Secondary Markets Targeted for Advanced Manufacturing Sites

At one time, manufacturing sites were in predominantly major markets – think Detroit, Chicago and Pittsburgh. But in its recently released report, “Manufacturing Momentum: Scaling for Success in Key Markets,” Newmark explained that advanced manufacturing site selection is taking place in secondary and tertiary markets near major metros.

The report identified the following advanced manufacturing sectors that are seeking space in smaller markets:

• High-tech/digitalization

• Automotive/transportation

• Energy

• Biomanufacturing

Connect CRE reached out to Newmark’s Head of Northeast Research & National Life Science Research Elizabeth Berthelette (the report’s co-author), and Lisa DeNight, Managing Director of National Industrial Research for additional insight on the report.

Q. What fundamentals drive manufacturing in the secondary markets you mention, like Charleston, Raleigh, NC, and Columbus, SC?

A. Fundamentals of attractive locations depend on the project’s needs. But in general, secondary markets successful in attracting these projects typically offer sites that can provide hard-to-find project attributes. These factors include existing infrastructure, utility capacity (and cheaper cost) and a skilled labor pool. These markets also offer “scalability” that is difficult to find elsewhere and typically at a lower cost than major markets.

Q. Is there enough space to accommodate growing demand in these markets?

A. The “multiplier effect” related to the demand for industrial space is real but will be uneven across projects. Given the extreme slowdown in new construction starts in the logistics space, there are some concerns about a supply crunch for secondary investments and leasing activity surrounding these plants as they come online, mainly in clusters. Some markets will have far less capacity to offer swift space options than others.

As an example of the multiplier effect, the automotive/transportation sector, where firms source parts and materials in large quantities and from many suppliers, is poised to create the most additive industrial demand.

Many of the industry’s announced projects are in regions with established, mature auto ecosystems — although not necessarily for new EV technologies and associated processes, such as battery recycling. Two major plants opening in the Texas Triangle during 2022 illustrate the potential for new plant construction to impact adjacent industrial market demand. Following the construction of Austin’s ten million-square-foot “Gigafactory Tesla” and Navistar’s 900,000-square-foot commercial EV truck production facility in San Antonio, the region has seen a minimum of 3 million square feet of warehousing and manufacturing absorption from leasing and build-to-suit activity.

Ultimately, a market’s ability to accommodate a new advanced manufacturing project factors into the location selection process. If the factors required to operate the facility do not exist in one location, the search will continue; this applies to projects produced by the multiplier effect.

Q. What challenges do these “newer” regions face when it comes to building, owning and maintaining manufacturing facilities? How are the regions dealing with this?

A. In some smaller and emerging markets, there is greater capacity and fewer barriers to entry. This is a big part of why there is significant activity in those regions.

However, smaller-sized markets may be disproportionately impacted by these new projects and not have the existing commercial, residential or community infrastructure base to support such fast growth.

Also, when markets do not have an existing advanced manufacturing labor pool, projects place greater demands on state, local, and company resources for new job training, upskilling, and employee attraction. Users may experience significant wage pressure or need to draw employees from further away.

Q. How are regions attempting to build their workforces to increase their appeal to manufacturers?

A. Building strong industry ecosystems is critical, including tapping into cross-industry recruiting opportunities, educational infrastructure (trade, secondary, and post-secondary schools), and alignment of regional labor skill sets.

Initiatives like apprenticeships, vocational training and educational grants can play pivotal roles in bridging the skills gap. Still, these programs must scale to meet skilled workforce needs over the short and long term. There is also a greater focus on automation and technology — increasing adoption will also help manufacturers amplify productivity amidst talent scarcity.

Q. The report mentions “pilot plant” facilities as a potential trend. Are there any of these currently in existence?

A. Pilot plants, typically 30,000 square feet to 150,000 square feet in size, offer advanced manufacturers the space needed to execute a proof of concept on a smaller scale. Many exist, and they are an important part of the manufacturing lifecycle.

There is a grey area between pilot plants and mid-size commercialized manufacturing facilities. Facilities and campuses that offer scalability are, therefore, often attractive options for users.