization or a public agency. Numerous excellent references are available on the nuts and bolts of developing land for business and industrial growth.
Sometimes, even the most well-intentioned community must deal with unavoidable obstacles to creating its own business parks or sites. So the question arises about alternative means of preparing a place for new investment.
One solution may be participation in the development of a regional industrial park. There is understandable pride and prestige that accrue to the community in which a new facility locates – “Smith Township Captures New Auto Assembly Plant,” trumpets the headline. Many of the substantive benefits, however, are spread across a wider region. Jobs are provided without regard to the specific neighborhood where the jobholders reside. Vendors and suppliers to a new plant will probably be spread across many different local areas. Regional park development requires putting aside local competition and working to spread the benefits of new investment, jobs, markets and tax revenues across a multi-jurisdictional region.
Some smaller, rural communities may not yet have financial resources to develop a fully serviced industrial park. With creative thinking and a little energy, much can be done without spending a lot of money.
One underfunded but enterprising local economic development organization went a long way toward creating an industrial park with little direct investment. Here’s how they did it. They: (1) identified several promising sites; (2) obtained control of the preferred site by having the owner agree to a purchase option at no cost to the economic development organization; (3) extended water and sewer lines along the road on which the site is located; (4) completed the legal and regulatory steps necessary to allow for prompt industrial development when the opportunity arose (zoning and other land use regulations are often time-consuming to modify, since they usually call for public hearings and other input); and (5) had selected local professionals make in-kind contributions. These included a conceptual plan from a landscape architect, environmental studies from an engineering firm, promotional support from a printer and a sign for the new “almost” industrial park from the high school woodworking class.
This was not equivalent to having a park owned and prepared in a conventional way, but it was a clever, low-cost way to take care of many issues that are often troublesome when an industry needs a site in a hurry. Many industrial prospects looking at this community were impressed by how much had been accomplished on a shoestring budget.
Once these steps are complete, it is vital to convey to prospects that there are available sites in move-in condition. It is impossible to overemphasize the value that documentation and validation of sites have in attracting expanding companies. To a harassed executive being asked to assure his or her boss that a new facility will succeed, there is a night-and-day difference between, “Yes, we can probably find a vacant tract in our county somewhere,” and “Smith County and its partners put their credibility on the line in saying that sites A, B and C in our industrial park are ready now!”
Site certification programs are rapidly growing. Most involve retaining a recognized, experienced, and trustworthy third party to examine the sites in detail. Once a site has reached a stated level of preparedness, it receives the blessing of all team members. Availability of good land is only one of many issues a firm must consider to make a sound business location decision. But it has advanced steadily toward the top of the list of characteristics getting the attention of corporate decisionmakers.
The most appealing business climate is useless if a community has no property that meets the prospect’s needs from a physical, regulatory and timing standpoint. It is dangerous for economic developers or political leaders to think that if they can get an expanding company interested in their area, probably, somehow, eventually, they can find a site for them.
SS
— Jim Ewing is director of industrial development for the
Georgia Dept. of Industry, Trade & Tourism. Jim Bruce is principal
of Fluor Daniel’s consulting business in the firm’s Atlanta office.
