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Annual Corporate & Consultants










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NUMBER ONE STATE FOR BUSINESS Leading site selection consultants consistently rank Georgia as the Top State for Business. Thanks to our low cost of doing business, availability of skilled labor and global supply chain, Georgia has ranked #1 six years in a row in Area Development magazine and a record-setting seven years in Site Selection.

Visit to learn how you can become Georgia’s next success story.

Whatever your role in economic development, Emsi data is here to help





showcasing talent

locating optimal real estate

finding the right solution



Cover Story Mid-Size Markets Competing for Business and Winning Workforce availability with the necessary skills and local partnerships are two trends driving investment to mid-size markets.

58 HQ: Two Letters That Economic Developers Covet Cost-cutting, market and labor access, and proximity to others in an industry group are among the factors driving headquarters relocation decisions.


56 Revitalized Cities: Which Locations Have Outperformed and Why?

12 The USMCA Clears a Cloud of Uncertainty The passage of the new North American trade pact — the USMCA — brightens an already sunny outlook for industrial real estate.

14 Realignment of the

Automotive Supply Base

The USMCA as well as vehicle electrification will have substantial impacts on the automotive supply base in the United States.

Many locations that saw economic contractions have been able to revitalize themselves by instituting pro-business policies, developing innovative workforces, and drawing the right industry mix — sprinkled with a little bit of luck!

61 Data Centers Continue to Evolve Consolidation, the adoption of cloud services, edge computing, and hybrid colocation are among the latest trends affecting the data center industry.

Area Development® Site & Facility Planning (USPS 345-510) is published four times per year (Q1, Q2, Q3, and Q4) at Richmond, VA, by Halcyon Business Publications, Inc., 400 Post Ave., Westbury, NY 11590. Periodicals postage paid at Westbury, NY, and additional offices. Single copies, $20. Yearly subscription U.S. & Canada, $75; foreign, $95.



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Volume 55 | Number 1 Q1/2020

Leadership “I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts.”


4 Editor’s Note

Savvy Managers Should Always Expect the Unexpected

Abraham Lincoln (1809–1865), 16th president of the United States

6 Front Line

New DOT Focus on Rural Development

special location report


8 In Focus

3D Printing Continues to Rock Manufacturing

9 In Focus

Manufacturing Drives Growth in the Southern States

Reforming the Imbalanced Trade Relationship with China

Big-picture data provides evidence of a regional economy on the rise, with manufacturing as the centerpiece of its growth.

10 First Person

Vince DiPofi, CEO, SSOE Group

64 Ad Index/Web Directory

annual report


online extras • The Evolution of Facility Design


Corporate Survey

& 16th Annual

Consultants Survey

Plans for new and expanded facilities among the smaller firms

(in terms of employment numbers)

responding to our Corporate Survey are not as robust as those of larger firms that employ consultants to help in location analysis and site decisions.

• Workspace Optimization Measures for 2020 • Technology and Natural Resources Fuel Pacific States’ Economies • NEPA Rule Changes on the Horizon • Key Success Factors for Building a Cannabis Processing Center • A Holistic Balance Sheet: The Key to Successful Real Estate • The Plains States Leverage Their Synergies

POSTMASTER: Send address changes to Area Development, Circulation Department, 400 Post Ave., Westbury, NY 11590. Subscribers requesting address changes must provide both old and new addresses. © Copyright 2020 by Area Development® magazine. ISSN: 1048-6534. Printed in the U.S.A. Area Development® is a registered trademark of Halcyon Business Publications, Inc.


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Savvy Managers Should Always Expect the Unexpected


ur annual Corporate and Consultants Surveys – the results of which are presented in this issue — indicate that businesses, especially larger firms served by consultants, are moving ahead with new facility and expansion plans. These surveys were conducted at the beginning of Q1/2020. Now, as the quarter ends, economic predictions have been turned on their head by the spreading new coronavirus, COVID-19. As 2020 began, positive news about global trade — including the signing of the United States-Mexico-Canada Agreement and a Phase 1 China trade deal — were putting the U.S. economy on a continued track for economic growth. However, as the year’s first quarter comes to a close, COVID-19 put a damper on the positive economic outlook. In fact, in a special report on the impact of the virus, the Organization for Economic Cooperation and Development lowered its forecast for world economic growth in 2020 to 2.4 percent — and possibly just 1.5 percent, depending on the spread of the virus. According to the OECD report, “Global economic prospects remain subdued and very uncertain.”1 Initial outbreaks of the virus in China, Japan, Iran, Italy, and South Korea have already resulted in the closing of manufacturing plants and disruption to the global supply chain. And it’s not just tier-one suppliers that are affected, but also suppliers of suppliers down the line. It’s feared this will cause a reduction in U.S. manufacturing as parts inventories are depleted. Additionally, an economic contraction would cause a drop in consumer confidence and spending, which has been the backbone of the country’s 11-year economic expansion.2 Of course, only time will tell how this health — and economic — “crisis” will evolve over the next few months. In any event, it does present an opportunity for companies to take a closer look at their supply chains and build in greater resiliency. As advised by James B. Rice, Jr., deputy director of MIT’s Center for Transportation & Logistics, companies “should act before a disruption occurs and adjust and execute new plans afterward rather than starting from scratch every time they are plunged into a new crisis.”3 In other words, follow Murphy’s Law and expect the unexpected. 1 3 2 EDITORIAL Editor Geraldine Gambale Staff and Contributing Editors Lisa Bastian Tom Gresham Dave Claborn Mark Schantz Mark Crawford Steve Kaelble Dan Emerson Karen Thuermer Tom Ewing

DESIGN/PRODUCTION Art & Design Patricia Zedalis Production Manager Jessica Whitebook

EXECUTIVE Publisher Dennis J. Shea Sydney Russell, Publisher 1965-1986

ADVERTISING SALES William Bakewicz (ext. 202)

ONLINE SERVICES Digital Media Manager Justin Shea (ext. 220) Web Designer Carmela Emerson

CONFERENCES/EVENTS Business Development Manager Matthew Shea (ext. 231)



EXECUTIVE OFFICES Halcyon Business Publications, Inc. President Dennis J. Shea

2020 Editorial Advisory Board Josh Bays, Principal, Site Selection Group, LLC Marc Beauchamp, President and CEO, The CAI Global Group H. Robert Boehringer, III, Managing Director, Global Location and Expansion Services, KPMG Brian Corde, Managing Partner, Atlas Insight, LLC Les Cranmer, Senior Managing Director, Savills Kate Crowley, Principal, Baker Tilly Capital, LLC Dennis Cuneo, Partner, Fisher & Phillips LLP



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Amy Gerber, Executive Managing Director, Business Incentives Practice, Cushman & Wakefield

Bradley Migdal, Senior Managing Director, Business Incentives Practice, Cushman & Wakefield, Inc.

Stephen Gray, CEO, Gray

Paul Naumoff, Principal, National Director of Tax Credits and Investment Advisory Services, EY

Michael Kruklinski, Head of Real Estate, Siemens Energy and Siemens USA Scott Kupperman, Founder, Kupperman Location Solutions, LLC Dan Levine, Practice Leader, Location Strategies and Economic Development, Oxford Economics, Inc. Bill Luttrell, Director of Corporate Real Estate, Werner Enterprises, Inc.

Eric Stavriotis, Senior Vice President, Advisory & Transaction Services, CBRE Margy Sweeney, Founder & CEO, Akrete, Inc. Dan White, Director, Government Consulting and Fiscal Policy Research, Moody’s Analytics Joshua Wright, Vice President, Economic & Workforce Development, Emsi

Finance Mary Paulsen Business/Finance Assistant Barbara Olsen (ext. 225) All correspondence to: Area Development Magazine 400 Post Avenue, Westbury, NY 11590 Phone: 516.338.0900 Toll Free: 800.735.2732 Fax: 516.338.0100

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(800) 626-2930 •

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Build-Ready. Kentucky has set a new, higher standard. With our certified Build-Ready sites, we have drastically shortened the time needed to plan and begin construction. With a Build-Ready site, a company is guaranteed that: •

A building pad is ready

Zoning is in place

Environmental issues have been resolved

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Construction costs and timetables have been estimated

Funding plans have been developed, with sale and lease options

Building renderings are available

That means much of the red tape has been eliminated, allowing a company to be operational much more quickly. Kentucky communities are offering a growing list of certified Build-Ready sites. To learn more, call (800) 626-2930 or visit

FRONT LINE New DOT Focus on Rural Development “Economic success” is a critical component of the Department of Transportation’s new initiative.


Last October U.S. Department of Transportation Secretary Elaine Chao announced a new initiative focusing on transportation and related development challenges in rural areas. The new effort was called ROUTES — Rural Opportunities to Use Transportation for Economic Success. ROUTES will build on two successful DOT discretionary grant programs, now called BUILD and INFRA (previously known as TIGER and FASTLANE, respectively). BUILD supports varied projects. INFRA has a freight focus. Many rural communities, of course, have successfully competed for these grants. It’s DOT’s concern, however, that these individual successes don’t provide the far-reaching leverage necessary to deliver benefits across vast rural areas. In addition, many rural areas start a notch or two behind their urban counterparts and new

funding may just be used for catch-up, not new investment. With ROUTES, DOT gives rural projects a unique lens. DOT cites three persistent concerns: safety, infrastructure, and usage. In rural areas certain roads and ports, for example, may face particularly harsh, but temporary, demands — during harvest season for example. If maintenance is deferred because of cost, that wear-and-tear can impact other assets, leaving an entire region less competitive. In November, DOT published a request for information seeking comments about best ways to get ROUTES started. DOT asked two basic questions: • How can it best identify unmet needs in rural transportation? • How can those needs be best addressed via DOT’s discretionary grant programs? Comments have come in from a range of

interested parties, from state DOTs and county engineers to transit and passenger rail supporters. Not surprisingly, one common comment has been to send more money, particularly for roads and bridges.

Economic Success Is Key Importantly, though, ROUTES is not just about money (of which there’s never enough). In fact, it’s not just about roads. With ROUTES, “economic success” is a critical component. ROUTES seeks to impact a wide range of transportation infrastructure, from roads and bridges to aviation to rail to pipelines. In DOT’s discretionary grants programs, the transport investment complements a bigger development picture — completing access to a barge/truck intermodal facility, for example. Private-sector investments are additionally important to the overall project mix. Hence DOT’s concerns about getting this right — there could be bigger payoffs, in areas needing the help, for the same amount of money. Some common ideas

emerge from the comments to DOT: • Make the grants process easier; • Provide DOT staff expertise to help with grant applications; • Focus on projects already vetted by local development or planning groups; and • Reduce local match requirements (a step already taken by DOT). Comments from North Carolina’s DOT highlight how some states already give special attention to rural development. NC has a “Hometown Strong” initiative, based in the Governor’s office, that teams-up state agency leadership to help project sponsors in rural counties. To the extent DOT decides these kinds of ideas, and initiatives will benefit its grants programs, private-sector developers should be on the lookout for changes in how applications are ranked from certain localities. Sites that are part of a coordinated review, with carefully developed economic benefits, could move up in rank. Watch for new ROUTES developments in the coming months.

The Lexicon: ROUTES —

Rural Opportunities to Use Transportation for Economic Success


Better Utilizing Investments to Leverage Development

FASTLANE — F ostering Advancements in Shipping and Transportation for the Long-term Achievement of National Efficiencies



Infrastructure for Rebuilding America


Transportation Investment Generating Economic Recovery


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MISSISSIPPI IS READY. Ready to help train your employees with workforce training programs throughout the state. Just ask top companies like Nissan, Toyota, VT Halter Marine, Inc. or Continental. Don’t miss out on your opportunity to work in Mississippi.


IN FOCUS 3D Printing Continues to Rock Manufacturing Manufacturing — not just printing — fully functioning parts and biomanufacturing are on the horizon for 3D.

Making Customized, Complex Parts


John Hornick authored the award-winning book, 3D Printing Will Rock the World. He is the chief strategy and communications officer for Orlando, Florida-based nScrypt, which makes 3D manufacturing and bioprinting systems. He is also a senior analyst for SmarTech Analysis, which publishes market research reports in the 3D printing space. John served as a partner in the Washington, D.C., headquarters of the Finnegan IP law firm for 25 years and founded Finnegan’s 3D Printing Working Group.

Companies surveyed by market research firm Essentium1 report that industrial 3D printing continues to provide substantial manufacturing benefits, including reduced lead time, mass customization, the ability to make complex parts that cannot be made with traditional manufacturing methods, and high part performance. The survey results are being borne out in myriad use cases. For example, the new Boeing 777X contains over 600 3D printed parts.2 Surgeons are using 3D printed patient-specific models of tumors to treat cancer.3 Brazilian scientists have 3D bioprinted functional mini livers.4



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As I explain in my book, 3D Printing Will Rock the World, one of the chief benefits of 3D printing is distributed manufacturing. Instead of fostering large, centralized factories making millions of the same part, 3D printing enables small runs of highly customized or complex parts in hundreds of thousands of small factories, such as local 3D printing fabricators, dentists making crowns in the dental office,5 or end-users making their own replacement parts as needed. For example, HP,

The U.S. Marine Corps created the X-Fab mobile 3D printing factory6 for making parts where and when they are needed, such as 3D printing and modifying drones in advanced areas. The U.S. Army is integrating 3D printing into its supply chain,7 printing items on demand, such as its recent 3D/bioprinting of a bandage with antibiotics on a ruggedized 3D manufacturing system in a deployed area, in a joint project with the Uniformed Services University 4D Bio3 Program, The Geneva Foundation, and nScrypt. 3D printers are best for making customized parts, not mass-produced ones. Align Technology, SmileDirectClub, and Smilelove all use 3D printers8 to make molds for millions of clear teeth aligners, each one of which is different.

3D PRINTERS ARE BEST FOR MAKING CUSTOMIZED PARTS, NOT MASS-PRODUCED ONES. which has its own line of 3D printers, uses them to make tooling, fixtures, and end-use components for in-house use for its 2D printer, 3D printer, and computer segments, with part consolidation, weight reduction, and cost-savings benefits. A great strength of 3D printing is making one-off parts on demand. When an Air New Zealand flight reported a broken cabin part shortly after takeoff from Auckland, a replacement part was 3D printed before the plane landed in Los Angeles.

Pharmaceuticals & Biomanufacturing 3D printing also holds great promise for making pharmaceuticals that meet patient needs. Aprecia is doing just that, using its Cincinnati factory to make the first FDA-approved 3D printed pharmaceutical, which is an instantly dissolving epilepsy drug. Serbian researchers are using 3D printing to optimize drug release.9 To date, 3D printing has meant mostly making parts. I see two major frontiers, one of which will be the 3D manufacturing

(not just 3D printing) of fully functioning products, not just parts. For example, the U.S. Army and Orlando, Florida-based nScrypt demonstrated automatic 3D manufacturing of fully functioning electronic devices in one machine.10 The other major frontier is 3D biomanufacturing. Researchers at MIT, Harvard, and the DanaFarber Cancer Institute have developed biohybrid materials11 that combine living and nonliving components to create multifunctional biological systems. Such materials are one of several recent steps toward merging 3D printing and bioprinting12 to make biomechanical products and parts with biomimicry printers for healthcare and beyond, such as biomechanical human hearts or living, self-healing armor.13 1 uploads/2019/10/3D_Printing_at_Scale_ A_Study_by_Dimensional_Research_and_ Sponsored_by_Essentium.pdf 2 3 news/a-3d-printed-tumour-model-leadscancer-patient-to-recovery-168287/ 4 brazilian-scientists-3d-bioprint-functional-minilivers-166594/?utm_source=twitter&utm_ medium=social&utm_campaign=social-pug 5 reports/dental-3d-printing-opportunityanalysis-ten-year-forecast/ 6 7 8 9 10 ISvars/default/nScrypt_and_U_S_ Army_3D_Print_Circuit_Structure.htm 11 researchers-develop-hybrid-living-materials-using-inkjet-3d-printing-167762/ 12 13 researchers-develop-flexible-3d-printedarmor-inspired-by-mollusks-167104/?utm_ source=twitter&utm_medium=social&utm_ campaign=social-pug

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IN FOCUS Reforming the Imbalanced Trade Relationship with China Unfair trade has cost America millions of jobs, and the Phase 1 deal with China won’t help.

BY SCOTT N. PAUL, President, ALLIANCE FOR AMERICAN MANUFACTURING Scott N. Paul is President of the Alliance for American Manufacturing (AAM), a partnership established in 2007 by some of America’s leading manufacturers and the United Steel Workers union. Scott and the AAM have worked to make American manufacturing and “Made in America” top-of-mind concerns for voters and our national leaders through effective advocacy and data-driven research.

The stock market has been hitting record highs and unemployment numbers are low, but working families aren’t enjoying this economy. Cost of living is up. Well-paying jobs that don’t require a four-year degree are scarce. The future of work looks incredibly uncertain. There are lots of explanations for how we got here. But let’s focus on one President Trump talks about a lot: China. American workers have been hammered for nearly two decades by Chinese imports. Economists call it “the China shock.”1 In fact, the country lost 3.7 million jobs to the Chinese

trade deficit between 2001 and 2018.2 It was felt everywhere — in every state and every congressional district in the country. President Trump boasts of a “blue-collar boom,” but the numbers show only 26,000 factory jobs added nationally over the past year, and 12,000 shed last month alone.3 Manufacturing as a percentage of GDP is 11 percent, a post-World War II low.4 Meanwhile, the nonpetroleum trade deficit in goods reached a high

cally insecure because imports crowded out chunks of our manufacturing base. Our goods trade deficit with China went from $83 billion in 2001, to $103 billion in 2002, to $124 billion in 2003, and reached nearly $420 billion in 2018.6 Import competition pushed down wages for America’s factory workers. And studies have documented that the toll of this import shock begins with unemployment and often ends with “deaths of despair.”7 The Bush and Obama administrations relied on dialogue with China to turn this relationship around. They failed. President Trump prom-

CHINA MUST ADDRESS THE FUNDAMENTAL ISSUES THAT GIVE IT AN UNFAIR TRADE ADVANTAGE, ESPECIALLY THE ENORMOUS SUBSIDIES IT GIVES ITS INDUSTRIES. in 2019: $839.2 billion.5 There are complex economic factors for the years-long malaise in U.S. manufacturing, but China plays a big part in them. Two decades ago, we were promised slightly cheaper stuff at stores like Walmart and a partner in the Chinese government that would follow the rules if we expanded trade. Instead, many Americans have been left economi-

ised a different approach, and while he has delivered that by going it alone and raising tariffs, he hasn’t laid out a clear endgame. Many Democratic presidential candidates criticize Trump for his China trade policy, particularly the tariffs, but the tariffs aren’t the problem. Although we should work with allies to make these negotiations more successful, our

nation should also use its economic leverage — including tariffs — to defend our workers and industries. The problem is the result of Trump’s “trade war.” In January, at the White House, the President claimed victory in the China “Phase 1” deal, surrounded by Wall Street executives clearly relieved that an uneasy truce had been reached. But this agreement doesn’t require China to address the fundamental issues that give it an unfair trade advantage — especially the enormous subsidies it gives its industries. Those fundamentals remain, and that means the forgotten men and women Trump often talks about were forgotten again in that deal. The President says that won’t happen in “Phase 2.” The president we elect in November — Trump or otherwise — must see that it doesn’t. It’s important that we make things in this country. Being able to continue doing so means we must reform our deeply unbalanced trade relationship with China. And real reform means fixing the fundamentals. 1 costs-us-jobs/ 3 CES3000000001?amp%253bdata_ tool=XGtable&output_view=data&incl ude_graphs=true 4 01/ gdpind319.pdf 5 trade/ statistics/historical/petro.pdf 6 7 uploads/2017/08/casetextsp17bpea.pdf 2


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As a firm that executes work globally, what geographic trends are you seeing in the construction market? DiPofi: In years past, the China market was hot. However, while the market itself continues to grow, pricing pressures from in-country firms hinder our ability to compete. On the flip side, Mexico has been a significant growth area for us. During the recent trade uncertainties, we were forced to shift our focus from clients looking to outsource manufacturing for U.S. import, to companies manufacturing for in-country consumption. As relations have normalized, we’re left with a more diverse portfolio. We’re anticipating food sector growth as the processed food industry expands there. Additionally, over the last year, we’ve seen more growth in Europe. We’re seeing migration in manufacturing from Western to Eastern Europe. We are looking at opportunities in Ireland, Germany, and France, which is more than we’ve done in Europe in quite a while. This spans all of our manufacturing sectors.

How is the process of designing and building a facility evolving? DiPofi: As the industry moves toward integrated delivery, both design and construction firms are recognizing the need to be more collaborative. Involving construction trades early on in the design process to ensure constructability is just one way the industry is looking to leverage lean approaches. Approaches like target value delivery will begin to focus the full team (design, construction, owner) on delivering the project below industry benchmarks — and then providing financial incentives to the team on its ability to achieve these benchmarks. This will drive more collaborative decisions and encourage behaviors that benefit the project as a whole.

Do you see any new industrial markets emerging? DiPofi: We are seeing increased opportunities when it comes to the crossover of traditional markets. As the automotive industry increases electric car production, we’re seeing the need to synergize our advanced technology and chemical experience with our automotive facility expertise. This is prevalent in the growing market of battery manufacturing. The labor shortage impacting the trades industry is also creating busi-



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ness opportunities for us as it drives the creation of workforce development centers to train skilled labor.

The U.S. market has seen a resurgence in foreign direct investment. What do companies establishing operations in the U.S. need to be aware of as they consider their first construction project? DiPofi: Many countries, particularly China and Germany, are building operations in the United States. Beyond the traditional design and construction process, there is additional upfront work to be done when a company is planning to execute a construction project in the U.S. Generally, a more deliberate approach to aligning expectations and establishing conditions of satisfaction is required. Beyond the obvious code and regulatory differences, delivery models and the contracting strategies are also different in the U.S. Change management is another area where we’ve seen value in ensuring the various parties all have the same expectations. The availability of preferred process equipment in the states or optimizing construction materials for the U.S. market can significantly impact schedule and cost of a project.

How do you see technology changing within the design and construction industry over the next five years? DiPofi: Technology will be THE key component of client value propositions over the next five years throughout the AEC industry. Technology has to be transforma-

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tional, not just improve on the same outdated processes. When we throw technology into non-optimized processes, we don’t deliver the full value to our clients. One of the trends that is upon us is the move to cloudbased technologies. Solutions like Autodesk’s BIM 360 are aimed at allowing multi-party collaboration. Another area where we’ve seen significant results for our clients is in the advanced use of reality capture. We’ve used a combination of these technologies to improve our client’s projects with over an average of 20 percent in time savings from decreased project schedules. Other innovations I see on the horizon for the AEC industry include the advancement of technology on the construction site — a move toward using augmented reality to allow the trades to view the model as the physical structure is being built. Robotics is another area that will make the job site safer and improve tracking progress on a project. Overall, we’re seeing the industrialization of construction. Our design is evolving to accommodate offsite fabrication and will continue to evolve as the components go from “stick built” to an increased utilization of modular construction.

One trend that is getting increased attention lately is big data. How does this impact the design and construction industry? DiPofi: I firmly believe design firms have to start understanding our clients’ data strategies and integrate our services with them. Building sensors into the facilities and processes to monitor and provide feedback on performance — and incorporating data into our models that will allow them to be used for ongoing facility operations — will ultimately create an operating digital twin. SSOE is developing its own data strategy — putting our

data to use to make better design decisions through machine learning and generative design.

How are you addressing the labor shortage within the AEC industry? DiPofi: Our two strategies, mentioned above — lean project delivery and technology integration — are key to allowing us to grow our capacity without a proportional growth in headcount. We are more open-minded in whom we’re looking to hire. Programmers will start to become a skillset we rely on more and more, as they empower much of the improvements that need to be driven into our industry. One positive consequence of the shift in skillset needed in our industry was crystalized at a recent conference where Billy Beane, famous from the book and movie Moneyball, shared his story. The shift to datadriven decision-making opened up his recruitment pool to those traditionally kept from entering the baseball world. Jobs weren’t limited to former baseball players anymore, which created the potential to bring in diverse talent and perspectives. We’ll find the same in the AEC industry. As we evolve skillsets, we’ll diversify our talent pool — expanding it to bring in new perspectives from those traditionally underrepresented in the AEC industry — helping address not only the labor shortage but also bringing an influx of new ideas and energy.

THE ASSIGNMENT Area Development recently asked SSOE Group’s CEO Vince DiPofi about his organization’s evolving geographic and industrial markets, use of technology, and the effect of innovations in design and construction.


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The USMCA Clears a Cloud of Uncertainty The passage of the new North American trade pact — the USMCA — brightens an already sunny outlook for industrial real estate. By Jason Tolliver, Managing Director of Investor Services, Cushman & Wakefield


e have a deal! Despite all the twists, turns, and politics, the U.S., Mexico, and Canada ultimately managed to reach a deal, clearing a cloud of uncertainty that had hung over the North American industrial market for months. Perhaps the biggest benefit of the new United States-Mexico-Canada Agreement (USMCA) is what it does not do: eliminate NAFTA entirely, throwing supply chains into chaos and threatening the longest and strongest industrial boom for commercial real estate on record. NAFTA has had a profound impact on the North American industrial market. Supply chains have become supra-national with truck traffic and need for warehousing skyrocketing. Since it took effect, annual loaded truck containers flowing into the U.S. have nearly doubled. Meanwhile, warehouse stock in the three countries has grown by over 5.5 billion square feet, with U.S. warehouse inventory growing by nearly four billion square feet. The new USMCA avoids a breakdown of $1.2 trillion of merchandise trade between the U.S., Mexico, and Canada. It’s not just about merchandise trade though. Professional services also stand to benefit. With highly integrated supply chains, North American countries rely on services to move and track products across borders multiple times before a final good is ready for sale. New trade facilitation measures simplify and streamline customs procedures to allow the easier flow of goods which, in turn, reduces the cost of trade for service providers, manufacturers, and consumers.

On the Road Again No industry had more to gain (or lose) with USMCA negotiations than the automotive industry. North America is the third-largest producer of light-



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and medium-duty vehicles and second-largest producer of automotive parts in the world. Since NAFTA’s implementation in 1994, firms have utilized the free trading relationship to extensively integrate supply chains. For example, 40 percent of U.S. imports from Mexico and about 75 percent of U.S. exports to Mexico are intermediate goods to be used in later-stage production of final goods. This helps lower overall manufacturing costs which, in turn, means increased competitiveness for North American-based automakers and lower costs for domestic consumers. This preferential trading relationship has enticed international automakers to build over 27 production plants in the U.S. It is also a major reason why new vehicle prices have risen only 8 percent since NAFTA’s inception, while overall consumer prices have gone up by 86 percent.

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Stricter rules of origin now require the share of a vehicle’s components that come from within North America to rise from 62.5 percent to 75 percent in order to be considered tariff-free. New requirements also state that to avoid a 2.5 percent levy, 30 percent (gradually moving to 40 percent by 2023) of an auto’s final assembly must be done by workers earning at least $16 per hour, far above the current average Mexican autoworker’s wage of $3.14 an hour. One continuing challenge for U.S. automotive importers will be determining whether second- or third-tier suppliers are compliant with the new labor provisions. Regardless of industry, shippers would be wise to review the USMCA agreement closely to determine if there are any specific requirements tied to labor enforcement that could lead to increased administrative costs. Failure to do so could result in added production and distribution costs for goods stopped at the border.

IP Protections & Digital Trade The deal provides stricter protections for, and enforcement of, intellectual property rights for data, patents, and trademarks in multiple sectors, including pharmaceuticals, agriculture, and biology. Canada agreed to extend patent protections for pharmaceuticals, such as biologic drugs, from eight to 10 years, and raise trademark and copyright protection spans from 50 to 70 years, in line with the U.S. and EU. Both Canada and Mexico will double their de minimis shipment value levels, which is the minimum value of an imported shipment that is subject to duty collection and customs documentation. The increase is significant for small- and medium-sized businesses that have smallervalue shipments and can often struggle to pay customs duties and compliance costs. The changes will also make it easier for online orders to ship across borders and will likely encourage some U.S. retailers to increase cross-border e-commerce. According to estimates from the International Trade Commission,1 these changes are expected to boost cross-border shipments from U.S. online retailers to Canada by 4.6 percent (or about $335 million) and boost online sales to Mexico by 3.5 percent (or about $92 million).

U.S.-Mexico-Canada (and China) An important provision tucked away near the end of the accord clearly has China in its crosshairs by attempting to prevent Chinese exports from entering the U.S. through Canada or Mexico. USMCA Article 32.10 requires each country to inform others before entering into free-trade agreements with “non-market” economies — meaning China.2 It also requires advanced review of the full text of any proposed agreement, including any

annexes and side instruments, and provides the option to terminate the USCMA on six months’ notice. U.S.-China trade policy remains the most fluid aspect of the near-term outlook for industrial real estate. The Phase 1 deal between the U.S. and China reached in December 2019 and signed in January 2020 is a promising development, although it lessened only some tariffs (largely on consumer goods). It is unlikely that existing tariffs (largely on industrial equipment and intermediate goods) will be removed entirely any time soon since they are largely viewed as leverage for future negotiations.

Nothing Lasts Forever The USMCA has a renewable 16-year lifespan, which includes an automatic six-year review process and a 10year window to negotiate any differences. While there is a risk, albeit small, that the USMCA may not be renewed at the end of the 16-year period, the deal provides firms the certainty needed to implement longer-term investment and production plans. Another important element of the USMCA is that Mexico’s and Canada’s automotive exports are now insulated from any future Section 232 tariffs imposed by the U.S., which helps to further embolden corporate investments.

Don’t Bet Against Industrial Real Estate The new agreement means businesses are more likely to move on sourcing and production decisions. Deciding where to locate a manufacturing plant is a long-term decision that firms often live with for decades, so selecting the correct location is critical. Reducing the total cost of operations and the risk of business interruption, while improving speed to market, will continue to drive site selection. Top-of-mind selection criteria will remain the availability and skill of labor, connectivity to customers and suppliers, energy costs, tax rates, and commercial real estate occupancy costs. The new USMCA trade deal supports an already bright outlook for the North American industrial market. Cushman & Wakefield’s 2020 North American Industrial Outlook3 expects logistics and industrial real estate to remain one of the hottest commercial property types over the next couple of years. Economic indicators, with strong links to industrial fundamentals, point to continued growth in 2020 and 2021. Consumer spending supported by stable inflation, wages, growth, and low unemployment bode well for industrial real estate demand, not to mention the continued demand tied to e-commerce fulfillment. n 1 General_Provisions.pdf 3 2


USMCA.indd 13


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Realignment of the Automotive Supply Base The USMCA as well as vehicle electrification will have substantial impacts on the automotive supply base in the United States. By Dennis Cuneo, Partner, Fisher and Phillips LLP

that end, USMCA changes the rules of origin (for duty-free treatment) by increasing North American vehicle content from 62.5 percent to 75 percent. It also requires that at least 40 percent vehicle content originate in high-wage areas (i.e., not Mexico), where workers earn at least $16 per hour.

Tesla, which only manufactures BEVs, is a prime example of the move toward electric vehicles.


he auto industry is undergoing a period of tremendous disruption, caused by new technology, new entrants, and changing government policies around the globe. This disruption is already causing a significant upheaval in the automotive supply base, which is changing and consolidating. This article will focus on two recent developments that will have an immediate impact on automotive suppliers and communities that host them.

USMCA The first significant development is the United States-Mexico-Canada Agreement (USMCA), which was signed by President Trump on January 29, 2020. USMCA was a renegotiation of the North American Free Trade Agreement (NAFTA) that has been in effect since 1994. NAFTA eliminated tariffs on vehicles and vehicle parts traded among the three North American countries and facilitated an integrated auto market in North America. NAFTA also facilitated the rapid growth of the Mexican automotive sector, which drew criticism from Donald Trump during his presidential campaign. He called NAFTA “a terrible deal” and promised to renegotiate the treaty if elected. After Trump took office, his administration initiated negotiations with Canada and Mexico for a new trade agreement, and one of the objectives was to increase vehicle and vehicle parts manufacturing in the United States. To



Realignment.indd 14

According to the Office of the United States Trade Representative (USTR), over a five-year period, USMCA is expected to result in: • $34 billion in new automotive investments in the U.S.; • $23 billion in new annual purchases of U.S.-made automotive parts; and • 76,000 jobs in the U.S. automotive sector. These are projections, and some trade experts believe that the actual impacts will be more modest than forecasted by the USTR. But there is a general sense that USMCA will bring more auto-related jobs and investment to the United States. In a recent online survey by LevaData, 61 percent of the automakers surveyed said, as a result of USMCA, they may increase sourcing from suppliers located near their assembly plants; 78 percent said that finding new North American suppliers is a priority for their supply chain.1 The USMCA is in the process of being ratified by the Canadian Parliament. Assuming that happens,

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the treaty will eliminate the uncertainty about North American trade that has hung over the auto industry for the past three years. Removing uncertainty bodes well for future investment here.

Vehicle Electrification The second major development impacting automotive suppliers is the acceleration of vehicle electrification. Battery electric vehicles (BEVs) are still a small part of the vehicle market, which is dominated by internal combustion engines (ICEs), but the growth rate for BEVs is expected to accelerate. For example, the Boston Consulting Group recently predicted that the sale of BEVs and plug-in hybrids will account for almost 25 percent of global auto sales within a decade.2 As reported by Forbes magazine, while there is no consensus among forecasters about the rate of adoption of electric vehicles, one indicator has remained consistent — no matter who is predicting, each new forecast gets bigger.3 Even OPEC forecasts the rapid acceleration of BEV sales. All of the major automakers have announced plans to electrify their fleets. Reuters reported that automakers have already committed over $90 billion toward electrification, in what it described as an “investment tsunami in batteries and electric cars.”4 The move towards electrification is driven by government policies across the globe and improving consumer sentiment toward electric vehicles, as best exemplified by the success of Tesla, a relatively new automaker that only makes BEVs. Tesla sold 376,500 electric vehicles last year. At the end of January 2020, Tesla’s market capitalization had reached $117 billion, making it the second-most-valuable automaker in the world. Tesla employs 10,000 people at its Fremont, California, assembly plant, and another 7,000 people are employed by Tesla and its partner Panasonic at Tesla’s battery Gigafactory, near Reno, Nevada. While Tesla is perhaps the most publicized example of the move toward vehicle electrification, there are several other prominent examples of recently announced EV-related investments in the United States:  eneral Motors is retooling its Detroit Hamtramck as•G sembly plant to switch from ICE vehicles to EVs, where GM will build the Hummer EV. Together with LG Chem, GM will also build a $2.3 billion vehicle battery plant near its closed assembly plant in Lordstown, Ohio, which will employ 1,000 people. •F  ord recently announced plans to partner with Rivian, a new entrant, to build a new electric vehicle for the Lincoln luxury brand, using Rivian’s electric vehicle platform. Ford also announced plans to build an all-electric Mustang Mach E, for which it has already received over 32,000 customer deposits.  olkswagen has embarked on a $800 million expansion •V of its Chattanooga, Tennessee, assembly plant to build

electric SUVs, which will add 1,000 new jobs. •S  K Innovation is building a $1.7 billion vehicle battery plant in Georgia that will employ 2,000 people. •L  ucid Motors, which secured a billion dollar investment from Saudi Arabia’s Sovereign Wealth Fund, broke ground on a $700 million BEV plant in Casa Grande, Arizona, that is projected to employ 2,000 people at full production. To be sure, the internal combustion engine will continue to propel a vast majority of vehicles for the foreseeable future — but, over time, vehicles will shift to electric propulsion. The impact of this transition on the automotive supply base will be substantial. ICEs are made up of thousands of parts, ranging from spark plugs to exhaust systems. Approximately a quarter of the employees engaged in vehicle parts manufacturing make components for ICEs.5 BEVs are made up of fewer and different parts — ranging from electric motors to batteries. As vehicles shift to BEVs, employee skill sets will change, and many ICE parts plants will face future obsolescence if they aren’t transitioned to EV parts. Traditional ICE suppliers that aren’t able to pivot to BEV parts will struggle to survive. Those suppliers that can make the transition, along with some of the new entrants, will thrive. This has obvious implications for communities that currently host ICE suppliers…and for those that hope to attract EV suppliers. For those communities seeking to capitalize on the move to electrification, the Reno-Northern Nevada area is an excellent case study. For years, Reno’s economy was based on gaming and tourism, which was hard hit by the Great Recession. The region developed a strategic plan to attract advanced manufacturing, which is now a primary driver of economic growth — led by Tesla’s battery Gigafactory. A decade ago, Northern Nevada wasn’t a player in automotive manufacturing. Today, it is the home of a $6 billion vehicle battery plant that employs more than 7,000 people. Together, the USMCA and vehicle electrification will have substantial impacts on the automotive supply base in the United States. Communities that host — or seek to host — vehicle parts plants would be well advised to stay abreast of these new developments. n 1 4 5 2 3

DENNIS CUNEO is a long-time veteran of the auto industry. He is a partner at Fisher Phillips LLP and also operates his own consulting firm, which focuses on site selection. He was formerly a senior vice president of Toyota and currently sits on the boards of two Fortune 500 auto suppliers, AK Steel and Borg Warner. He has been a frequent lecturer on the auto industry at programs sponsored by Area Development and by economic development organizations. AREA DEVELOPMENT | Q1 2020

Realignment.indd 15


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By David Hickey, Managing Director, Hickey & Associates

MidSizeMarketsUse.indd 16

avigating the vast, dynamic U.S. landscape is a challenging undertaking for business leaders. With sharp contrasts between costs, infrastructure, quality of life, demographics, taxes, and regulations, among a list of other variances, finding a home for company operations requires an extensive evaluation.

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As the nation’s economy has evolved over recent decades, so have the traditional markets for certain industries and sectors. In the not so distant past, we witnessed certain corners of the country being the sole focus of investors and business leaders, whether it be historical centers for everything from steel production in Pittsburgh to energy in Houston, or in more recent memory, technology out of the San Francisco Bay Area region. Today, while these traditional centers may exist to a certain extent, we’re finding alternative markets competing for new and well established industrial sectors. Along with the transformation and diversification of the American economy, we’ve also witnessed a shift of businesses that are not solely focused on the largest urban centers, but also considering major investments and significant job-creation projects in cities considered to be in the “mid-sized” range. Business leaders are now recognizing that core location drivers, especially workforce and operational cost savings, can be achieved in these next-tier communities.

Defining “Mid-Size” Markets Before going further, let’s first define a “mid-size” market. Beginning with U.S. government-defined geographical regions known as metropolitan statistical areas (MSAs), we are setting our focus on markets with a population above 150,000 and below one million. To set a baseline time period, our population figures are based on government estimations

MidSizeMarketsUse.indd 17

from 2018, an updated assumption from the previous 2010 U.S. Census data. Now that we defined mid-size, let’s review two of the major driving factors for investment in these markets: workforce availability and local partnerships.

Pound-for-Pound Winners Still today, many companies focus solely on the largest markets for their business investments. There are several justifications for doing so, including the assumption of population size being a determinant of workforce availability, proximity to customers, and sound, reliable infrastructure. However, many business decision-makers are coming to find that their previous assumptions were off base, or they find that mid-size markets are truly the better bet for their core operations and future workforce. Day in and day out businesses are finding extensive success in mid-size markets following due diligence during their location decision process. By conducting an empirically driven assessment, along with perhaps thinking outside the box, companies are thriving in mid-size communities. When forecasting the demographics of a market, which is a vital activity in the site selection process, we’re finding many markets considered to be mid-sized may be on the cusp for moving up to the next population threshold. As can be seen in the map illustrating the fast-growing mid-size markets,

3/4/20 3:25 PM

BEND, OR 2018 Population

BOISE CITY, ID 2018 Population






Fastest-Growing Mid-Size Markets

18.47% GREELEY, CO 2018 Population

314,305 GROWTH

PROVO-OREM, UT 2018 Population







480,891 GROWTH





ST. GEORGE, UT 2018 Population

171,700 GROWTH


MIDLAND, TX MSA 2018 Population

178,337 GROWTH


DAPHNE-FAIRHOPE-FOLEY, AL 2018 Population ODESSA, TX 2018 Population


218,022 GROWTH




we’re witnessing significant growth rates of over 20 percent. Meanwhile, other communities are losing population and labor supply.

are actually available, and most importantly, they’ll be attainable in the future for their operations. This future supply of skills is what we call a “talent pipeline.”

Talent Pipeline

Mid-size U.S. markets are often well-positioned with a robust talent pipeline, many times rivaling that of their larger competitors. The primary reason for the pipeline of talent in many of these markets is the presence of good public school systems, major universities, and other institutions of higher education — i.e., they’re often referred to as “college towns.” In fact, a unique aspect of the 2020 U.S. Census will be how these academic institutions impact overall population statistics in these mid-size markets. Recent government guidance has outlined that students will likely be captured as residents of their college location.

For nearly all strategic location decisions today, the most important factor to evaluate is workforce. In the past, the consideration for labor had a significant focus on cost and employment laws. With a full employment environment throughout the United States, attention has shifted to the availability of skills and the overall sustainability of a local workforce. While population size can be a determinant of workforce viability, business leaders are quickly learning that more diligence must be done to ensure the bespoke roles and skills

Each year, thousands of qualified, skilled graduates enter the workforce in these mid-size markets. Unfortunately, however, there is too often a “brain drain” in these communities, a term referring to the loss of talent that leaves a market. Statistics prove this exodus of young talent is not driven by a desire to leave their respective college towns. Instead, the



MidSizeMarketsUse.indd 18

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lack of quality jobs and careers lead to graduates migrating away to major cities in other parts of the country. This trend occurring across mid-size markets presents an incredible opportunity for businesses to find the talent they need in the near term, as well as to develop a pipeline for future growth.

An Example Skills in engineering fields — particularly in the traditional fields of electrical and mechanical, among others — are becoming increasingly difficult to find in the U.S. today. Finding talent in markets across the country, even in the largest metropolitan areas, can be an insurmountable challenge. While the skills certainly do exist, the competition for the talent has reached heights not seen before. In some markets, even if you can secure talent in these fields, retention of those employees can present significant challenges in an ultra-competitive employment environment. In the Midwest, manufacturing is still a major industry draw for economic development in terms of employment and overall tax revenue. Many areas have even seen a resurgence in capital investment and job growth from expanding manufacturing businesses and foreign companies entering the market. However, finding engineering talent has proven to be a difficult hurdle along the way.




employment OPportunities & high

projected Growth.


LUBBOCKEDA.ORG 800.687.5330 • 806.749.4500 | LUBBOCK, TEXAS

Mid-size markets in this dynamic region are sometimes overlooked because


MidSizeMarketsUse.indd 19


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government employment data may show low availability for engineering, and even decreasing supply forecasted into the future. However, this data is not necessarily capturing the scores of highly qualified, skilled engineers graduating from the many public and private colleges and universities located throughout these states. Madison, Wisconsin, is one of the great examples of this phenomenon. If doing labor research using government available data, a business may turn away from the metropolitan area of the Badger State capital because the statistics do not always show favorably to engineering skills, especially availability of prospective employees in the field. In taking a closer look by factoring in the talent pipeline, businesses will actually find a robust channel of engineering skills today and into the future. After reviewing alumni data released by the University of Wisconsin system, business analysts will find an increasing trend of engineering graduates staying in Madison or, at the least, choosing to remain in the state following graduation. What is driving that trend? There are a number of factors, of course, but the primary driver is the availability of quality jobs and career opportunities. In fact, engineering graduates are more likely to stay in Madison than any other single place. According to the University of Wisconsin data,1 235 graduates from the 2018 class remained in the Madison metropolitan area following graduation. That trend is a significant uptick from 10 years prior when the region only saw 92 graduates stay, which was an increase from only 54 engineering students remaining in 1998. Data shows a similar increased trend of graduates staying in the state altogether. This trend is not just limited to the main campus graduates, as statistics also show a similar increase from other regional universities and colleges known for their engineering programs.

Local Partnerships Mid-size markets are also attracting business from other major

markets because of the support of local political leadership and economic development officials to establish strong publicprivate partnerships with the business community. Partnerships can come in many shapes and forms across the country, with many being in the realm of economic incentives, skill development programs, zoning and permitting considerations, and infrastructure support, among a list of others. State economic development officials have tools and resources that communities can deploy to attract, recruit, and retain businesses. However, these mechanisms may not be leveraged effectively by certain companies, especially in the case of non-refundable corporate income tax credits. In these particular cases, the regional and local leaders are needed more than ever, which is exactly why officials of mid-size markets are developing successful partnerships today. Economic developers are now leveraging Opportunity Zones to attract investments into their communities, a federal program established by Congress in 2017. While still in an early phase, these zones are yet to be fully realized successfully. To further support businesses and drive investment in these pre-designated areas, state and local officials have developed programs to supplement the zone opportunities. As an example, businesses investing in the Santa Fe metropolitan area may now be able to capture additional funds via the Local Economic Development Act (LEDA) program, a discretionary incentive. In sum, as businesses continue to navigate the dynamic U.S. economy, further attention will be directed toward mid-size markets from coast to coast. To implement sound location strategy, evaluating a comprehensive set of key factors tailored to their business will become more important than ever. In doing so, mid-size markets will be “winning� these location projects, especially if workforce and partnership opportunities are primary decision factors. >>> 1



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3/4/20 3:28 PM

We’re committed to Economic Development in New York State. Our grant programs have provided over $100 million in assistance, helping to create or retain 50,000 jobs in New York communities.

Learn how our programs can benefit your business. Visit

34 Annual th

Corporate Survey






SurveyQ1.2020.indd 22

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3/5/20 10:59 AM

Corporate Survey

CURRENT OPERATIONS OF RESPONDENTS: Manufacturing— Durable Goods Manufacturing— Non-Durable Goods Manufacturing — Other Distribution/Logistics/Warehousing Data Processing, Software & Other Computer-Related Services Energy Industry Healthcare/Life Sciences Construction & Trades Other

The key word for 2019 was “uncertainty.” That uncertainty led to tepid economic growth last year – just 2.3







30% 6% 17% 6% 1% 2% 4% 10% 24% 30

percent, according to Bureau of Economic Analysis,1 compared to 2.9 percent in 2018 and short of the 3

Respondents’ titles:

percent target growth rate set by the White House. Last year started well for the manufacturing sector, though growth slowed as the risk for a downturn in global manufacturing increased. The Institute for Supply Management’s Manufacturing PMI fell in December 2019 for the fifth straight month to 47.2 — the lowest level since June 2009 — as new orders, production, employment, and new export orders shrank at a faster pace and price pressures increased.2

Other Business Unit Manager or Director Real Estate Mgr./Dir.; Facility Mgr./Dir.; Development Mgr./Dir.; V.P. Real Estate

12% 10%


Chairman, President, Partner, CEO, or Owner



V.P., Secretary, or Other Corporate Officer


CFO, Controller, Financial Officer

“Global trade remains the most significant crossindustry issue, but there are signs that several industry sectors will improve as a result of the phase-one trade agreement between the U.S. and China,” said Timothy

Nevertheless, “While the abatement of trade and tariff

R. Fiore, chair of the institute, in a statement.3

issues has helped improved confidence, CEOs still remain apprehensive about global growth prospects in

More good news came in the form of the recently

early 2020,” said Lynn Franco, Senior Director of Eco-

signed US-Mexico-Canada Agreement (USMCA),

nomic Indicators at The Conference Board.5

which replaced and improved upon NAFTA. According to the Business Roundtable, “Building off the current

As 2019 ended and the new year began, Area Devel-

foundation of duty-free trilateral trade and integrated

opment surveyed its corporate executive readers to

supply chains across North America, USMCA…will in-

find out what their plans are for new facilities and ex-

crease U.S. jobs, exports and economic growth.”4

pansions in 2020 and beyond. We also asked if these


SurveyQ1.2020.indd 23


3/5/20 11:00 AM

Corporate Survey Primary role in company’s location decisions: Not involved


Information gathering

12% 24% Preliminary recommendation

59% Final decision

new trade agreements would have any effect on their plans and about their site selection priorities. Let’s take a look to see what they had to say.

OUR CORPORATE RESPONDENTS Number of facilities currently operating worldwide

Some 100 corporate executives responded to our


facturing firms and are the top-level executive at

annual survey. More than half of them are with manutheir firms, i.e., chairman, president or CEO, or

5 or more

18% 6%

Four Three

owner, and nearly 60 percent are responsible for their companies’ final site location decision. One



Of the respondent companies, about half operate just one domestic facility, but nearly a fifth operate

17% Two

five or more. Only 22 percent of the respondents operate foreign facilities; of those, a third operate just one and a third operate five or more. Sixty

FOREIGN: (of the 22% who operate foreign facilities)

percent say their companies employ fewer than 100 people. When asked about the change in the number of


5 or more



facilities their companies operate, only 22 percent say they had an increase in that number over the last 12 months. About 70 percent report no change

5% Four

14% Three

14% Two

in the number of company facilities over that period. If we’re wondering whether or not the Trump administration’s aggressive trade policies are responsible for this lack of movement, about two thirds of the respondents say the answer is “no.”



SurveyQ1.2020.indd 24

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3/5/20 11:18 AM


training and education programs.

vey responders cited availability of skilled labor and labor costs

So, if companies value access to

as two of the most important

skilled workers while remaining

site selection factors facing

sensitive to rising labor costs, why

companies today. But what is

aren’t they flocking to every local

more surprising is the ranking

technical college or career high

for training programs/technical

school to find that talent? Why

schools, coming in well behind

isn’t training programs/technical

at No. 19.

schools ranked No. 1?

Given historically low unemploy-

Clearly, there are many reasons

ment, we all know there are few

why that’s not the case — far too

people on the sidelines waiting

many to list. But I do think one,

spondents did not change their

for a job offer. As a result, com-

simple way to get more location-

number of facilities in the past 12

panies are forced to hire from the

ally active companies focused on

months, 45 percent claim they plan

ranks of the “already-employed,”

training resources is to ensure

to open a new facility within the

in turn bidding up wages to

that local industry in addition to

next five years. Of those, nearly

entice folks to leave good jobs

economic development and train-

for a better one. That’s the direct

ing partners are the ones telling

tradeoff between availability and

that training story. In our experi-

costs many companies face.

ence, that training pitch reso-

Alternatively, expanding companies can hire from the ranks of the underemployed (e.g., folks working in retail or food service). Or they can hire workers re-tooling


all — 87 percent — say they plan to open new domestic facilities.

nates much more strongly when

Overall, southern states will garner

it comes from the folks who are

most of the new domestic facilities,

actually using those training

with 22 percent going to the South-

resources and can speak firsthand

west, a quarter to the deep South

to their value.

and Mid-South, and 8 percent to

from other industries. Or they

If local employers are engaged

the South Atlantic States. Nearly

can hire younger workers now

with training and education,

40 percent of these new domestic

entering the workforce. These are

then it’s more likely that future

oftentimes untapped sources of

employers will be engaged with

labor. The common denominator

training and education. And,

across those pools of workers,

come next year, we’ll (hopefully)

warehouse/distribution centers,

however, is the critical importance

see training programs rise up the

although — in total — the new do-

of strong state, regional, and local


mestic facilities are not projected to

By Chris Schwinden, Senior Vice President, Site Selection Group

facilities will house manufacturing operations and a quarter will be

create many jobs: about 70 percent of the respondents expect them to create fewer than 100 jobs.



SurveyQ1.2020.indd 26

for free site information, visit us online at

3/5/20 11:19 AM

Corporate Survey Number of people employed worldwide: (all facilities)


1,000 or more


Fewer than 20


22% 22% 100-499

14% 20-49

24% 50-99

CHANGE IN THE NUMBER OF FACILITIES DURING THE PAST 12 MONTHS: Increased number of facilities by 4 or more


Increased number of facilities by 3 or fewer


Number of facilities not changed


Although much has been made of the advantages afforded to investing in Opportunity Zones6 that were created as part of the Trump administration’s tax reform law, only a fifth of our Corporate Survey respondents are considering


Decreased number of facilities by 3 or fewer


Decreased number of facilities by 4 or more










locating a domestic facility in one of these areas. Of those with new facility plans, only a third claim to have plans for new foreign facilities. About a

Have Trump’s aggressive trade policies had an effect on your plans to open new or expand current facilities?

quarter of these new foreign facilities are slated for Mexico and nearly 30 percent for Asia. Interestingly, of those slated for Asia, twice as many — 40 percent — will

Yes No



go to India as compared to China (20 percent). It’s interesting, however, that about three quarters of the Corporate Survey respondents say the new US-Mexico-Canada Agreement as well as the Phase 1 China trade deal will have no effect on their 2020 facility plans.


SurveyQ1.2020.indd 27


3/5/20 11:19 AM

Analysis ROBUST INFORMATION NEEDED to Satisfy Site Selection Demands Due to sustained industrial sector growth, readily available

tion of the e-commerce sector has led to the prioritization

resources to support new demands have diminished. As

of transportation accessibility and condition as critical

was indicated in survey results, concerns about a con-

within the site selection process.

strained labor market to support industry needs has the power to thwart growth momentum. Accessibility to skilled labor is critical to meeting operational goals and, as indicated in survey results, identification of adequate levels of skilled labor is a logically critical driver of site selection and expansion decisions.

As industrial facilities’ vacancy rates remain in the single digits across the U.S., considerably more companies are desiring to utilize advancements in pre-capital planning to design facilities to fit operational needs. This increase in greenfield development projects has led to an increase in critical site-readiness factors involving utility service, envi-

Exceedingly low unemployment rates combined with a sig-

ronmental suitability, and a clear understanding of permit-

nificant number of workers within proximity to retirement

ting/entitlements timelines.

age is forcing a more comprehensive approach to ensuring access to skilled labor. To ensure opportunities to attract needed labor, companies are increasingly interested in localized quality-of-life factors in the site selection process. A healthy, maintained, and supportive community environment provides underpinnings necessary to attract population necessary to support labor demands into the future.

Soaring technological advancements allow industry leaders to undertake pre-capital planning for new or expanded facilities to levels of accuracy that were only dreamed possible as little as a decade ago. The ability to pinpoint facility sizing requirements, internal production design, infrastructure capacity demands, detailed labor needs, and logistical advantages has improved the efficiency of site selection

There exists a growing trend in streamlining operations and

efforts. The results of the 34th Annual Corporate Survey

realigning logistics to more efficiently receive inputs and

prove that robust, detailed site and service information is

transport finished goods. In addition, continued accelera-

required to effectively satisfy site selection demands.

B y C o u r t n e y D u n b a r, C E c D E D F P A I C P, S i t e S e l e c t i o n a n d E c o n o m i c D e v e l o p m e n t L e a d e r, Burns & McDonnell

Nearly half of new foreign facili-

jobs than the domestic ones — 42

expand domestic facilities, while

ties are expected to be manufac-

percent of the Corporate Survey

only 20 percent plan to expand

turing operations, a quarter will

respondents claim these facilities

foreign facilities. Nevertheless,

be warehouse/distribution cen-

will create between 100–499 jobs.

85 percent of the respondents say the domestic expansions will

ters, and 18 percent will house headquarters functions (twice as

Slightly more than half of the re-

create fewer than 100 jobs, while

many as are planned domesti-

spondents also plan to expand an

45 percent say the foreign expan-

cally). The new foreign facilities

existing facility over the next five

sions will create between 100 and

are also expected to create more

years. Of those, nearly all plan to

1,000+ jobs!



SurveyQ1.2020.indd 28

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3/5/20 11:22 AM


Plan to open a new


(not relocate an existing)

facility within five years:




2% 10% 8% 12% 14% 10% 2% 10% 22% 8% 2%

New England (CT, MA, ME, NH, RI, VT) Middle Atlantic (DE, MD, NJ, NY, PA) South Atlantic (NC, SC, VA, WV) Mid-South (AR, KY, MO, TN) South (AL, FL, GA, LA, MS) Midwest (IL, IN, MI, OH, WI) Plains (IA, KS, MN, NE, ND, SD) Mountain (CO, ID, MT, UT, WY) Southwest (AZ, NM, OK, TX) West (CA, NV, OR, WA)


Offshore (AK, HI, PR, VI) 0

Of those with new facility plans, plan to open new domestic facilities within five years:








38% 24% 9% 5% 7% 5% 2% 10%

Manufacturing Warehouse/ Distribution No



Data Center Back Office/Call Center Shared Services R&D













As far as relocation plans, only

foreign facility’s operations back to

rate the location factors they con-

about a quarter of the respon-

the U.S. Again, we see that when it

sider when making new facility, ex-

dents plan to relocate an existing

comes to these respondents, cur-

pansion, or relocation plans as either

facility within the next five years.

rent trade policy does not appear

“very important,” “important,”

Of those with plans, 70 percent will

to be a driving force.

“minor consideration,” or “of no importance.” We then add the “very

engage in a domestic-to-domestic

important” and “important” ratings

cating a domestic operation to off-


shore, and 5 percent relocating a

Finally, we ask our survey-takers to

in order of importance.

relocation, with just 4 percent relo-

together in order to rank the factors


SurveyQ1.2020.indd 29


3/5/20 11:23 AM

Corporate Survey

The new foreign facilities are expected to create more jobs than the domestic ones.

one’s supply chain foot-

porate Survey again re-

print is so important

flects that logistics and

that most manufactur-

labor remain the top

ers and distributors

criteria for corporate

start their site selection

investment. Highway

process by doing logis-

accessibility is especially

tics analysis up front to

important to the 60

determine their search

percent of the respon-

area, then go out to

Fewer than 20

dents who are involved

find the best labor, real


in manufacturing and

estate, regulatory/busi-


ness environment, etc.

1,000 or more


11% 100-499

9% 11% 50-99

Nearly 70 percent of


all freight is hauled

The Corporate Survey

by trucks and over 80

also points out the

percent of the com-

ongoing concern inves-

munities in the U.S. are

tors have regarding the

served by trucks only.

availability of skilled

Rising logistics costs

labor and overall labor

and real estate prices

costs. Locations large

aside, growing market

and small with mean-

demand is the ulti-

ingful educational insti-

mate investment driver

tutions, focused labor

as e-commerce, J-I-T

training programs, and/

manufacturing, and

or a “quality of life�

timely last-mile delivery

that attracts and retains

require great highway

a skilled workforce

access and proximity

will continue to attract

to markets. Improving





within the search area.


If company is planning new domestic facilities, it is considering locating in a newly created Opportunity Zone:


Top Criteria Remain LOGISTICS AND LABOR The 34th Annual Cor-

Total new jobs to be created at new domestic facilities:



B y B i l l L u t t r e l l , D i r e c t o r, Corporate Real Estate, Werner Enterprises, Inc.



SurveyQ1.2020.indd 30

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3/5/20 11:24 AM

Where innovation secures your future. It takes more than innovation to hold together an 82-year-old adhesives company. In the case of Franklin International, Midwestern values have helped this family business grow through four generations. With strong Ohio roots and a desire to raise families here, the polymer science company credits its success to a strong workforce as well as a state that fosters innovation and provides companies the support necessary to create new and superior products. To learn more, visit

find it here

Corporate Survey

Of those with new facility plans, plan to open new foreign facilities within five years:



Historically, highway accessibility has held the first or


second spot in the rankings and this year is no excep-


tion: 92.4 percent of the Corporate Survey respondents rated highway accessibility “very important” or “important,” ranking it No. 1, closely followed by availability of skilled labor, ranked No.2 among the site selection factors and considered “very important” or “important” by 92.3 percent of the survey respondents. With



9% 24% 5% 5% 5% 9% 5% 5% 5% 29%

Canada Mexico Caribbean Central America South America Western Europe Eastern Europe Middle East Africa Asia 0







unemployment at 3.6 percent according to the Bureau of Labor Statistics — and consequently more job openings than people to fill them7 — it’s no surprise that this factor is a top concern. Labor costs ranked third, with a combined importance rating of 87.1 percent. A tight labor market, as well as recent minimum wage increases in cities and states across the nation,8 has kept labor costs at the forefront for our corporate executive readers. And sought-after workers — especially tech-savvy millennials and GenZers — can be choosy about where they work so it’s no surprise that the quality-of-life factor maintains a combined importance rating above 80 percent and is now the No. 4 site selection factor.

Location of facilities planned for Asia: (as a percentage of total number to be opened there)

Ranking fifth — up from 10th in the previous survey — with 80.3 percent of the respondents ranking the factor as “very important” or “important” is occupancy or construction costs. This is no surprise as construction costs continue to rise9 with increases in material


20% Vietnam



10% 10%


prices and labor costs. Material costs have been affected by higher tariffs on steel and aluminum as well as Canadian lumber.



The tax and incentive factors actually declined in the ratings and rankings, with fewer than 80 percent of the Corporate Survey respondents rating these



SurveyQ1.2020.indd 32

for free site information, visit us online at

3/5/20 11:24 AM

Will the new US-Mexico-Canada Agreement have any effect on your facility plans in 2020?

Will the Phase 1 trade agreement with China have any effect on your facility plans in 2020?


24% No


Yes No




Thanks to Santee Cooper resources like lowcost, reliable power, creative incentive packages and a wide-ranging property portfolio, South Carolina shatters the standard for business growth. In fact, since 1988, Santee Cooper has helped generate more than $15 billion in investment and helped bring nearly 80,000 new jobs to our state. It’s how we’re driving Brighter Tomorrows, Today.


SurveyQ1.2020.indd 33


3/5/20 11:25 AM

Total new jobs to be created at new foreign facilities:




Warehouse/ Distributionr




Back Office/Call Center









Plan to expand an existing facility within five years:

1,000 or more


Fewer than 20

25% 100-499




17% 50-99


Of those with expansion plans, plan to expand existing domestic facilities within five years: No








Total new jobs to be created by domestic expansions: 1,000 500-999 or more


Of those with expansion plans, plan to expand existing foreign facilities within five years:


100-499 50-99

10% 20-49




SurveyQ1.2020.indd 34




Fewer than 20




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3/5/20 11:25 AM

Corporate Survey factors as “very important” or

ingly, state and local incentives

“important.” Corporate tax rate

is now ranked No. 14 with only

dropped from fourth place to

a 70.2 percent combined impor-

No. 6 (79.7 percent importance

tance rating, dropping from its

rating); tax exemptions fell from

previous seventh place ranking

the fifth spot to No. 8 (75 percent

and 82.5 percent importance rat-

importance rating); and, surpris-

ing. When it comes to incentives,

Analysis Survey Results Reveal CHALLENGES IN TODAY’S INDUSTRIAL MARKET The 34th Annual Corporate Survey results tell a very inter-

industrial labor pools at relatively low cost. With industrial

esting story about the mindset of small to medium-sized

demand continuing to increase, current available space and

businesses. More than 50 percent of the respondents have

new completions should be fully absorbed. E-commerce,

one facility worldwide. A full 60 percent of respondents

third-party logistics, manufacturing, and food and beverage

have fewer than 100 employees worldwide. That is small

users, which have fueled much of the demand in recent

business at its core. So what are these small businesses

years, remain the most likely candidates to occupy new

focused on? America’s Industrial market and its growth.


Almost half of the respondents (45 percent) are seriously

Digging deeper into the survey reveals some of the current

contemplating opening a new facility in the near future,

challenges in today’s industrial market. Attend any indus-

with a whopping 87 percent of those to be located domes-

trial site selection or real estate event and you will no doubt

tically. Of those new facilities, 62 percent are slated to be

hear concerns about “the war for talent.” According to the

manufacturing or distribution. This echoes the continued

survey, the No. 1 challenge on the minds of respondents is

strong demand we are seeing in the industrial sector in the

the availability of skilled labor (65 percent rate this as “very

United States.

important,” the highest such rating). Skilled industrial labor

Since 2013, industrial space demand has outpaced new developer completions by more than 89 million square feet. In that same time period, rents have increased by 25.2 percent, according to CBRE Research.1 CBRE tracks a basket of 14 strategic industrial markets in the United States. Seven of those 14 markets (Detroit, Las Vegas, Salt Lake City, Milwaukee, Reno, St. Louis, and El Paso) had vacancy rates below or slightly above the national average (4.3 percent) and aggregate net asking rent growth of 6.1 percent year-over-year. Overall, these markets have large

is harder and harder to find in today’s market. For some the answer has been automation, but that has a high barrier to entry, often with capital investment in the tens of millions of dollars and significant implementation risk. For those who cannot or will not choose automation, the solutions to the labor challenges have been higher wages, better benefit packages, and better workforce development programs. This trade-off is something to watch closely in 2020. 1 campaign=U.S.+MarketFlash+-+Industrial+Markets+Poised+for+Growth_unsent

B y E r i c S t a v r i o t i s , E x e c u t i v e V i c e P r e s i d e n t , A d v i s o r y & Tr a n s a c t i o n S e r v i c e s , C B R E


SurveyQ1.2020.indd 35


3/5/20 11:26 AM

Total new jobs to be created by foreign expansions:

1,000 or more


Fewer than 20

18% 100-499


A tight labor market has kept labor costs at the forefront for our corporate executive readers.



Plan to relocate an existing facility within five years:



Of those with relocation plans, will relocate a U.S. facility to another domestic location:







Of those with relocation plans, will relocate a domestic facility to off/near shore:

Of those with relocation plans, will relocate a foreign facility back to the U.S.:







95% No



SurveyQ1.2020.indd 36

for free site information, visit us online at

3/5/20 11:26 AM

Corporate Survey 75 percent of the survey respon-

from the W.E. Upjohn Institute

dents say tax incentives are the

for Employment Research that

most important. However, based

stated, “for at least 75 percent

on the ranking of state and local

of incented firms, the firm would

incentives, one could conclude

have made a similar decision lo-

that incentives aren’t as important

cation/expansion/retention deci-

to company location decisions as

sion without the incentive.”10

previously held. This finding has been upheld in a recent paper

The No. 9 factor, environmental

Analysis WORKFORCE AVAILABILITY Affecting Corporate Strategies, Global Location Decisions The results of this year’s survey are very much a direct

companies, but I suspect the current interest is driven by

reflection of the global labor market. While nearly 20 per-

companies’ desires to not only escape the rising payrolls in

cent of the respondents represent large companies (500+

the U.S., but also the escalating costs to recruit and retain

employees), a full 60 percent of projected new domestic fa-

talent domestically.

cilities will house fewer than 50 employees. This is certainly in response to persistent labor market tightness as well as continued adoption of automation in both production and service sectors. Domestically — in most cases — the survey indicates that companies will continue finding ways to reduce the amount of human resources required to expand their footprints and output.

While Mexico’s official unemployment rate is slightly lower than that of the U.S., the labor markets in the two countries may be heading in different directions. Since the fall of 2018, the United States’ unemployment rate has slightly declined, while in Mexico that same metric has trended the opposite direction, having ticked up slightly in each of the four most recent reported quarters (according data from

While scarcity and rising costs of domestic employees are

the Organization for Economic Co-operation and Develop-

driving smaller headcounts in the U.S., the survey suggests

ment).1 This indicates that the Mexican labor market may

that many firms may be looking toward Mexico to supple-

be loosening, which is quite attractive to companies that

ment their manufacturing and distribution networks. Nearly

are hungry for workers.

one quarter of the anticipated new foreign operations are targeting Mexico, trailing only Asia in the survey. And unlike the projected U.S. facilities, the foreign facilities are expected to have much higher headcounts; half of the foreign facilities are expected to house at least 100 employees. Lower labor costs in Mexico have always been attractive to

Until we see significant and widespread loosening, this survey signals that the availability of workers will continue to have a major influence on corporate strategies and global location decisions. 1

By Jacob Everett, CEcD, Credits & Incentives, McGuire Sponsel


SurveyQ1.2020.indd 37


3/5/20 11:27 AM

Corporate Survey CORPORATE SURVEY* Site Selection Factors

Very Important %

Important Minor Of No % Consideration Importance % %

Labor Availability of skilled labor Availability of unskilled labor Training programs/ technical colleges Labor costs Low union profile Right-to-work state

65.4 24.7 26.0

26.9 34.3 34.3

5.1 20.5 30.1

2.6 20.5 9.6

42.9 44.0 46.7

44.2 18.7 25.3

10.4 17.3 13.3

2.6 20.0 14.7

Tr a n s p o r t a t i o n / Te l e c o m m u n i c a t i o n s Highway accessibility Railroad service Accessibility to major airport

53.9 12.0 13.3

38.5 13.3 37.3

3.8 25.3 28.0

3.8 49.3 21.3





Inbound/outbound shipping costs





Availability of advanced ICT services





Waterway or oceanport accessibility

spot in the previous year’s survey and is now considered “very important” or “important” by 73 percent of the survey respondents.

Finance Availability of long-term financing Corporate tax rate Tax exemptions State and local incentives

regulations, jumped from the 16th





55.4 48.7 43.2

24.3 26.3 27.0

14.9 19.8 25.7

5.4 5.3 4.1

Right-to-work state also jumped in the rankings to No. 11, with a 72 percent combined importance rating, from the 15th spot previously. In juxtaposition to that,

Other Available buildings Available land

32.9 34.3

38.4 30.1

17.8 23.3

11.0 12.3

Occupancy or construction costs





Expedited or “fast-track” permitting Raw materials availability Water availability Energy availability and costs Environmental regulations Proximity to major markets Proximity to suppliers





30.1 19.2 41.1 36.5 31.5 27.8

26.0 26.0 38.4 36.5 41.1 40.3

24.7 28.8 13.7 14.9 17.8 20.8

19.2 26.0 6.9 12.2 9.6 11.1

Proximity to innovation/ commercialization/ R&D centers Quality-of-life factors





with just 6.4 percent of workers in the private-sector unionized today (compared to 16.8 percent in 1983),11 fewer than 63 percent of the respondents consider low union profile as “very important” or “important,” ranking this factor No. 18, down from 12th place. In fact, our annual Corporate Survey shows many factors decreasing




* All figures are percentages and are rounded to the nearest tenth of a percent.


rather than increasing in importance ratings. Available land was considered “very important” or



SurveyQ1.2020.indd 38

for free site information, visit us online at

3/5/20 11:28 AM

Combined Ratings*

CORPORATE SURVEY Site Selection Factors


Tax incentives (tax credits, exemptions, etc.)


Other financial incentives (bonds, loans, etc.)


Worker training incentives


Other incentives











Consider whether there are businesses performing similar activities in the area of search:







Cash grants

(land, utility-rate subsidies, infrastructure support, etc.)


1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Highway accessibility Availability of skilled labor Labor costs Quality-of-life Occupancy or construction costs Corporate tax rate Energy availability and costs Tax exemptions Environmental regulations Proximity to major markets Right-to-work state

92.4 92.3 87.1 82.2 80.3 79.7 79.5 75.0 73.0 72.6 72.0

87.2 90.5 89.1 82.8 76.1 86.7 77.8 83.0 69.9 71.8 70.2

(3)** (1) (2) (6) (10) (4) (8) (5) (16T) (14) (15)

Available buildings Expedited or “fast-track” permitting State and local incentives Inbound/outbound shipping costs Proximity to suppliers Available land Low union profile Training programs/technical schools Availability of long-term financing Availability of unskilled labor Raw materials availability Accessibility to major airport Water availability Proximity to innovation commercialization/R&D centers 26. Availability of advanced ICT services 27. Railroad service 28. Waterway or oceanport accessibility

71.3 70.7 70.2 69.8 68.1 64.4 62.7 60.3 59.5 59.0 56.1 50.6 45.2 35.7

76.7 64.9 82.5 69.2 72.8 75.6 74.4 69.9 60.5 59.4 55.6 62.7 51.6 41.5

(9) (19) (7) (18) (13) (11) (12) (16T) (21) (22) (23) (20) (24) (27)

26.7 25.3 20.3

50.0 (25) 46.6 (26) 34.1 (28)

12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25.


 ll figures are percentages and are the total of the “very important” A and “important” ratings of the Area Development Corporate Survey and are rounded to the nearest tenth of a percent.

* * 2018 ranking

“important” by three quarters of

Nonetheless, nearly 60 percent

Chief among the factors decreas-

the previous year’s survey respon-

of the Corporate Survey respon-

ing in importance ratings are

dents, but only received a com-

dents consider the availability of

the bottom ranked factors: avail-

bined importance rating of 64.4

a shovel-ready/pre-certified site

ability of advanced ICT services

percent this year, dropping from

very or somewhat important in

dropped from a 50 percent com-

No. 11 to No. 17 in the rankings.

the location decision.

bined importance rating to just


SurveyQ1.2020.indd 39


3/5/20 11:28 AM

Who we are. What we do.


Print Media

Very important


Somewhat important


Minor consideration


Of no importance


Area Development Magazine

The industry’s most respected magazine since 1965

Online Media Area & Newsletters







Consider weather-related factors and geological events in the location decision:

The leading website for corporate site and facility planning

Face to Face

Consultants Forums





The industry’s leading best practices conference events for economic developers

Let us work with you. Add to your marketing success.

Use outside consultants when site selecting:

Yes No



Area Development Magazine 400 Post Ave., Westbury, NY 11590 516-338-0900 Fax: 516-338-0100

SurveyQ1.2020.indd 40

3/5/20 11:29 AM

Corporate Survey


26.7 percent. Perhaps the availability of these advanced communication services throughout most of the nation is now a given.

The results of the corporate

Due to the labor market capacity

survey are in line with the current

constraints, I was initially surprised

conditions of the market. The cur-

to see that corporate users were

rent shortage of available skilled

not putting available buildings

laborers existing in the workforce

higher in the rankings to reduce

is causing capacity constraints not

overall costs. The drop from 9th

only for manufacturing products

place to 12th place in the past

but also for the rehabilitation and

year was shocking considering

construction of manufacturing

the rise of construction costs from

facilities of the future. The chal-

10th place to 5th place. As cor-

lenges in the market are not just

porate occupiers struggle to find

finding a site to build a facility, but

optimal locations that meet their

also finding the workforce avail-

cost objectives, the biggest hurdle

Railroad service is now considered

able to build the facility. Conse-

they face is not only building or

“very important” or “important”

quently, this capacity constraint is

finding a building, but also man-

by only about a quarter of the

driving increased occupancy and

aging the capital costs associated

Corporate Survey respondents,

construction costs.

with development of the physical

down from almost half in the pre-

As the economy continues to see

vious year’s survey. And waterway

sustained growth, the available

or oceanport accessibility only

labor force continues to drive most

received a 20.3 percent combined importance rating, down from its previous 34.1 percent rating.

site selection decisions. The shrinking unemployment rate coupled with lack of vocational and technical school graduates entering the

Perhaps these low transportation

workforce has really put an even

factor ratings are a function of the

greater emphasis on the availability

specific companies responding to

of skilled labor in the site selection

this year’s survey.

process. Labor studies today are not only analyzing the availability

Finally, nearly half of the Corporate Survey respondents

of skilled labor to perform production activities inside the facility, but the labor is also analyzed to

consider weather-related factors

determine the quantity and qual-

and geological events when mak-

ity of the carpenters, electricians,

ing the location decision, and 59

plumbers, and masons who will

percent consider whether or not

build the production facility.

there are businesses performing similar activities to theirs in the

structure. Today’s manufacturing operations and floors are not the same as Henry Ford’s Model T line; thus, in some situations, it might be more cost-efficient to develop a new facility than to rehabilitate an out-of-date facility. As we march into this new decade, it will be interesting to see what production facilities of the future will look like and cost. As corporate users will continue to have to work harder to attract and retain this limited skilled labor force, will the inside of the facility continue to cost more, warranting more new development or rehabilitation of existing industrial space?

By Bradley Migdal, Senior Managing Director Cushman & Wakefield

area of search.


SurveyQ1.2020.indd 41


3/5/20 11:30 AM

16 Annual th

Consultants Survey We asked the location consultants who work with

More than two thirds of the respondents say their

corporate executives, most of whom provide loca-

clients are large firms in terms of employment num-

tion studies/comparative analyses, about their clients

bers — 500–1,000+ employees. Only 18 percent of

plans and site selection priorities. Considering the

the Corporate Survey respondents had that number

fact that only 27 percent of the respondents to our

of employees so obviously we would expect the re-

34th annual Corporate Survey claim to use consul-

spondents to our Consultants Survey to report more

tants outside of their own firms when site selecting,

robust plans in terms of new and expanded facilities.

it’s no surprise that the responses of the consultants differ from those of the corporate executives. Let’s see who they are and find out about their clients’ location plans and priorities.

THE RESPONDING CONSULTANTS More than 80 percent of the responding consultants are working with manufacturing firms, while 70 percent are working on distribution/ logistics projects. More than 80 percent also are performing location studies/comparative analyses and incentives negotiation/management for their client firms. In fact, about 40 percent say their clients expect them to narrow down and/or actually make the location decision.



SurveyQ1.2020.indd 42

C L I E N T S ’ O P E R AT I O N S

Respondents worked on projects in the following industries:

CLIENTS’ NEW FACILITY, EXPANSION & RELOCATION PLANS In fact, 98 percent of the responding consultants say their clients expect to open a new

Manufacturing— Durable Goods Manufacturing— Non-Durable Goods Manufacturing — Other Distribution/Logistics/ Warehousing Data Processing, Software & Other Computer-Related Services Finance, Insurance, Real Estate Energy Industry Hospitality Industry Healthcare/Life Sciences Retail Construction & Trades Other

82% 53% 30% 70% 32% 43% 20% 7% 38% 15% 3% 15%

domestic facility within the next five years. About a quarter of these will be manufacturing facilities and another quarter will represent warehouse/distribution operations. The majority of these domestic facilities are slated for the southern states — deep South (16 percent), Southwest (15 percent), South Atlantic (13 percent), and mid-South States (12 percent), with 14 percent going to the Midwest.

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More than half the consultants say the new USMCA as well as the Phase 1 China trade deal will affect their clients’ plans.

Primary services required by their clients:

Clients who have asked consultants to perform a location search have:

within the next five years. About Manufacturing— Feasibility Studies Global Asset Positioning Location Studies/ Comparative Analyses Incentives Negotiations/ Management Location Decision Real Estate Transaction Other

41% 22% 86% 80% 80% 56% 10%

30 percent of these will be manufacturing facilities and nearly a fifth will be warehouse/distribution centers, but nearly another fifth will be back office/call center operations. The new foreign facility projects the consultants are working on for their clients will be spread out among Canada, Mexico, and Asia

Not actively initiated the site selection process Already gathered preliminary data Already narrowed down the geographic area in which they wish to locate Already chosen several “finalist” communities Expect the consultant to narrow or make the location decision for them

39% 59% 66% 29% 39%

— each of those regions receiving In terms of their employment numbers, companies utilizing consultants’ services are generally:

16 percent of the projects — and Western Europe (15 percent), and Eastern Europe (14 percent). A

Small (20-99 employees) Mid-size (100-499 employees) Large (500-999 employees) Very large (1,000 or more employees)

3% 28% 32%

quarter of the Asian projects will go to China with about a fifth each to India and Malaysia.

Clients plan to open a new (not relocate an existing) domestic facility within the next five years: Yes No

98% 2%

37% When it comes to expansion plans, nearly all of the responding consultants (97 percent) say their

of the respondents to our Consul-

Only a third of the Corporate

clients plan to expand an exist-

tants Survey also say their clients

Survey respondents report new

ing domestic facility within five

plan to relocate an existing do-

foreign facility plans, but more

years, with more than 40 percent

mestic facility within the U.S. in

than half of the respondents to the

saying their clients will expand

the next five years, with nearly a

Consultants Survey say their clients

an existing foreign facility within

fifth also working on clients’ plans

plan to open a new foreign facility

five years. More than 80 percent

to offshore a domestic facility.


SurveyQ1.2020.indd 43


3/5/20 11:31 AM

Consultants Survey

Domestic location projects consultants are working on are slated for the following regions (as a percentage of total number of projects):

Foreign location projects consultants are working on are slated for the following regions (as a percentage of total number of projects):

New England (CT, MA, ME, NH, RI, VT) Middle Atlantic (DE, MD, NJ, NY, PA) South Atlantic (NC, SC, VA, WV) Mid-South (AR, KY, MO, TN) South (AL, FL, GA, LA, MS) Midwest (IL, IN, MI, OH, WI)

Canada Mexico Caribbean Central America South America Western Europe Eastern Europe Middle East Australia Asia

Plains (IA, KS, MN, NE, ND, SD) Mountain (CO, ID, MT, UT, WY) Southwest (AZ, NM, OK, TX) West (CA, NV, OR, WA) Offshore (AK, HI, PR, VI)

3% 8% 13% 12% 16% 14% 3% 8% 15% 7% 1%

Interestingly, nearly 40 percent of the respondents say their clients re-shored a foreign facility back to the U.S. in 2019 or plan to do so in 2020. It should be noted that practically all (95 percent) of the Corporate Survey respondents have neither offshoring nor reshoring plans. It appears from the consultants’

Asian projects consultants are working on are slated for the following nations (as a percentage of total number of projects):

responses that their clients have Types of new domestic facilities to be opened by clients (as a percentage of total number of projects):

been much more affected by the Trump administration’s trade policies, with 70 percent saying these aggressive trade policies have

Manufacturing Warehouse/ Distribution Headquarters Data Center Back Office/Call Center Shared Services R&D Other

27% 23% 14% 7% 12% 7% 7% 2%

had an effect on those plans.



SurveyQ1.2020.indd 44

54% 46%

25% 11% 19% 19% 14% 11%

US-Mexico-Canada Agreement as well as the Phase 1 China trade deal will affect their clients’ plans.

We also ask those taking the Con-

Yes No

China Singapore India Malaysia Vietnam Other Asian Nation

More than half also say the new

CLIENTS’ SITE SELECTION PRIORITIES Clients plan to open a new (not relocate an existing) foreign facility within the next five years:

16% 16% 3% 4% 11% 15% 14% 1% 5% 16%

sultants Survey to rate the location factors their clients consider when making new facility, expansion, or relocation plans as either “very

Types of new foreign facilities to be opened by clients (as a percentage of total number of projects): Manufacturing Warehouse/ Distribution Headquarters Data Center Back Office/Call Center Shared Services R&D Other

29% 18% 5% 8% 18% 9% 9% 5%

important,” “important,” “minor

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Clients plan to expand an existing domestic facility within five years: Yes No

97% 3%

Availability of skilled labor was rated as “very important” or “important” by 100 percent of the consultants.

Clients plan to expand an existing foreign facility within five years: Yes No

43% 57%

consideration,” or “of no impor-

the respondents. That’s not sur-

tance.” We then add the “very

prising considering 80 percent of

important” and “important” rat-

them say their clients expect them

ings together in order to rank the

to negotiate and manage incen-

factors in order of importance. Clients plan to relocate an existing domestic facility within the U.S. in the next five years: Yes No

82% 18%

As to be expected, availability of skilled labor was rated as “very important” or “important” by 100 percent of the consultants, ranking that factor No. 1, as it was in the previous year’s survey. With competition for labor so intense,

Clients plan to relocate an existing domestic facility to a foreign location within the next five years: Yes No

19% 81%

Have Trump’s aggressive trade policies had an effect on your clients’ plans to open new or expand current facilities? Yes No

70% 30%

it’s no surprise that the labor costs factor was ranked No. 2 with a 98.3 percent combined importance rating, and practically tied with highway accessibility at No. 3, with a 98.2 percent combined importance rating. At least in the

Will the new US-Mexico-Canada Agreement have any effect on your clients’ facility plans in 2020? Yes No

57% 43%

ranking of the top factors, the Clients have relocated a foreign facility back to the U.S. (reshored) in the recent past or are planning to do so in the near future: Reshored in 2019 Plan to reshore in 2020 No reshoring plans

14% 25% 70%

Corporate Survey and Consultants Survey respondents tend to agree. The consultants put state and local incentives in the No. 5 spot, considered “very important” or “important” by 93.1 percent of



SurveyQ1.2020.indd 46

Will the proposed trade agreement with China have any effect on your clients’ facility plans in 2020? Yes No

55% 45%

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3/5/20 11:32 AM

Consultants Survey CONSULTANTS SURVEY* Site Selection Factors

Very Important %

Important %

Minor Of No Consideration Importance % %

89.7 34.6 28.1

10.3 34.6 52.6

0.0 29.1 15.8

0.0 1.8 3.5

66.7 41.4 32.8

31.6 36.2 36.2

1.8 19.0 27.6

0.0 3.5 3.5

Labor Availability of skilled labor Availability of unskilled labor Training programs/ technical schools Labor costs Low union profile Right-to-work state

tives. Also, the respondents to our Consultants Survey are serv-

Tr a n s p o r t a t i o n / Te l e c o m m u n i c a t i o n s

ally, more than 80 percent of these

Highway accessibility Railroad service Accessibility to major airport Waterway or oceanport accessibility Inbound/outbound shipping costs Availability of advanced ICT services

respondents say cash grants, tax


ing much larger firms in terms of employment numbers, and larger firms are the ones usually courted with incentives by state and local economic developers. Addition-

incentives, and incentives in the form of free land, utility-rate subsidies, and infrastructure support are most important to their clients. More than 90 percent of the responding consultants also rate available land and available buildings as “very important” or “important.” In fact, three quarters believe a shovel-ready/pre-certified site is very or somewhat important to their clients. Consultants’ realization that getting an operation up and running is critical in today’s competitive marketplace is also reflected in the nearly 90 percent combined importance rating of

Availability of long-term financing Corporate tax rate Tax exemptions State and local incentives

64.9 12.1 26.8 10.3

33.3 31.0 53.6 27.6

1.8 46.6 17.9 44.8

0.0 10.3 1.8 17.2













27.6 39.7 51.7

44.8 48.3 41.4

25.9 12.1 6.9

1.7 0.0 0.0

51.7 64.9 25.9

41.4 26.3 60.3

3.5 7.0 13.8

3.5 1.8 0.0





19.3 13.8 44.8 22.4 48.3 35.7 8.6

47.4 48.3 44.8 56.9 46.6 50.0 39.7

24.6 29.3 8.6 17.2 5.2 10.7 46.6

8.8 8.6 1.7 3.5 0.0 3.6 5.2





Other Available buildings Available land Occupancy or construction costs Expedited or “fast-track” permitting Raw materials availability Water availability Energy availability and costs Environmental regulations Proximity to major markets Proximity to suppliers Proximity to innovation commercialization/R&D centers Quality-of-life

* All figures are percentages and are rounded to the nearest tenth of a percent.

expedited or fast-track permitting.


SurveyQ1.2020.indd 47


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Consultants Survey Combined Ratings*

CONSULTANTS SURVEY Site Selection Factors



Ranking 1. 2. 3. 4. 5T. 5T. 7. 8T. 8T. 10. 11.

Availability of skilled labor Labor costs Highway accessibility Proximity to major markets State and local incentives Available buildings Available land Energy availability and costs Expedited or “fast-track” permitting Tax exemptions Occupancy or construction costs

12. Proximity to suppliers 13. Training programs/technical schools 14. Accessibility to major airport 15T. Environmental regulations 15T. Inbound/outbound shipping costs 17. Low union profile 18. Corporate tax rate 19. Availability of unskilled labor 20. Right-to-work state 21T. Quality-of-life 21T. Raw materials availability 23. Water availability 24. Availability of advanced ICT services 25. Proximity to innovation commercialization/R&D centers 26. Railroad service 27. Availability of long-term financing 28. Waterway or oceanport accessibility *

100.0 98.3 98.2 94.9 93.1 93.1 91.2 89.6 89.6 88.0 86.2

100.0 98.1 100.0 100.0 98.0 96.1 96.1 96.1 86.3 94.1 84.3

(1)** (4) (1T) (1T) (5) (6T) (6T) (6T) (14) (11T) (18T)

85.7 80.7 80.4 79.3 79.3 77.6 72.4 69.2 69.0 66.7 66.7 62.1 60.7 48.3

96.1 96.1 84.4 94.1 88.0 84.4 84.4 72.0 78.5 78.0 76.5 78.4 84.3 76.0

(6T) (6T) (15T) (11T) (13) (15T) (15T) (25) (20) (22) (23) (21) (18T) (24)

43.1 40.3 37.9

54.9 (26) 43.1 (28) 44.0 (27)

 ll figures are percentages and are the total of the “very important” A and “important” ratings of the Area Development Consultants Survey and are rounded to the nearest tenth of a percent.

cent rating, but only one spot in the rankings to No. 25. Similarly, availability of advanced ICT services now has a combined importance rating of 60.7 percent, down from 84.3 percent in the previous year’s Consultants Survey, although it did drop six spots in the rankings to No. 24. Again, this might be explained by the fact that the availability of these services throughout most of the nation is now assumed. What is also surprising is the

* * 2018 ranking

drop in the rankings of training programs/technical schools from sixth place to No. 13 this year,

It is surprising, however, that

drastically. For example, the fac-

with a combined importance rat-

many of the site selection factors

tor showing the largest decrease

ing dropping from 96.1 percent

received lower importance rat-

in the combined importance

to just 80.7 percent. Even though

ings in the current Consultants

rating is proximity to innovation

that’s a higher importance rating

Survey than in the previous year’s

commercialization/R&D centers,

given to this factor by the con-

survey, although their rank-

which dropped from a 76 percent

sultants than by the Corporate

ings overall did not change that

importance rating to a 48.3 per-

Survey respondents (just 60 per-



SurveyQ1.2020.indd 48

for free site information, visit us online at

3/10/20 9:44 AM

Importance of incentives to clients when making location decisions: Are of great importance Are more important now than in the past Are less important now than in the past Are of equal importance to other factors

Importance of a shovel-ready/ pre-certified site in clients’ site searches:


Very important Somewhat important Minor consideration Of no importance

22% 14% 28%

Clients consider whether there are existing businesses performing similar activities to theirs in the area of search:

Type(s) of incentives clients consider most important when making a location decision: Cash grants Tax incentives (tax credits, exemptions, etc.) Other financial incentives (bonds, loans, etc.) Worker training incentives Other incentives (land, utility-rate subsidies, infrastructure support, etc.)

26% 50% 14% 10%


Yes No

vironmental regulations by the


Trump administration are reflect-

21% 69%

ed in this ranking? Clients consider weather and geological related factors in the location decision:

Finally, there’s a huge difference


91% 9%

in how the Corporate Survey respondents and Consultants

Yes No

Survey respondents rate and

93% 7%

cent rated it “very important” or

rank quality of life. More than 82

“important”), it seems odd that

percent of the corporate respon-

this factor is not rated and ranked

dents rate quality of life as “very

this factor is not considered more

more highly by both groups of

important” or “important,” plac-

important by the consultants.

respondents, considering the fact

ing this factor in the No. 4 spot.

that workers are lacking the nec-

Meanwhile, only two thirds of the

essary STEM and other advanced

respondents to the Consultants

technology skills that industry re-

Survey give this factor a com-

quires today.

bined importance rating, ranking it No. 21. A good quality of life

Environmental regulations also

is important to attracting skilled

dropped in the rankings by four

labor (the consultants’ No. 1 fac-

spots to No. 15. The consultants

tor). Millennials are now the larg-

gave it a combined importance

est generation in the workforce,

rating of 79.3 percent, down from

and we know they value quality of

its previous 94.1 percent. Could

life — in other words, a work-life

it be anticipated rollbacks of en-

balance 12 so it’s an anomaly that

1 3 4 5 6 Q1-2019/selecting-the-right-opportunity-zone-for-theright-outcome.shtml 7 8 9 10 id=3227086 11 12 2


SurveyQ1.2020.indd 49


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Sponsors FLORIDA ENTERPRISE FLORIDA, INC. From a talented workforce to a strategic geographic location, Florida has the boundless resources businesses need to grow. Freedom from high taxes and prohibitive regulations make Florida the Tax Foundation’s #1 tax climate in the Southeast and a top state for business. Learn how Florida can help your business thrive.

MICHAEL J. MCGREVEY, Deputy Director Mississippi Development Authority Post Office Box 849 Jackson, MS 39205 800-360-3323 Fax: 601-359-4339 m m c g re v e y @ m i s s i s s i p p i . o r g w w w. m i s s i s s i p p i . o r g


SOUTH CAROLINA SANTEE COOPER Santee Cooper supports South Carolina’s business community by providing low-cost, safe, reliable power that improves your bottom line and the quality of life for South Carolinians. In addition to residential and commercial customers, Santee Cooper powers 27 large industrial customers, 13 municipalities, Charleston Air Force Base, and electric cooperatives in all 46 counties of the state.

TIM VANDERHOOF, Senior Vice President, Business Development Enterprise Florida, Inc. 800 N. Magnolia Ave. Suite 1100 Orlando, FL 32803 407-956-5600 w w w. f l o r i d a t h e f u t u re i s h e re . c o m

MISSOURI ONE START Missouri One Start — a division within the Department of Economic Development — has resources dedicated to recruiting, training, and upskilling workers, and is fully focused on workforce development in the Show Me State. Missouri One Start’s dedicated, highly experienced workforce development team has already trained over 800,000 workers and is on track to train another 42,000 this year.

BILL MCCALL, Economic Development Specialist Santee Cooper One Riverwood Drive Moncks Corner, SC 29461 843-761-8000 ext. 5381 w m c c a l l @ s a n t e e c o o p e r. c o m w w w. P o w e r i n g S C . c o m


KRISTIE DAVIS, Director Missouri One Start P.O. Box 478 301 W. High Street Jefferson City, MO 65102 573-526-9239

TENNESSEE DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT It’s no accident that some of the biggest and most respected brands in the world have chosen to call Tennessee home. We provide companies a central location with unparalleled infrastructure, a highly qualified workforce backed by gamechanging education reform, a low tax burden, and a collaborative environment with a business-friendly administration.

GEORGIA DEPARTMENT OF ECONOMIC DEVELOPMENT Georgia has long received recognition for its attractive business climate. Georgia Quick Start is the top-ranked workforce training program in the United States. The Port of Savannah and Hartsfield-Jackson Atlanta International Airport connect businesses to their consumers, and the state’s pro-business policies make Georgia a competitive option for companies. Georgia Department of Economic Development 75 Fifth St. NW, Suite 1200 Atlanta, GA 30308 404-962-4000 w w w. G e o r g i a . o r g

KENTUCKY KENTUCKY CABINET FOR ECONOMIC DEVELOPMENT Kentucky encourages growth of new and existing companies of all sizes and ensures entrepreneurs and small businesses succeed. Kentucky fosters growth through services designed to spur investment and create jobs. Explore the many advantages of the Commonwealth and you’ll find Kentucky will go the extra mile to exceed your needs. JEFF TAYLOR, Commissioner for Business Development Kentucky Cabinet for Economic Development Old Capitol Annex 300 W. Broadway Frankfort, KY 40601 502-564-7670 or 1-800-626-2930 w w w. T h i n k K e n t u c k y. c o m

MISSISSIPPI Mississippi Development Authority Consistently ranked as a top state for business, Mississippi’s portfolio of national and international industry leaders continues to grow. The state’s dedicated, skilled workforce and supportive business environment enable more companies to gain a competitive advantage and consistently exceed their goals in Mississippi. Discover why Mississippi works at



SurveyQ1.2020.indd 50

NEW YORK NEW YORK CITY ECONOMIC DEVELOPMENT CORPORATION (NYCEDC) Brooklyn Army Terminal is New York City’s premier hub for industrial businesses, where there’s the space to grow and the support to thrive. New York City Economic Development Corporation (NYCEDC) Brooklyn Army Terminal 140 58th Street Brooklyn, NY 11220 w w w. e d c . n y c w w w. b ro o k l y n a r m y t e r m i n a l . c o m

OHIO JOBSOHIO JobsOhio is the state’s economic development organization charged with driving job creation and capital investment in Ohio through business attraction, retention, and expansion efforts. JobsOhio collaborates with public and private partners across Ohio to address the needs of growing businesses and support them with the resources necessary to succeed. ANDREW DEYE, Managing Director of Strategy, Business Development & Research Jobs Ohio 41 S High Street #1500 Columbus, OH 43215 855-874-2530 w w w. J o b s O h i o . c o m


ALLEN BORDEN, Deputy Commissioner, Business, Community and Rural Development Tennessee Department of Economic and Community Development Tennessee Tower, 27th Floor 312 Rosa L. Parks Ave. Nashville, TN 37243 615-741-1888 a l l e n . b o rd e n @ t n . g o v

TEXAS LUBBOCK ECONOMIC DEVELOPMENT ALLIANCE Located in the middle of everywhere, Lubbock, Texas, is home to a thriving and diverse economy, alongside a skilled workforce with grit. Ranked in the Top 25 Best Cities to Start a Business, Lubbock is ideal for optimal work-life balance, short commute times, and a collaborative business climate. Lubbock Economic Development Alliance 1500 Broadway Ave., 6th floor Lubbock, TX 79401 806-749-4500 800-687-5330 w w w. L u b b o c k e d a . o r g

for free site information, visit us online at

3/5/20 11:34 AM

REGIONAL REPORT Manufacturing Drives Growth in the Southern States Big-picture data provides evidence of a regional economy on the rise, with manufacturing as the centerpiece of its growth.

Relativity’s E-4 test stand at the Stennis Space Center, where the team is accelerating the testing capability of their entirely 3Dprinted Aeon rocket engine

According to Don Pierson, secretary of Louisiana Economic Development, the six Southern States of Alabama, Arkansas, Kentucky, Louisiana, Mississippi and Tennessee encompass a workforce of approximately 12 million people. In fact, Louisiana and Arkansas have seen a 14 percent increase in per capita income over the past four years, with the other states in the regional bloc growing at a rate of 9 to 12 percent, he says. In addition, Louisiana’s GDP has surged 17 percent with its neighbors — Tennessee (16 percent), Alabama (15 percent), Kentucky and Arkansas (13 percent), and Mississippi (12 percent) — not far behind, Pierson notes. As a group, the Southern States benefit from access to the Mississippi River, “an international gateway at the Louisiana Gulf Coast that provides commercial access to two-thirds of U.S. states,” according

B y To m G re s h a m



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to Pierson. This locational advantage adds to “the combination of attractive labor markets, strong business climates, and seasonable weather conditions [to create] a region that’s highly conducive to manufacturing and other key industries.” Pierson continues, “The region represents a truly positive destination for domestic and foreign direct investment. The recent expansion of the Panama Canal creates even greater international commerce opportunities, with more efficient access to Pacific Rim markets.” “We see a lot of strength around manufacturing,” notes Bradley Jackson, president and CEO of the Tennessee Chamber of Commerce and Industry. “We call it onshoring — operations coming back to North America and even foreign manufacturing companies looking to expand or put operations in North America — and fortunately the Southeast is a region where they frequently end up coming.” Pierson agrees: “The collective investment and job creation by manufacturers in the aerospace, automotive, metal, forest products, logistics, and plastics sectors help drive economic growth for the entire region.”

The Automotive Corridor In recent decades, the entrenchment of the auto manufacturing industry has led to an overhaul of the regional economy. “In the 1980s, automotive manufacturers — particularly Asian and European automakers — and their supplier networks (OEMs) began tapping the South’s opportunity-hungry states, underutilized labor force, available land, and beneficial climate,” says Jack Mazurak, communications director for the Kentucky Cabinet for Economic Development. “That led to nearly 40 years of well-documented development of the Southern automotive corridor.” for free site information, visit us online at

3/3/20 3:16 PM

The entrenchment of the auto manufacturing industry has led to an overhaul of the regional economy of the Southern States.

The South now includes several of the nation’s top automotive-producing states, including Tennessee, which ranks second to Michigan in the country in auto production, and Kentucky, the No. 1 producer of passenger vehicles per capita and third-largest producer of them overall.1 Mazurak says part of the economic boost the auto industry provides is the large array of related businesses that bloom around auto plants, spurring growth in the plastics, glass, rubber, and chemical industries, among others, as well as a surge in service providers, such as logistics businesses. “Within the Southern automotive corridor, a robust network of suppliers developed to meet the rising demand from automakers,” Mazurak notes. “That includes primary producers of steel and aluminum — used in body and structural panels — and downstream processors and fabricators. Steel and iron production continues as a mainstay in the South, and the aluminum industry continues seeing meteoric growth, as it has for the past several years.” In Kentucky, for instance, aluminum-related companies have announced about 100 new-facility or expansion projects since the start of 2014, totaling more than $3.4 billion in expected investment, according to Mazurak. Steel jobs have grown 39 percent since 2009 in Arkansas.2 Ultimately, Mazurak says, “Automotive development brought advanced manufacturing across the South, including a whole supply chain of factorysystems providers that became increasingly adept with robotics, programming, and other tech-enabled products.”

Aerospace Takes Off The aerospace industry also has flourished in the Southern States. Louisiana, for example, has attracted

a variety of aerospace projects in recent years, including the expansion of NASA’s Michoud Assembly Facility in New Orleans, where a collection of companies are assembling major components for the next U.S. space flights. “A regional boon for the aerospace industry is the Aerospace Alliance, a compact of Louisiana, Mississippi, Alabama, and Florida for the advancement of an aerospace sector that employs 200,000 people and features 18 higher education institutions offering advanced aviation and aerospace degrees,” Pierson explains. Mississippi is home to NASA’s Stennis Space Center in Hancock County, where SpaceX has its rocket engine testing program and Relativity Space announced in 2019 that it was investing $59 million to expand its rocket component production and rocket engine testing operations.3 The state has also proven to be a popular location for companies researching and producing unmanned aerial systems. Alabama is host to a variety of major aerospace efforts as well — from organizations such as NASA to United Launch Alliance, Boeing, GE, Blue Origin, Airbus, and Dynetics. “We have invested more than $1 billion in Mobile because of the terrific team of employees there — and because of the support and welcome we continue to receive from the Gulf Coast community and state and congressional leaders,” C. Jeffrey Knittel, CEO of Airbus, noted in a press release after a 2020 announcement that the company would be increasing its production of A320 aircraft at its Mobile plant.4

Diversification Each state has its own strengths, particularly as it seeks to further diversify its economy. In Tennessee, for example, Jackson says the state is seeing encouraging AREA DEVELOPMENT | Q1 2020

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In an effort to provide the workforce that their manufacturers need, the Southern States have made workforce training a priority.

growth in technology, finance, and healthcare. Meanwhile, Louisiana’s chemical manufacturing industry is the biggest driver of state GDP in its manufacturing sector. The chemical industry is responsible for $80 billion in annual sales for businesses in Louisiana, along with nearly 30,000 direct jobs with an average annual salary of $106,000 — as well as the creation of eight indirect jobs for each direct job, according to Pierson. Arkansas is a top exporter of rice, soybeans, cotton, poultry, and feed grains, ranking first in the U.S. in rice production and third in cotton. Arkansas is also the fourth-leading softwood lumber producer in the country.5 Eight Fortune 1000 companies are based in the state — which has the third-lowest cost of living in the country according to CNBC6 — including most prominently Walmart, the largest retailer in the world. Those companies attract other businesses. For instance, Canada-based Structurlam Mass Timber Corporation, the leading mass timber manufacturer in North America, chose Conway, Ark., for its first U.S. plant to be near Walmart. “We’re proud to establish roots in the City of Conway and support Walmart as the exclusive supplier of mass timber products for its new home office campus,” said Hardy Wentzel, CEO of Structurlam, in a press release.7 Kentucky, meanwhile, is targeting agritech as a rich opportunity. “State leaders see an opportunity to become a leader in agritech,” Mazurak says. “To achieve the vision, Kentucky is working to link its advanced manufacturing expertise and workforce training abilities with the commonwealth’s deep agricultural resources. The state is putting in place objectives to grow its own best ideas into prosperous agritech businesses, attract expansions from abroad, and to nurture Kentucky’s existing agritech companies with the goal of creating tech-enabled jobs for Kentuckians.”

Emphasizing Workforce Training Despite evidence of growth, these six states all ap54


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pear near the bottom of rankings of median income, and each is among the 10 states with the highest poverty rates in the country.8 They also were listed among the 10 least-educated states in the country in WalletHub’s 2020 rankings.9 In an effort to provide the workforce that their manufacturers need, these Southern States have made workforce training a priority. In Louisiana, for instance, Pierson says Louisiana Economic Development has helped lead publicprivate partnerships featuring $300 million in targeted higher education investments that link private employers with public colleges and universities. Curricula consequently are tailored for high-demand occupations, such as for jobs tied to computer science, STEM, and advanced manufacturing. Pierson says the higher ed programs have spurred major new technology investments in the state. “We’re seeing great results in helping existing employers in Louisiana expand, and in attracting new employers, including FDI,” Pierson says. “For the past decade, Louisiana is one of only three states to attract over $100 billion in FDI activity (along with California and Texas), and we’re No. 1 by far on a per capita basis,” Pierson notes. Additionally, through FastStart, Louisiana’s highly regarded workforce training program, customized programs are created to ensure companies’ workers are prepared on day one of operations and beyond. According to Mazurak, Kentucky’s universities and community and technical colleges have created bespoke programs to develop workers with certain skills, such as with the Registered Apprenticeships and the KY Federation for Advanced Manufacturing Education (KY FAME) programs, as well as through growth in established colleges of engineering. Tennessee has received national plaudits for Tennessee Promise, a last-dollar scholarship program that pays for state students’ tuition and mandatory fees after other financial aid has been exhausted at an assortment of postsecondary institutions that offer for free site information, visit us online at

3/3/20 3:18 PM

two-year, associate degrees. And Tennessee Reconnect helps adults older than 25 attend higher education institutions. “We’re putting a lot of emphasis on workforce development because we know that ultimately for companies, their labor force, their employees, that’s their most important asset,” Jackson says. “So we have worked to demonstrate and really create a pipeline of students with the technical skills and interest — identifying them in high school and helping them to obtain the certifications or their associate’s degree.

SPONSORS KENTUCKY Kentucky Cabinet for Economic Development Kentucky encourages growth of new and existing companies of all sizes and ensures entrepreneurs and small businesses succeed. Kentucky fosters growth through services designed to spur investment and create jobs. Explore the many advantages of the Commonwealth and you’ll find Kentucky will go the extra mile to exceed your needs. Jeff Taylor, Commissioner for Business Development Kentucky Cabinet for Economic Development Old Capitol Annex 300 W. Broadway Frankfort, KY 40601 502-564-7670 or 1-800-626-2930

And we’ve worked hard to make sure that those align with the job market and with the job demands of the future.” 1 3 4 5 6 7 8 9 2

TENNESSEE Tennessee Department of Economic and Community Development It’s no accident that some of the biggest and most respected brands in the world have chosen to call Tennessee home. We provide companies a central location with unparalleled infrastructure, a highly qualified workforce backed by game-changing education reform, a low tax burden, and a collaborative environment with a businessfriendly administration. Allen Borden, Deputy Commissioner, Business, Community and Rural Development Tennessee Department of Economic and Community Development Tennessee Tower, 27th Floor 312 Rosa L. Parks Ave. Nashville, TN 37243 615-741-1888

MISSISSIPPI Golden Triangle Development LINK The Golden Triangle is a region in Northeast Mississippi containing the cities of Columbus, Starkville, and West Point. The businessfriendly region is home to companies like Steel Dynamics, Aurora Flight Sciences – Boeing, Airbus Helicopters, International Paper, PACCAR Engine Company, and Yokohama Tire. Joe Max Higgins, Jr., Chief Executive Officer Golden Triangle Development LINK P.O. Box 1328 Columbus, MS 39703 Mississippi Development Authority Consistently ranked as a top state for business, Mississippi’s portfolio of national and international industry leaders continues to grow. The state’s dedicated, skilled workforce and supportive business environment enable more companies to gain a competitive advantage and consistently exceed their goals in Mississippi. Discover why Mississippi works at Michael J. McGrevey, Deputy Director Mississippi Development Authority Post Office Box 849 Jackson, MS 39205 800-360-3323 Fax: 601-359-4339


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3/3/20 3:22 PM



Revitalized Cities: Which Locations Have Outperformed and Why? Many locations that saw economic contractions have been able to revitalize themselves by instituting pro-business policies, developing innovative workforces, and drawing the right industry mix — sprinkled with a little bit of luck! By Matthew Mowell, Senior Economist, Oxford Economics


combination of macroeconomics, industry forecasting, and local-level dynamics can help to identify which cities will outperform in the future and why. These local dynamics have been loudly on display over the past business cycle. Because most U.S. cities saw a return to economic growth in 2010 following a painful contraction in 2009, it’s sensible to define the current business cycle as 2010 through 2019. To be sure, U.S. metro performance has varied widely during this period. Places that saw the greatest expansion from 2010–2019 were generally clustered along the West Coast, in Texas, and throughout the Intermountain West. In contrast, 59 metros —

ReadySC, a worker training program that is part of South Carolina’s technical college system, has been instrumental in recruiting and training workers for Volvo’s new Ridgeville, S.C., manufacturing plant.



RevitalizedCities.indd 56

15 percent of nation’s 382 metropolitan areas — have a smaller economy today than in 2007. These laggards can generally be characterized as smaller cities with a manufacturing legacy, and more than 60 percent of them are in either the Midwest or Southeast regions. This backdrop has created the widely touted narrative of “left-behind” industrial centers in the Heartland versus high-tech coastal enclaves filled with bright young programmers. While this story is easy to distill into a headline, the reality of America’s post-global-financialcrisis economic geography is more nuanced. Some communities far away from Silicon Valley, New York, or Boston have experienced an impressive turnaround during the past decade — by having the good fortune to host the right industry mix, employing aggressive economic development policies, and mobilizing their labor forces. Frankly, luck should not be dismissed as a factor in economic development. What would Seattle be like today if Bill Gates was not from there? Would Boston be more like Buffalo if it were not for MIT? Some of the fastestgrowing cities of recent years have been places where the underlying geology was “ripened” by the emergence of new fracking technologies. Other metros have benefitted from events elsewhere entirely — such as the combination of immense wealth creation and restrictive zoning policies in coastal California, which has pushed many middle-income households to other cities across the West. The implications for Bend, a small “outdoorsy” metro in central Oregon, have been dramatic. When its home values fell 45 percent from 2008 to 2011, Bend’s construction industry was decimated. In 2009, the unemployment rate hit 15 percent. Yet today, an influx of newcomers — especially telecommuters from the San Francisco Bay Area — has sparked a turnaround. for free site information, visit us online at

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facturing output in Dalton, Ga. (textiles) and Hickory, N.C. (furniture, apparel) is presently some 7 percent lower than their 2006 output levels. A key winner in the region is Spartanburg, S.C., whose economy contracted by around 6 percent during 2008–2009. Increase Demand for The area has long hosted major European Manufacturing Goods companies such as BMW and Michelin, and Just as revived real estate investrising auto sales both domestically and ment supported a turnaround in Bend’s abroad have since supported average annueconomy, increased global demand for al GDP growth for the city of 3.4 percent. manufacturing goods has revitalized midA sizable share of the BMWs produced western metros that are fortunate enough in Spartanburg are exported via the Port to have the right industry base. A wellof Charleston, which in turn is a factor bedocumented example is Elkhart, Indiana, hind the success of the wider metro region whose unemployment peaked at 17.9 (e.g., furniture and textiles) of Charleston in this cycle — exhibiting percent in 2009, yet is currently at about annual GDP growth of around 4 percent 3 percent, thanks to the growing popularsince 2010. Another key catalyst here was ity of motor homes (a very labor-intensive Boeing opening its 787 assembly plant in product) from both retiring boomers and 2011. footloose millennials. South Carolina has employed aggresOther midwestern cities that produce sive financial incentives to attract manufeedstock and capital goods for export facturers, such as having no corporate have also bounced back. For example, income tax, and not taxing machinery or GDP in Midland, Mich., contracted by international sales. Another important just over 3 percent during the recession, factor is the state’s efforts to mobilize a far greater than the U.S. average of 1.3 manufacturing workforce: in a country percent. But this small metro has since where some half-million manufacturing achieved 4.4 percent annualized growth jobs remain unfilled, South Carolina subsibetween 2010 and 2019, supported maindizes workforce training via its readySC program, which ly by sturdy demand for chemicals (DuPont employs sevpairs workers with manufacturers. eral thousand here). Similarly, the economy of Grand Rapids, Mich., contracted by 5.7 percent per year in 2008–2009 — but Workforce Is Key since then, the combined success of its auto parts supWorkforce quality is paramount to local success. pliers, office furniture firms, and pharmaceutical manuWhile highly educated cities such as San Jose, Seattle, facturers has all contributed to the city achieving 3.1 and Boston have all seen exceptional growth driven by percent annualized growth. increased public and private investment in technology, Historically, the Midwest’s focus on heavy industry possessing well-rounded and innovative workforces has has contrasted with manufacturing in the South, which also been crucial to their success during the past several has generally produced lower-value, labor-intensive business cycles. The tech crash of 2000 did not kill-off products — such as furniture and textiles — that are Silicon Valley; instead, the region’s engineers reenerespecially vulnerable to globalization. While these legacy gized it with smart phones and cloud computing. This industries still have a presence in the South, they no is in stark contrast to local economies that are adept at longer drive the region’s growth. Instead, its manufacmaking only one type of “widget” — a problem faced by turing base has quickly tilted toward aerospace, motor many U.S. manufacturing hubs. vehicles, and capital goods production. A key constraint to the ongoing growth of superstar This transition is partly due to the region’s protech cities is their high cost structure (e.g., house pricbusiness policies, such as right-to-work laws and a lightes, office rents, and labor costs). There is, however, a touch regulatory and tax environment. It has enabled very small group of U.S. cities that offers both a highly some of the region’s premier manufacturing clusters to rebound quickly from the depths of the recession, while Continued on page 60 more traditional centers have remained weak — manuIn 2019, Bend’s population grew by an estimated 2.7 percent, making it the third-fastest growing U.S. metro; and its unemployment rate is now in the low 4 percent range.

The South’s manufacturing base has quickly tilted from lower value, labor-intensive products toward aerospace, motor vehicles, and capital goods production.


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HQ: Two Letters That Economic Developers Covet Cost-cutting, market and labor access, and proximity to others in an industry group are among the factors driving headquarters relocation decisions. By Steve Kaelble


ew development projects are more coveted by cities and states than headquarters operations. Whether regional home offices, divisional bases or the biggest prize — the overall corporate headquarters itself — these are projects that create or bring in high-wage jobs and carry significant bragging rights for lucky communities that land a development carrying the prestigious initials “HQ.” Not that headquarters moves happen all that often, but they not as rare as they once were. Companies are increasingly willing to take bold steps if it means they can lower their overhead, boost efficiency, earn enticing incentives, get closer to customers, tap into attractive talent pools, be in proximity to a busy airport, or make a social statement. Headquarters moves can be corporate game-changers, but they can also be quite disruptive — in many cases, companies must weigh whatever benefits they seek with the reality that the move will likely drive away some valuable talent.

Saving Money Consider the stunning headline from last October.1 Molson Coors announced plans to move its North American headquarters from Denver to Chicago. A company with nearly 150 years of history in the Centennial State decided to streamline its structure in the hopes of saving $150 million. State officials have taken comfort in the fact that the massive brewery operation in Golden will keep on brewing mountain-adorned cans and bottles of beer — and, in fact, the company is spending several hundred million

dollars modernizing the operation. But the Denver office would be on the move, the company said. Though Molson Coors has offered to relocate some of the 300 or so employees, more recent headlines have indicated the majority are likely to leave the company.2 The kind of cost savings that prompted Molson Coors’ headquarters move is also creating interest in such places as Virginia, according to Jennifer Wakefield, COO with the Greater Richmond Partnership. “Companies up and down the East Coast can save quite a bit on real estate, up to one-third, and 15 to 20 percent on labor,” she says. “And they don’t have to worry about sacrificing talent.” Lara Fritts, the organization’s president and CEO, says even companies that have reason to keep

CoStar established its global research center in Richmond, and quickly ramped up its head count to 600.



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their main headquarters in high-rent places often gain value by moving “middle office” functions to places such as Richmond. That might mean risk management, internal consulting, marketing research, general problemsolving, and a whole host of other occupations and functions. “Moving them out of larger markets is an attractive option. They don’t need to be in expensive space.” The area, Wakefield says, is home to 10 Fortune 1000 headquarters operations, and a host of regional or divisional bases. CoStar, for example, established its global research center in Richmond, and quickly ramped up its head count to 600. There’s a McKesson Medical-Surgical divisional headquarters there, as well as the base of the less-than-truckload shipping division of UPS, to name just a few. Certainly, officials representing state and local jurisdictions are eager to provide as many financial reasons

do,” says Bruce Payne, economic development director for the City of Arlington, Texas. “This is a region of 7.2 million people. That is what potential companies look at.” They also look at such things as the labor force, he says, because not everyone working in a headquarters operation is willing or able to pick up and move. “They already have a labor force in-house to some degree, but they are going to lose a portion of that. They need to know how easy it is to replace people in key positions,” Payne says. “As states around the country are facing an impending skills gap, companies are becoming increasingly concerned with accessing the type of highly skilled talent they need to grow their business,” agrees Josh Hundt, chief business development officer and executive vice president with the Michigan Economic Development Corp. It’s a common question, and one that economic


as possible for companies to consider a headquarters relocation. And not just for the really big fish, such as the Amazon HQ2 free-for-all that had governments and economic development organizations pulling out all the stops and dreaming up massive incentive packages. For example, carrots such as Indiana’s Headquarters Relocation Tax Credit are not uncommon and written into state code — this one generates a credit against a corporation’s state tax liability if it changes its HQ address to “IN.” And proving that you don’t have to be Amazon to get attention, Indiana’s Small Headquarters Relocation Tax Credit, as its name suggests, is for smaller but high-growth firms that move their headquarters, or at least 80 percent of their payroll. One example: State incentives and local efforts combined to persuade California-based PerceptIn, a maker of self-driving vehicles, to move its global headquarters to the Indiana IoT Lab in Fishers.3

Moving for Market and Labor “For companies that want to be here, it’s going to be because of access to the market, whatever it is that they

development leaders virtually everywhere are working to answer. In the case of his state, Hundt cites programs aimed at boosting the percentage of residents with postsecondary degrees or credentials. Fritts and Wakefield say studies done for their Richmond organization have found a healthy available labor pool along with a strong talent pipeline from the regional university infrastructure. “Richmond is seeing an increase in young professionals choosing to live in our community — they’re choosing to stay here,” Fritts says. That helps to fill those middle office jobs and regional headquarters needs. On the other hand, companies making a headquarters move generally would prefer to lose as few people as possible in the process. That elevates the importance of such factors as quality of life, the character of local communities, and housing availability and affordability, Payne says. Meet those needs in a positive way, and more of the current workforce will be willing to relocate.

Following the Industry Sometimes a change of headquarters address makes AREA DEVELOPMENT | Q1 2020

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sense from an industry-cluster perspective. Florida, for example, is well-known as a hub for the space business. Silicon Valley, of course, is famous for technology innovations. It’s no surprise that a cutting-edge developer of space manufacturing technology would emerge from Silicon Valley, as happened when Made in Space was founded a decade ago in Mountain View. But it’s also no surprise to learn that the company — known as the first to manufacture hardware off the planet — would be moving its corporate headquarters to Jacksonville, where it already had established operations.4 “By expanding our presence here in Florida, we expect to capitalize on the value offered by Florida’s business climate and its position as a world leader in aerospace research and investment,” Andrew Rush, company president and CEO, said in making the announcement in January.5 Rush cited the access to growth-enabling infrastructure and a skilled aerospace workforce in Florida. Similarly, it’s not surprising to find a wide range of automotive-related headquarters operations in Michigan. Less obvious to most outsiders is the growing collection of insurance-related bases there, but it’s happening, according to Hundt. Hundt cites global insurance broker Acrisure as an example. “Acrisure is relocating and expanding its state-ofthe-art future headquarters to Grand Rapids,” he says, “where it will generate an investment of $33 million and create 400 local high-wage jobs.”

Lansing is becoming quite the insurance hub, he adds, with more than 7,500 people working in the sector. “As home to eight insurance company headquarters, the city of Lansing offers an existing industry base for companies looking for skilled talent and resources to elevate their businesses,” he explains. Building upon that is an initiative from the Lansing Economic Area Partnership called PROTO InsurTech. Hundt describes it as a business accelerator and equity investment fund targeting insurance industry growth. Headquarters shifts are a not-uncommon byproduct of merger activity, too. For example, moves are expected as defense industry giants Raytheon Co. and United Technologies Corp. bring their organizations together to form Raytheon Technologies Corp. The combined company will be headquartered in the Boston area, where Raytheon is currently based. On the other hand, Raytheon’s Integrated Defense Systems division, presently based in Massachusetts, is likely to land in Tucson.6 n

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Revitalized Cities Continued from page 57 skilled workforce and a relatively low-cost structure, allowing both migrants from elsewhere and lower-margin industries to participate in local growth. This rarefied shortlist includes Raleigh and Denver, whose economies are now around 40 percent larger than in 2007, as well as Austin, whose economy is nearly 80 percent larger. Similarly, other relatively low-cost cities that are also seeing some success at incubating early-stage tech clusters include Salt Lake City and Pittsburgh.

Macroeconomic Headwinds Many of these revitalization stories are, however, now losing momentum due to macroeconomic headwinds — notably, trade policy uncertainty and weaker global growth, which are constraining business spending on machinery and equipment (expected to decline by 0.3 percent this year). This is already weighing on capital goods manufacturing clusters across the Midwest and South. In contrast, places with a focus on information technology should fare better, as investment in intellectual property remains heightened, growing by roughly 5 percent this year. However, this is a downgrade from the 7+ percent growth experienced in recent years. It should be reinforced that just as macro risks can



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weigh on local growth, the ability of cities to regenerate themselves can also be down to happenstance. But there are, of course, active strategies cities can employ to attract growth and recover from hardship: (1) Creating an environment that allows the existing industrial base to thrive and easily react to market forces by designing an efficient tax and regulatory environment is important; (2) Inviting new industries and people in — by keeping barriers to entry low — has been an important feature of many cities that were able to generate outperformance since the financial crisis; and (3) Having training strategies that pair the skills of people with the needs of local industry is key. From manufacturing to computer science, recruiting skilled technicians is a systemic problem. For many sectors this third point trumps the previous two as advanced manufacturing, research and development, and other skilled functions are often willing to endure higher taxes and rents to recruit the right type of people. n Oxford Economics produces economic forecasts and analysis for more than 3,000 cities globally and offers comprehensive coverage of all U.S. states, metros, and counties. for free site information, visit us online at

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Data Centers Continue to Evolve Consolidation, the adoption of cloud services, edge computing, and hybrid colocation are among the latest trends affecting the data center industry.

By Jason Shepard, Managing Principal, Cresa MCS (Mission Critical Solutions)


he data center industry has changed significantly in the past five years. To recognize that evolution, it’s important to see where we’ve come from. In 2015, we wrote about the types of various data center operators, characteristics of each, and relevant site selection considerations.1 But our increased reliance on data and interdependence between operator types have led to a hybrid model of operations today. While data center and information technology terminology acronyms can be complex, we often use metaphors to help bridge the communication gap between project stakeholders. For data centers, we frequently use


51% deployed/in production 14% currently implementing 11% trial/pilot in progress


39% deployed/in production 17% currently implementing 14% trial/pilot in progress


22% deployed/in production 16% currently implementing 19% trial/pilot in progress

Source: Cybersecurity Insiders’ 2019 Cloud Security Report

cars as a comparison. Most people know how to drive a car, but not everyone knows how the various parts work together — and even fewer know how to fix them without assistance.

Previously in 2015, we sought to define the varying levels of data centers as we saw fit. Those three types are:

• • •

 nterprise data centers (EDCs) — E Traditional organizations (e.g., banking, healthcare, etc.) Internet data centers (IDCs) — Large or hyperscale, Internet-centric (e.g., search engines) T  hird-party operators (3POs) — Provide data center facilities and/or services (e.g., colocation, managed services providers (MSPs), etc.)

While each type of data center has common variables (e.g., generators), the purpose and resulting designs vary. For instance, a hospital’s data center, an EDC, operates critical IT hardware that is likely to have higher levels of redundancy than that of an Internet search engine, an IDC. 3POs, which provide services to EDCs, IDCs, and other 3POs, typically have scalable infrastructure attractive to each. So, if the three (3) primary data center types are still the same as identified in our 2015 article, what’s changed? Below are developments that have impacted the data center industry segment:

The Great Consolidation In the past, many information technology (IT) teams operated servers within their data centers with a limited number of applications per server. Average server utilization was low, but those servers were always on, always running, and consuming electricity. This is like leaving AREA DEVELOPMENT | Q1 2020

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your car running in the garage over night because you may use it tomorrow. Virtualization is a technology that allows IT teams to now operate multiple operating systems (virtual machines, or VMs) on a single physical (host) server. While the technology been around for longer than the last five years, virtualization is now more widely used, which has decreased organizations’ overall IT footprint. According to Spiceworks’ 2020 State of Virtualization Technology’s research survey2 of 530 IT decision-makers, server virtualization is used by 92 percent of businesses. Interop’s 2019 State of IT Infrastructure Report3 identified that just 3 percent of those surveyed expected to have no servers virtualized in the next 12 months, while 42 percent expected to have over 50 percent of servers virtualized. Furthermore, according to an Uptime Institute survey4 of 250 C-level executives in 2019, 51 percent replied that virtualization had a greater impact on demand than cloud at only 32 percent. Thus, data centers that used to require thousands of square feet may now be consolidated into a small fraction of that area. One of our clients was able to achieve over an 80 percent reduction off their existing data center’s footprint through their consolidation efforts, which therefore led to a reduction in their capex and operating expenses.

Cloud: The Adoption of — Not “Move To” — Cloud Services One of the most common mistakes is the reference to cloud services as “The Cloud.” “Cloud” can be private or public, with the latter being a reference to the “_ as-a-Service (_aaS)” operating model. Whether public cloud is via Infrastructure-as-aService (IaaS), Platform-as-a-Service (PaaS), Softwareas-a-Service (SaaS), or other variation, cloud services are a multi-provider (not singular) approach. For instance, any given enterprise may use a combination of their own data center, supplemented by an IaaS, like Amazon Web Services; PaaS, like Microsoft Azure; and multitude of SaaS, such as Salesforce or similar providers. According to the Uptime Institute’s 2019 Annual Data Center Survey5 results: Most operators surveyed have a hybrid strategy. IT workloads are being spread across a range of services and data centers, with about a third of all workloads expected to be contracted to cloud, colocation, hosting, and Software-as-aService (SaaS) suppliers by 2021. The accompanying chart shows the results of the Cybersecurity Insiders’ (a 400,000-member information security community) 2019 Cloud Security Report’s question6 on organizations’ state of adoption of cloud computing. In each of the responses, the majority of survey respondents were either deployed/in production, currently implementing, or were in trial/pilot in progress for Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS), and Platform-as-a-Service (PaaS) cloud solutions.



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This tells us that the adoption of cloud services is not only multi-cloud in nature, but also mainstream in practice, suggesting that the hybrid model of operations will continue to evolve. To use another car analogy, groups of workers (VMs) can now carpool in the same van (host server) while also interacting with others both in and outside the van (cloud).

Edge Computing In Network Computing magazine’s article “7 Network Trends You Can Expect in 2020” (12/31/19),7 “Edge cComputing” was defined as “the concept of taking compute and data much closer to the end-user when compared to traditional cloud computing.” Considering the hybrid model of IT operations most organizations now deploy (i.e., the combination of enterprise and third-party operated infrastructure), the interdependence of these facilities requires coordination and telecom bandwidth. Replication of information between two data centers can be synchronous (simultaneous) or asynchronous (not simultaneous). While technology (fiber, routers, repeaters, etc.) may improve, the speed of light is constant, and the general thought today is that synchronous replication is possible under 100 kilometers of fiber length. If you go past that, there is a lag-time referred to as latency. As an example, the round-trip (rt) latency between Los Angeles and Phoenix on AT&T’s network is currently ~10 milliseconds (ms), while the latency between Los Angeles and Denver is ~25 ms. If the maximum allowable latency between an EDC’s data centers is 25 ms, an EDC in Los Angeles may not consider locations past Denver. Likewise, a Software-as-a-Service (SaaS) provider, hosting services for any given provider, will need to host those services as close to the end-user as necessary. This is in part “edge computing”. Where costs to operate in one metro may be prohibitive, those services may be provided from another metro so long as it’s within an acceptable latency window. This explains why we see large-scale data center activity in markets like Phoenix and Las Vegas, where services are provided to organizations in Southern California metros.

Colocation’s Evolution to Hybrid Colocation As identified in our 2015 article, colocation is a subset of the third-party operators (3POs) model, where providers build and operate data centers specifically with the intent to lease or license to third parties. Acquiring colocation capacity is like a tenant leasing a suite in a multi-tenant building rather than building their own. Customers lease or license their specific number of cabinets or cage space along with a certain amount of power capacity (e.g., 5 kW/rack/cabinet) to house and operate their own IT hardware. In the last few years, with the rapid adoption of various cloud services, many colocation facilities have for free site information, visit us online at

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evolved to a hybrid colocation model. The facilities themselves have become an ecosystem where occupiers can cross-connect to cloud services within the walls of the colocation data center and mitigate outside telecom spend and latency. Whether that is to other cloud customers operating within the facility, or services provided by the colocation provider themselves, or connecting to an on-ramp/portal provider, having access to cloud services is becoming table stakes. In our annual Cresa MCS Colocation Survey (year-end 2019),8 all seven colocation providers surveyed replied that there were cloud and/or other hosted services available to customers within their data centers. This only further supports the trend that hybrid colocation is growing in importance.

Back to the Fundamentals In the end, most customers of colocation and cloud services are enterprise organizations, yet not all data center locations are the same.Site selection for enterprise data centers within regional markets is a sequential process of elimination. So, consider for each potential data center location the following:

Do the properties have access to the appropriate —

• • •

 ower capacity and redundancy? P Telecom capacity and redundancy? Water capacity and redundancy?

Are the properties outside of reasonable or industry guideline risk profiles?

• • •

 light path F Flood plain Accessibility and proximity (customers, talent, vendors, etc.)

What are the economic considerations (e.g., tax abatements/exemptions, incentives, etc.)? Further details on site selection considerations for enterprise (EDC), Internet (IDC), and third-party operator (3PO) can be found in our original 2015 article. As the IT industry continues to evolve, so too will the data centers and infrastructure that support them. Data centers are like cars in that they depreciate with age, efficiencies, and utilization. Going forward, future data center facilities will need to be designed to accommodate the scalable growth (space and capacity), flexibility, and proximities, with hybrid models top of mind. n

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Area Development Q1 2020  

Why Mid-Size Markets Are Winning Business// USMCA Clears A Cloud of Uncertainty// Annual Corporate & Consultants Survey// Realignment Of The...

Area Development Q1 2020  

Why Mid-Size Markets Are Winning Business// USMCA Clears A Cloud of Uncertainty// Annual Corporate & Consultants Survey// Realignment Of The...