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What A Manufacturing ‘Supercycle’ Means For Real Estate Leaders

The U.S. is at the cusp of a manufacturing supercycle that could reshape the global investment landscape and greatly impact the real estate industry.

This manufacturing resurgence gained momentum with the “America first” emphasis and 2018 tariffs on Chinese goods. The Biden administration continued restricting capital inflows to China, which further encouraged bringing supply chains to the U.S. This drive is bolstered by legislative acts that provide nearly $2 trillion in domestic investment and incentives: the U.S. Inflation Reduction Act for clean energy, the $280 billion CHIPS and Science Act for semiconductor production and the $1 trillion Infrastructure Investment and Jobs Act for sustainable infrastructure.

Consequently, U.S. manufacturing construction outlays have surged to $196.1 billion as of July. The government’s initiatives to bolster domestic manufacturing have unleashed a wave of investment that could reshape supply chains during the next decade and create a significant tailwind for the real estate sector.

Manufacturing Supercycle And Regional Beneficiaries

From my perspective, the American South could be a primary beneficiary of manufacturing investments. Texas, in particular, has received a disproportionate share of investment, with firms such as Samsung, Texas Instruments (paywall) and Tesla already commencing expansion plans that are expected to create thousands of new jobs during the coming years.

The Laredo, Texas, border gateway is a primary point for goods shipments coming to the U.S., with a reported 37% of truck container crossings and 46% of rail containers entering in 2021 through that corridor. Additionally, Laredo registered a 12% year-over-year increase in commerce in 2023. From my view, this heavy traffic has helped increase the demand for industrial space in the central Texas corridor, including San Antonio and Austin.

Xebec, a developer focused on industrial properties, revealed plans for a “3,300-acre logistics and manufacturing center” on a 32,000-acre site northeast of Austin, according to the Dallas Morning News. This development is one example of many seeking to fill the demand for industrial and residential space near multi-billion-dollar projects like Samsung’s chip factory in Taylor and Tesla’s Gigafactory. The impact of these developments will be felt across the Austin-San Antonio corridor and could generate significant economic output and position the region as a hub for advanced manufacturing and technology.

Florida is also poised to benefit from a surge in advanced manufacturing investment. With the NeoCity district positioning Orlando as one of the top cities for STEM talent in the U.S., the state’s prospects are promising.

Moreover, it is expected the region will see a substantial economic boost from several major infrastructure and technology projects currently underway. Among these is Brightline‘s high-speed rail initiative, which links cities like Miami and West Palm Beach to Orlando. This connectivity will enhance commuter access to the Orlando market, catalyzing growth in central Florida. A press release by the company said the rail project generated 10,000 new jobs during its construction phase. Given the current growth trajectory, Florida’s population is estimated to rise by 3.2 million by 2030, according to the Florida Apartment Association. To accommodate this surge, the state will require over 570,000 new housing units, the FAA also said.

Elsewhere in the south, companies like Toyota, Hyundai, BMW and Albemarle are investing billions of dollars in what’s been called the new “Battery Belt.” The auto manufacturing industry has expanded from the traditional markets in the Midwest, which could lead to the creation of tens of thousands of jobs in states like Georgia, Tennessee and North and South Carolina.

Beyond the U.S., Mexico stands to benefit from the regionalization of supply chains, given the existing United States-Mexico-Canada Agreement, proximity to U.S. population hubs, affordable labor and ample land.

What This Means For The Real Estate Sector

The manufacturing sector has one of the highest job multipliers, as a manufacturing plant typically fosters demand for suppliers, transportation services and maintenance providers. From my perspective, one of the ripple effects of the revival in domestic manufacturing will be an increased demand for residential real estate throughout the southern states with proximity to ports. Investments in clean energy, infrastructure and semiconductor production will stimulate large-scale job creation throughout these states, particularly in higher-wage sectors.

Based on data from the U.S. Bureau of Labor Statistics, the Dallas-Fort Worth metro is on a trajectory to add 150,000 to 200,000 jobs annually during the coming years, which would be an increase of roughly 4% per year and almost twice the pace of job creation before the pandemic. The conventional theory assumes that one new housing unit is needed for every 1.5 new jobs created. Permits authorized in 2022 for the DFW metro only amounted to about 76,000, creating an annual deficit of roughly 23,000 to 56,000 housing units. This comes at a time when the U.S. already faces a nationwide housing shortage and underscores the need to develop new housing units to meet excess demand.

As the nation intensifies its commitment to domestic manufacturing and the states in the Southeast attract vast industrial and residential investments, there will be significant demand for new housing and industrial space that will not be met by current construction projections and permitted developments. It is important for policymakers, real estate developers and investors to focus on these areas of growth and plan ahead in order to avoid rapidly rising rents and housing costs.

Additionally, real estate developers and investors should consider how they can capitalize on the upcoming capital investment wave. Housing developments generally take two to four years to materialize from inception. Investors and developers should pay attention to the mentioned growth corridors. Additionally, it is critical that developers engage with local municipalities to stay informed on upcoming manufacturing and infrastructure investments to ensure there is sufficient housing available when these investments come to fruition.

Source: Forbes

Industry News

Port Everglades Turning Notch Expansion Will Accommodate Larger Cargo Ships

WSP USA’s extensive experience with maritime structures has helped facilitate a critical expansion at Florida’s leading container port – while at the same time mitigating the project’s environmental impacts.

The Turning Notch Expansion aims to increase berthing space to accommodate larger modern container ships at Port Everglades. The Port handles more than 1 million 20-foot-equivalent units of cargo volume and serves as a gateway to Latin America, the Caribbean, Europe and Asia.

The program is an important component of the Port Everglades masterplan which identified this project to double the containerized cargo capacity of the existing port over the next decade, and to allow for berthing of super post-Panamax vessels.

To accommodate these larger ships, the port initiated the redevelopment of 25 acres of container yard and berthing apron space at its Southport Turning Notch. WSP was hired by Broward County to provide civil and structural engineering design services and serve as a specialty consultant for port-related design issues for the $500 million project, which is scheduled for completion in the summer of 2023.

The project is being delivered via a general contractor/construction manager, where the contractor is selected and engaged early in the design phase of the project to help mitigate risk.

Infrastructure Improvements

The scope includes excavation of three million cubic yards of material to create a 42-foot-deep turnaround area for cargo ships, along with five additional berths, including a Super Post-Panamax berth. Marine and landside improvements entailed 5,000 feet of seawall/wharf and marine and utility infrastructure, including a stormwater drainage system comprising 7,200 feet of pipe and 1,900 feet of exfiltration trenches.

The project also consists of landside infrastructure improvements to support the acquisition of six additional Super Post-Panamax gantry cranes in Southport along Berths 31 and 32 as well as Berth 30. Additionally, the existing 100-foot gauge rails along Berth 30 project are also being extended westward to the limits of the new Southport Turning Notch Extension.

WSP’s scope for the expansion required the design of nearly one mile of new steel bulkhead wall, evaluation of an existing steel bulkhead wall, removal of several acres of land, container yard upgrades and improvements and fender and mooring hardware upgrades. Furthermore, Berth 30 – which is 970 feet long and located within the notch – has to remain operational during construction.

“WSP worked closely with the owner and the contractor team to execute the multi—faceted and highly publicized project in a timely manner within an operational terminal,” said Kosal Krishnan, WSP national maritime leader.

WSP also deployed construction administration staff and provided round the clock technical services in support of construction.

Marine Habitat Mitigation

To offset the project’s environmental impacts, WSP developed environmental mitigation to satisfy permit requirements. In the project’s first stage, the team restored approximately 16.5 acres of upland mangrove marsh by excavating fill to re-contour the marsh, then planting 70,000 Florida-native, nursery-grown mangrove and wetland transition buffer plants.

The mitigation design created additional mangrove habitat through the construction of riprap planters and restored the shoreline of an existing manatee nursery area by removing existing nuisance exotic vegetation and reconfiguring the eroded shore. For reef mitigation, 814 corals were relocated to create three acres of artificial reef habitat for natural recruitment, ultimately replacing nearly 15 acres of existing hard-bottom reef habitat.

“WSP monitors the mangrove and reef habitat on a quarterly basis to document the success of these mitigation areas, and ongoing observations of wildlife have revealed wading birds, shorebirds and other highly mobile avian species,” Krishnan said.

Located within the cities of Fort Lauderdale, Hollywood and Dania Beach, Port Everglades is in the heart of one of the world’s largest consumer regions, with a constant flow of approximately 110 million visitors statewide and six million residents within an 80-mile radius. The port has direct access to the interstate highway system and the Florida East Coast Railway’s 43-acre intermodal container transfer facility and is closer to the Atlantic Shipping Lanes than any other Southeastern U.S. port.

Source: wsp

Industry News

Another Big Year Expected For Industrial Real Estate In 2022 — But Development May Be Stymied By Supply Chain

The U.S. industrial real estate market will continue to be on fire heading into 2022 but longer lead times to obtain construction materials and across-the-board price increases will also affect the sector.

Cushman & Wakefield PLC took a two-year look into the future, predicting industrial absorption from the start of 2022 to the end of 2023 will be 855 million square feet. Although demand will be high, and issues will make new industrial development challenging, Cushman expects new supply will slightly outpace demand in the next two years, which’ll help moderate the market somewhat.

Cushman is predicting new industrial deliveries will reach 932 million square feet in 2022 and 2023. E-commerce is a big reason — but not the only one — behind the warehouse sector’s massive growth since the pandemic. Online sales rose to 21.6% of total retail sales in the second quarter of 2020, compared to 16.2% in Q1 2020, and remain around 20% as of Q3 2021, according to CBRE Group Inc. (NYSE: CBRE) research.

“2021 was the best year ever for industrial real estate,” said James Breeze, senior director and global head of industrial and logistics research at CBRE, during a recent forecast call with reporters.

Third-party logistics have dominated industrial deal activity this year, a share that could grow in 2022 as costs continue to rise, and space and labor becomes more challenging to find.

“Many retailers or wholesalers will outsource their distribution to 3PLs at a greater clip in 2022,” Breeze said. “This outsourcing is going to be prevalent throughout the country.”

CBRE is forecasting vacancy rates next year for warehouses to remain at or even below 3.6% in 2022. Cushman is predicting industrial vacancy in North America will end 2023 at 4.1%. Expect rents to continue to rise for industrial occupiers, too. Cushman is forecasting average net asking rents for warehouse space in North America will reach a new high of $8.72 per square feet by the end of 2023.

“Even with the rental-rate hikes, tenants need warehouse space so much they’re willing to pay the new rates,” said Erik Foster, principal and head of industrial capital markets at Avison Young USA Inc.

“In fact, transportation costs are a bigger concern for many groups leasing warehouse space,” Breeze said.

Real estate costs are typically only 3% to 6% of total logistics costs, compared to 50% for transportation. The cost to ship goods via ocean freight grew more than 200% in 2021, while domestic-freight costs jumped more than 40%, according to CBRE.

“Leasing more space may actually save some occupiers money, if they are able to use additional facilities to cut down on domestic or international transportation,” Breeze added.

Investment activity for industrial real estate is expected to remain hot in 2022. Since the pandemic, some capital sources have pivoted away from uncertain asset classes, like retail and office, and instead poured money into industrial and multifamily, both of which have been on a tear in 2021.

Capitalization-rate compression across several U.S. markets has been observed in 2021 and is expected to continue, but cap-rate spreads between primary and secondary markets will be observed, CBRE predicts.

CBRE is predicting Phoenix and Las Vegas will post cap rates in line with the Inland Empire, about 3.1% in the first half of 2021, in 2022. Prices in the Pennsylvania Interstates 78/81 corridor are expected to be closer to those seen in New Jersey industrial markets, about 2.9% in H1 2021, says CBRE. Northern and central Florida could approach cap rates observed today in south Florida. Miami industrial real estate saw cap rates averaging 3.75% in H1 2021.

“With the amount of investor interest in industrial right now, there are some groups that don’t have much experience owning or operating warehouse real estate,” Foster said. “We’re seeing folks that are sophisticated, with real funds behind them, move in like never before to an asset class that they don’t know that well, which can cause risk.”

Source: SFBJ