Top 5 Industrial Site Selection Criteria Post Pandemic
Location strategy has changed in a world dominated by COVID-19
Over the past 180 days, the coronavirus has ransacked industrial companies’ growth plans around the planet. Global supply chains have been disrupted, new challenges to operations continue to be unearthed, and the path forward is unclear for many companies. The location strategy to rapidly change direction, lower costs, identify labor, and provide flexibility is also emerging.
Colliers Site Selection Services believes there are five fundamental principles shaping industrial site selection in a COVID-19 world. Each measure poses essential questions that need to be explored by each user.
1) Facility Network and Supply Chain Flexibility
The disruptions from the pandemic have created the need for flexibility in industrial supply chains. Whether flexibility means reshoring facilities to the U.S., a China plus one model, or flexibility in facility size are all a part of the equation. Short- and long-term solutions need to be appropriately planned and executed. Users need to reflect on their location strategy needs over the next five years. What do those needs look like over that timeframe? How about the long-term over the next 7-10+ years? How has the pandemic affected your supply chain, and what steps need to be taken to mitigate those risks?
2) Speed to Market
While the optimal long-term facility solution for many industrial users satisfy a 10 to 20+ year need, the rapidly changing dynamics of the business and its cost structure may necessitate short-term real estate decisions that allow the business to penetrate markets swiftly. Available industrial buildings are the quickest way to enter the market for the short-term, while a long-term and often larger solution can be planned and implemented. Is leasing a building, for example, a better alternative to meet company objectives and growth in the short-term? How does location strategy change when contemplating the long-term, especially if the planned occupancy is specialized and will last more than ten years?
3) Operating Costs
Transportation, taxes, labor, and utilities account for over 65% of an industrial operation’s recurring operating costs while real estate accounts for only 5%. Choosing facility solutions (sites and buildings) that fit the supply chain strategy and speed to market must balance recurring operating costs. The critical impact of recurring operating cost is more important than ever in a deflated world economy.
- Did you know the range in recurring property tax rates on equipment can vary by 900% in the Southeast U.S.?
- Did you know power costs can vary by more than 250% across the Midwest?
- Did you know wages for machine operators vary 47% in the Southwest?
4) Labor, Labor, Labor
Today, many U.S. markets are flush with labor resources thanks to layoffs and rightsizing. Unemployment is still high at 8.4% but has seen a significant decrease since the height of the pandemic and as COVID-19 restrictions lessen. Identifying robust pools of labor insulated from the coronavirus with low wages creates opportunity. Some of the questions we are answering are:
- How can you leverage BIG Data to identify and attract a workforce?
- Can you avoid hot spots of coronavirus outbreaks?
- Should you avoid labor union activity?
Many states are reporting budget deficits as tax revenues decline due to the pandemic-induced recession. During the last economic slowdown, there was an uptick in communities and states increasing incentives to attract new business to make up the shortfall in revenue and position their communities for future growth. Incentives are the icing on the cake to separate the finalist locations. Inducements drive deals over the internal rate of return threshold inherent to any organization. Incentives make good site locations great; they do not make bad locations good. Although there are several questions to consider when inducements are on the table, here are a few to think about.
- What type of incentive is being offered? Both economic and non-economic incentives are typically offered. Depending on the project drivers, one may be more important than another.
- Is the viability of your project moving forward dependent on incentives? If so, what is that hurdle requirement, and what do you need to serve the long-term needs of the business operation?
- Incentive packages are typically presented with inflated figures that many times cannot be utilized. Be sure to ask yourself, can we leverage all the incentives being offered?
Solving for the Top 5 Industrial Site Selection Criteria is complicated, especially when a business’s needs may require a quick solution with long-term viability. Knowing how to get started is often half the battle. The critical takeaway is to take action.
The world has not stopped spinning; commerce is moving forward. Companies are looking to get ahead of the game during the pandemic induced slowdown. Implementing these principles for your next project can lower risks and create opportunities others can’t see.