Site Selection in an Uncertain Market: What should you be considering?
This article appeared in the Jul/Aug 2023 issue of MiMfg Magazine. Read the full issue and find past issues online.
The combination of increased consumer demand (particularly through e-commerce), supply chain disruptions, and a volatile world economy have led to a demand for manufacturing and warehouse space in the United States. Major suppliers are following key customers to “megasites” across the country, leading to a significant amount of new development in non-urban areas.
These trends have forced businesses to plan further in advance to determine a variety of real estate options while building in flexibility to quickly pivot when circumstances change. Deciding where to expand or relocate your operations is an opportunity to establish a competitive edge — but only if you start soon enough to be strategic about your site selection process.
Like most business decisions, leaders should start with clearly defining their goals and objectives. Real estate is only a part of a solution that aligns labor, logistics, and other factors key to your organization.
Leaders may come out of this planning with a clear idea of where to relocate or whether to relocate, buy, or build a facility — but more likely, you’ll need a real estate consultant to help you run scenario analyses. Some trends to keep in mind:
- Lease: Rental rates across most of the country continue to rise due to high demand and nearly historic lows in vacancy. With so much new development, that could moderate.
- Acquisition: Industrial sale prices per square foot have tripled in the past decade, driven by increasing demand and supported by steadily increasing lease rates. As financing costs increase and economic headwinds continue, the gap between buyer and seller expectations could widen.
- Construction: Factors such as construction costs and inflation could make it difficult for business owners to move forward with greenfield developments or major renovations. When a solid construction risk mitigation plan is put in place early in the planning phase, and managed effectively throughout the project, building in this environment does not require longer lead times or risk of budget overruns.
Key to the site selection decision-making are local, state and federal incentives. As gap financing, they can be a helpful tool in achieving your business goals while simultaneously contributing to the community. Understanding the complex structure and application process required for each incentive program can be a major challenge because incentives require specialized attention, experience and relationships for successful execution. Proactively considering state and local incentive programs — preferably long before you make a real estate decision — will allow out to vet the programs that align with your business goals.
The only thing constant is change but for business owners, that pace of change can be difficult to plan for when it’s tied to physical assets like real estate. Navigating today’s industrial real estate market requires foresight to secure the great space your business needs. If your organization is expanding or opening a new location in the next 18 to 24 months, your site search — especially if you want to leverage incentives programs — needs to start now.
About the Authors
Brandon Podolski is a partner with Plante Moran. He may be reached at 248-375-7440 or firstname.lastname@example.org.
Kevin Massey is Senior Vice Prsident of Plante Moran. He may be reached at 248-223-3140 or email@example.com.
Plante Moran is an MMA Premium Associate Member and has been an MMA member company since September 1998. Visit online: plantemoran.com.
. Visit online: plantemoran.com.