Area Development Q1 Issue 2018

Amazon’s HQ2

A Geographical Shift?

Annual CORPORATE & CONSULTANTS

SURVEY

Innovation Parks

Academics

“Real World”

AREADEVELOPMENT S I T E

A N D

FA C I L I T Y

P L A N N I N G

Q1/2018

Industry 4.0

What Does It Mean for U.S. Manufacturing?

STEM Grads

Core of Tech Location Decision

Trade Policy

Risk for North American Industrial Outlook

Tech Advances

HQ Location Selection

Renewable Energy

How Industry Must Adapt to Tax Reform

Infrastructure’s Role in U.S. Economy

m r o f e R TaxThrough s e y E e h t of a CEO

Rail-Served Sites

Economic & Environmental Benefits

Reshoring Gains Traction in U.S. Manufacturing

WWW.AREADEVELOPMENT.COM

CoverSurveyV3.indd 1

3/15/18 3:39 PM

Photo courtesy of Orbital ATK.

TOP 3 FOR AEROSPACE MANUFACTURING ATTRACTIVENESS PwC State Ranking, 2017

In the high-tech manufacturing industry, “Made in Arizona” has global impacts.

Industry leaders like Orbital ATK, Boeing, Intel, Bard, Honeywell, Microchip, Raytheon, W.L. Gore and many others have chosen Arizona as the place to produce innovations that are keeping the world safe and improving lives. The state’s southwest location – adjacent to many of the world’s largest markets – with modern transportation infrastructure and a strong regional supply chain make it easy to do business on an international scale. But it’s not just business as usual. With a year-round outdoor lifestyle, diverse culture and low cost of living, Arizona easily attracts and retains top talent with the skills manufacturing companies need to compete and succeed in today’s economy. It’s this perfect balance that makes life better here.

Learn more at azcommerce.com

AREA0782.indd 1

21/02/18 5:23 PM

AREA0773.indd 1

01/02/18 4:18 PM

CONTENTS

COVER STORY Amazon’s HQ2

Annual & CONSULTANTS

CORPORATE

A Geographical Shift?

SURVEY

FEATURES Innovation Parks

Academics

“Real World”

AREADEVELOPMENT S I T E

A N D

FA C I L I T Y

P L A N N I N G

Industry 4.0

Core of Tech Location Decision

Trade Policy

Risk for North American Industrial Outlook

Tech Advances HQ Location Selection

Renewable Energy How Industry Must Adapt to Tax Reform

Rail-Served Sites

Economic & Environmental Benefits

26 What Does Industry

The industrial forecast is strong.

Will a revamped NAFTA change that?

The Fourth Industrial Revolution is transforming global production and supply chains, but the future depends on how well the industry’s human leaders can understand its machines.

Risk for North American Industrial Outlook

4.0 Mean for U.S. Manufacturing?

Q1/2018

What Does It Mean for U.S. Manufacturing?

STEM Grads

14 Trade Policy Creates

eform TaxThR rough yes the E a of CEO

Infrastructure’s Role in U.S. Economy

16 STEM Grads:

At the Core of the Tech Location Decision

Reshoring Gains Traction in U.S. Manufacturing

WWW.AREADEVELOPMENT.COM

22 Tax Reform Through

the Eyes of a Design-Build CEO

The Tax Cuts and Jobs Act gives businesses more incentive to expand in the U.S. as well as provide employees with better equipment and training.

The search for tech talent is leading companies to look at some traditional as well as surprising locations and also putting workspace buildout in a new perspective.

18 Are Technology Advances

Affecting the Headquarters Location Decision?

Companies are re-evaluating locations and layouts of HQs and regional hubs as workplaces evolve.

Link the Academic and “Real World”

Research and innovation parks continue to evolve to meet the needs of students, faculty, and private-sector tenants alike.

Exclusive Online Content NOW ONLINE...

28 University Innovation Parks

www.areadevelopment.com

• America’s Economic Strength Built on Global Connections

• Iowa Sets Ambitious Workforce Education Goals

• Use Dictates the Parameters in Data Center Design and Construction

• Kentucky’s Favorable Business Climate Brings Record Corporate Investment

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, $10. Yearly subscription U.S. & Canada, $75; foreign, $95.

2

AREA DEVELOPMENT

TOCQ12018.indd 2

for free site information, visit us online at www.areadevelopment.com

3/20/18 11:56 AM

Volume 53 | Number 1 Q1/2018

Quote:

“Obviously we don’t want to be taken advantage of by our trading partners, but then there is always a danger of retaliation and creating trade wars…it’s a very delicate balance.”

Senator John Cornyn (1952– ), Republican Senator from Texas who is serving as the current Senate Majority Whip for the 115th Congress

55 Infrastructure and Its Role

59 The Renewable Energy

DEPARTMENTS

The federal government is leaning toward the creation of public-private partnerships to finance much-needed improvements to the nation’s infrastructure, which is vital to the manufacturing sector as well as national security.

Renewable energy production facility developers must reconsider how to optimize their capital structures in the new tax environment.

4 Editor’s note

in the U.S. Economy

Industry Must Adapt to U.S. Tax Reform

Policy Changes — for Better or Worse

6 In Focus

The ELD Mandate: How It Will Change Your Business Operations

57 Get On Track With a Rail-Served Site

6 Front Line

The economic and environmental benefits of freight rail transportation should be considered when developing your next facility.

Will the Latest Round of Minimum Wage Increases Affect Employment Levels?

61 Reshoring Gains Traction in U.S. Manufacturing

32

U.S. manufacturers are picking up momentum in bringing the jobs back they outsourced decades ago to low-cost countries — a move called reshoring.

32nd annual CORPORATE SURVEY & the 14th annual CONSULTANTS SURVEY Although the U.S. economy is strong, there may still be some hesitancy in investment decisions brought about by an uncertain legislative environment.

Join Our Newsletter areadevelopment.com/newsletter

8 Front Line

Amazon’s HQ2 Finalists Reflect a Growing Shift in Geographical Clout

9 Front Line

A New Age for Trucking

12 First Person

Kim Nichols, CEO, Franklin Apprenticeships

64 Ad Index/Web Directory

Online Database Resources www.facilitylocations.com

Follow Us On twitter.com/areadevelopment

www.fastfacility.com

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 2018 by Area Development® magazine. ISSN: 1048-6534. Printed in the U.S.A. Area Development® is a registered trademark of Halcyon Business Publications, Inc.

AREA DEVELOPMENT | Q1/2018

TOCQ12018.indd 3

3

3/15/18 3:14 PM

EDITOR’SNOTE

Q1/2018

Policy Changes — for Better or Worse The Trump administration’s historic Tax Cuts and Jobs Act was welcome news to business owners across the nation. Bringing the corporate tax rate down to 21 percent from 35 percent is forecast by industry analysts to make the U.S. more competitive in the global market. And it is hoped the tax reduction will incentivize companies to invest in facilities and equipment as well as employee recruitment and training.

This good news is countered by worries about a revamped NAFTA agreement and other changes to trade policy (including recently proposed tariffs) under the Trump administration. Today’s supply chains are connected across the globe, and changes in trade policy could have a detrimental effect on many major industries.

However, as we went to press on this issue, NAFTA renegotiation talks appeared to have slowed and tariffs are also in flux. Nonetheless, investors could be waiting for more certain trade rules before making their investment location decisions.

Interestingly, when Area Development asked its corporate executive readers about the implications of tax reform and opting out of or renegotiating trade agreements, two thirds of them said tax reform would not affect their plans to move forward with new or expanded facilities, nor would recently passed or proposed regulatory reforms. And more than half thought opting out of trade agreements would have a positive effect on their plans. In contrast, when we asked the consultants who serve industry’s needs if tax reform would affect their clients’ plans, two thirds said their clients would move forward with new or expanded facilities as a result of tax reform, but that opting out of trade agreements would have a negative effect on their clients’ plans.

Why the opposing viewpoints? About half of those responding to our Corporate Survey are with small firms employing fewer than 100 employees, and only a third of the corporate respondents use the services of consultants. Meanwhile, more than 60 percent of the respondents to our Consultants Survey serve companies having 500 or more employees, and these larger firms probably have global supply chains and would, therefore, be more negatively affected by changes in trade policy.

The results of our 32nd Annual Corporate Survey and 14th Annual Consultants Survey are presented in this issue and on Area Development Online. Numerous articles in our Q1 edition address facility planning concerns — tax reduction, trade policy, infrastructure upgrades, and more. As the year progresses, we will bring you more expert advice in print and online to help with your locations decisions.

www.areadevelopment.com EDITORIAL E-mail: editor@areadevelopment.com Editor Geraldine Gambale Staff and Contributing Editors Dale D. Buss Tom Gresham Dave Claborn Cynthia Kincaid Mark Crawford Phillip Perry Dan Emerson Mark Schantz Tom Ewing Steve Kaelble Clare L. Goldsberry Karen Thuermer

DESIGN/PRODUCTION Art & Design Patricia Zedalis Production Manager Jessica Whitebook Production Assistant Talea Gormican EXECUTIVE Publisher Dennis J. Shea dshea@areadevelopment.com Sydney Russell, Publisher 1965-1986 ADVERTISING SALES William Bakewicz (ext. 202) billbake@areadevelopment.com Valerie Krpata (ext. 218) valerie@areadevelopment.com ONLINE SERVICES Digital Media Manager Justin Shea (ext. 220) jshea@areadevelopment.com Business Development Matthew Shea (ext. 231) mshea@fastfacility.com Web Designer Carmela Emerson Circulation circ@areadevelopment.com

Editor EXECUTIVE OFFICES Halcyon Business Publications, Inc.

2018 Editorial Advisory Board Aaron Ahlburn Managing Director, Industrial and Logistics Research, JLL

Stephen Gray CEO, Gray Construction

Josh Bays, Principal, Site Selection Group, LLC

Minah C. Hall Managing Director, True Partners Consulting LLC

Marc Beauchamp, Vice President and Partner, The CAI Global Group

Trula Hensler Senior Marketing Manager, Baker Tilly Virchow Krause, LLP

Christine Bustamante National Co-Leader, Global Location and Expansion Services, KPMG

Scott Kupperman Founder, Kupperman Location Solutions, LLC

Gregory Burkart Managing Director, Business Incentives Advisory, Duff & Phelps, LLC

Dan Levine Practice Leader, Location Strategies and Economic Development, Oxford Economics, Inc.

Brian Corde Managing Partner, Atlas Insight, LLC

Bill Luttrell Senior Locations Strategist, Werner Global Logistics, Werner Enterprises, Inc.

Les Cranmer Senior Managing Director, Savills Studley

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

Dennis Cuneo Partner, Fisher & Phillips LLP

4

AREA DEVELOPMENT

EditNoteSurvey.indd 4

President Dennis J. Shea John Morris Leader of Industrial Services for the Americas, Cushman & Wakefield, Inc.

Finance Mary Paulsen finance@areadevelopment.com

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

Business/Finance Assistant Barbara Olsen (ext. 225) olsen@areadevelopment.com

Eric Stavriotis Senior Vice President, Advisory & Transaction Services, CBRE Thomas Stringer Esq., Managing Director & Practice Leader, Site Selection & Business Incentives, BDO Consulting Dean J. Uminski Executive, Site Selection Consulting, Crowe Horwath LLP Dan White Senior Economist, Moody’s Analytics

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

Joshua Wright Director of Economic Development, Emsi

for free site information, visit us online at www.areadevelopment.com

3/15/18 1:48 PM

PURE TALENT

From engineers to construction workers, one state has a talent pool deep enough to meet the needs of any business. Michigan. Our state ranks first in the U.S. in concentration of industrial designers and engineers and eighth in the skilled trade workforce. Plus, Michigan offers a pipeline of high tech talent that flows from 33 public and private universities. Whether businesses require STEAM or skilled trades, Michigan has the talent they need to succeed.

michiganbusiness.org

AREA0777.indd 1

12/02/18 7:18 PM

INFOCUS The ELD Mandate Will Change Your Business Operations Brian Fielkow, J.D., CEO, Jetco Delivery

The ELD Mandate, which will change how truckers operate, will ultimately benefit both the trucking industry and the shippers/manufacturers that utilize the industry’s services.

With over 30 years of executive leadership experience in both public and privately held companies, Brian Fielkow, J.D., advises companies big and small on issues of safety, accident prevention, and corporate culture.

The anticipated Electronic Log Device (ELD) mandate took effect on December 18, 2017. The mandate ensures that professional truck drivers comply with hours-of-service laws, which define how many hours a driver many be on duty and drive. While this mandate has been on the horizon for quite some time, many truckers found themselves not ready when the mandate took effect.

For too long, some carriers pushed the envelope on hours of service and in some cases used two sets of paper logs to hide violations. Therefore, for the trucking industry, the ELD mandate creates a level playing field and promotes safer practices on the road.

Manufacturers must pay close attention to the ELD mandate. This represents a long overdue, substantial change to how truckers operate.

HERE ARE SOME TIPS: • Survey your carriers. Find out if your carriers are already following the mandate — if not, they’re late to the game. After March 31,

6

AREA DEVELOPMENT

DepartmentsQ1SurveyIssue.indd 6

noncompliant carriers will be fined.

Therefore, the carrier may be placed out of service. Your cargo could be sitting at a DOT inspection station for some time. If you receive push back from your carrier, consider it a red flag.

• Be prepared for price increases. If your shipper hasn’t followed the hours-of-service rule in the past and has been running over hours, the ELD mandate will put that to a halt.

Remember: if it’s too good to be true, it probably is.

•L ook at your delivery lanes. Determine their distance. Ask whether a truck with a single driver could really make the delivery within 11 hours of drive time (taking into account traffic, rest breaks, and other factors).

If you have experienced unrealistic travel time, that is over. Some manufacturers may need to look at revised delivery times.

The ELD mandate could compound truck capacity problems, especially in an improving economy. Shippers who proactively secure capacity are far less likely to feel the capacity crunch. Be sure to select your core carriers — make commitments and expect reciprocal commitments in return. Here are some tips to remain an attractive shipper of choice: • Extend pick-up and delivery times.

Tight delivery windows and long loading delays impact productivity.

• Drop-and-hook freight can be more efficient and driver-friendly.

• Have cargo ready when the professional driver arrives. Understand that the driver makes his/her money driving — not waiting.

• Communicate often and provide volume forecasts to help capacity planning.

Ultimately, the ELD mandate is a win-win for both the trucking industry — by upholding safety — and for shippers/manufacturers — who will have complete access to where their trucks are at each moment. At the end of the day, the most important thing is that those on the road are safe — professional drivers and the public. The ELD mandate takes the trucking industry another step in that direction and allows transparency for customers.

FRONTLINE

Will the Latest Round of Minimum Wage Increases Affect Levels of Employment?

By Dan Emerson

Since the tight labor market has already pushed up wages, studies have shown an increase in the minimum wage will have minimal negative impact on employment levels.

The new year brought minimum wage increases for workers in 18 U.S. states and 20 cities. More state and local governments have been willing to raise wages above the federal minimum, as studies have shown minimal negative impact on employment levels, Fortune magazine reported recently.1 With the increases, there are now 29 states with laws mandating higher pay than the federal minimum wage of $7.25 per hour, which has been in place since 2009. By 2022, 17 percent of Americans will live in a city or state with a $15 minimum wage, according to Fortune.

For employers, one factor that makes it easier to deal with mandated minimum wage increases is that they do not come as surprises, as is often the case with other types of expenses.

“Typically, minimum wage increases are ‘baked into’ a legislative act that either ties increases to some kind of fixed schedule or a cost-of-living increase,” says Rick Guzzo, co-leader of Mercer’s Workforce Sciences Institute.

for free site information, visit us online at www.areadevelopment.com

3/13/18 2:53 PM

FROM WASTED TO

Turn brownfields to green with Fabcon Precast.

Recognizing potential in a blighted landscape isn’t easy—and unlocking its full potential is even harder. Fabcon Precast has successfully helped turn thousands of acres of contaminated brownfield into marketable and productive developments. See what happens when a brownfield gets a second chance at FabconMeansBusiness.com PRECAST WALL SYSTEMS - ENGINEERING MANUFACTURING - INSTALLATION ©2018 Fabcon Precast

AREA0785.indd 1

FABCONPRECAST.COM | (800) 727-4444

06/03/18 5:42 PM

One of the variables is that individual states often have minimum wages that are higher than those mandated by the federal government.

And, today’s tight labor market means an upward trend in wages across most, if not all, industries, Guzzo notes. The manufacturing sector is less susceptible to minimum wage increases than it used to be, because technology has mostly eliminated minimum wage jobs from the factory floor.

“The manufacturing sector has already gone through a movement away from minimum wage as a meaningful base wage. True, minimum wage jobs are elsewhere, such as in the retail sector,” Guzzo told Area Development.

Could wage hikes make manufacturing companies more likely to move outside the U.S.? Not likely, Guzzo says, since manufacturing processes that might include minimum wage jobs often need to be local — for example, a company “that is on the cusp between manufacturing and the service industry — people who are processing linens overnight” for the hospitality industry.

What strategies can employers use to compete in a tight labor market?

Guzzo suggests “looking to alternative pools, for example, people who haven’t been working in manufacturing. They might be able to draw folks from retail or try to bring people from retirement back into the workforce.

But there is a limit to how much you can do that. It’s not going to be the be-all, end-all answer.”

Guzzo also says employers might ask, “‘What is the whole deal we can offer? Along with higher wages they might also include some scheduling flexibility, or some other aspect of benefits that weren’t on the table previously.”

A developing issue is how employers will decide to spend their federal tax break “windfall,” he notes. “Some have made announcements they are going to pay out bonuses, but are not ramping up the minimum wage.”

Last year, two researchers from the National Bureau of Economic Research reported findings that increasing the minimum wage drives employers to

8

AREA DEVELOPMENT

DepartmentsQ1SurveyIssue.indd 8

automate jobs held by low-skilled workers. In the paper “People Versus Machines: The Impact of Minimum Wages on Automatable Jobs,” Grace Lordan and David Neumark found that “…a significant number of individuals who were previously in automatable employment are unemployed in the period following a minimum wage increase.”2 The study found that increasing the minimum wage by $1 decreased the share of low-skilled automatable jobs by 0.43 percent in general and by 0.99 percent in manufacturing as employers expand the use of machines to avoid higher wage costs. While artificial intelligence can be used to replace workers, small manufacturers are less able to make that kind of investment in new infrastructure, Guzzo points out.

1

http://fortune.com/2017/12/20/minimum-wage-increasesjan-2018/ https://www.wsj.com/articles/the-impact-of-minimum-wageson-automatable-jobs-1502793093

2

FRONTLINE Amazon’s HQ2 Finalists Reflect a Growing Shift in Geographical Clout

By Dan Emerson

The 20 finalist locations for Amazon’s second headquarters location include several smaller cities that are not typically thought of as technology centers.

High-fives were being exchanged in city halls across the U.S. recently, prompted by Seattle-based Amazon’s January 17 announcement of 20 remaining contenders for its planned, second headquarters — a $5 billion project. The list includes Atlanta; Austin, Texas; Boston; Chicago; Columbus, Ohio; Dallas; Denver; Indianapolis; Los Angeles; Miami; Montgomery County, Md.; Nashville; Newark, N.J.;

New York City; Northern Virginia; Philadelphia; Pittsburgh; Raleigh, N.C.; Toronto; and Washington, D.C.

In September, the Internet retailing titan had solicited proposals from North American cities interested in hosting its HQ2. Along with $5 billion in direct investment, Amazon promised up to 50,000 new jobs and millions of square feet of commercial real estate development. A total of 238 municipalities of all sizes submitted proposals by Amazon’s Oct. 19 deadline.

On the list of 20 contenders, the presence of some smaller cities — along with some of the usual, major urban centers — reflects a developing shift in geographical clout, according to Anita Kramer of the Urban Land Institute. Each year, the Institute conducts an Emerging Trends in Real Estate survey among more than 2,000 real estate experts, including investors, fund managers, developers, property companies, lenders, brokers, advisers, and consultants.1 The survey includes a “Markets To Watch” section ranking 78 metro areas or markets in the U.S. Within the last four years, the Institute staff have noticed “smaller markets really starting to dominate,” supplanting some larger markets that were formerly ranked in the top 10 as “markets to watch,” says Kramer, who is senior vice president with the Institute’s Center For Capital Markets and Real Estate. Those include cities such as Indianapolis; Columbus, Ohio; Nashville; Austin; Denver; and Raleigh; and regions like Northern Virginia and Montgomery County, Md. — all of which made Amazon’s list, although some of these metro areas are not typically thought of as technology centers.

for free site information, visit us online at www.areadevelopment.com

3/13/18 2:54 PM

“

“We see $300 million. that the marPerhaps ket is showing the most unAlong with $5 billion in more faith in conventional direct investment, Amazon some smaller offer came promised up to 50,000 new markets from Fresno, jobs and millions of square (around two Calif., which feet of commercial real estate million popuproposed development. lation) where putting 85 growth can percent of all take place,” Amazon-genKramer explains. “They may not be erated taxes and fees into a special as densely populated and expensive fund. A board appointed by the city, as bigger cities, and they are providhalf comprised of Amazon executives ing things people are quite interested and half of city officials, would decide in having, like lower cost of doing how to spend the funds on housing, business, and lower living costs.” A roads, and parks as well as in and number of those growing metro areas around the Amazon campus. have also developed “walkable” urAmazon has not set a date for ban centers that can offer some of the announcing its next group of remainamenities and conveniences of big-city ing contenders, but cities and states living, Kramer notes. “They are now around the U.S. are eagerly awaiting offering some of the amenities older, the results. bigger markets have been known for.”

1 https://americas.uli.org/research/centers-initiatives/.../emergingAnother common feature is that trends-in-real-estate/ 2 https://www.seattletimes.com/business/amazon/this-city-hallthose so-called “18-hour cities” (as brought-to-you-by-amazon/ opposed to “24-hour cities” like New York and Los Angeles) “tend to have a technology presence as part of their total economic base. And they have the kind of workforce and talent companies are looking for,” Kramer adds.

The presence of major institutions of higher learning was another criterion specified by Amazon. Those highranking colleges and universities that supply well-educated workers also enrich communities in other ways, Kramer points out. “Companies assume

By Karen E. Thuermer those colleges and universities will High driver turnover, the new manbe a source of talent and partnership. date limiting drivers’ hours on the To bring people together in the right road, and the boom in e-commerce place can be terrific for businesses.” are spurring the adoption of driverNot all of the cities vying for the less trucks. prize specifically announced what they were offering. But the Seattle Times Trucking, as we know it today, apgathered some interesting details pears to be on a collision course. Drivon proposals.2 New Jersey offered ers are at a critical shortage and costs are skyrocketing. Sign-on bonuses are Amazon $7 billion to build in Newark, advertised at upward of $10,000. Aunever considered a “new economy” tonomous trucks may be an answer. destination. Chicago offered $1.32 There are many reasons for the billion in income taxes from Amazon shortage: age, gender inequality, employees for locating there, the lifestyle issues, long hours away from newspaper reported. In the smaller home, cost of obtaining a commercity category, Chula Vista, Calif., ofcial driver’s license, and mounting fered Amazon 85 acres of free land, regulations. Drivers are restricted by a $100 million value, and a 30-year law from driving more than 11 hours property tax exemption, worth about

“

FRONTLINE

A New Age for Trucking

per day without taking an eight-hour break. To stop the cheaters, a mandate when into effect December 18 under the Federal Motor Carrier Safety Administration (FMCSA) that requires truck operators to use electronic logging devices (ELDs) to keep records of duty status.

Embark Trucks, with partners Ryder and Electrolux, has been running a 650-mile autonomous truck route — the longest in the world.

For asset-based companies and those that purchase trucking services, capacity and a severe shortage of truck drivers is the “elephant in the room,” comments Matt Luckas, vice president of Supply Chain Services for Hanson Logistics. “Driver shortages across the board are impacting all facets of trucking,” he says.

Meanwhile, the American Trucking Associations’ (ATA) data indicates that since the Great Recession, freight volumes have been going through the roof. For 2017, ATA’s seasonally adjusted (SA) For-Hire Truck Tonnage Index was up 3.7 percent from 2016 — the largest annual gain since 2013 (6.1 percent).1 The association estimates that more than 3.4 million heavy-duty Class 8 trucks and over 3.5 million truck drivers are required to move 10.5 billion tons of freight annually.2 Yet, Bob Costello, ATA’s chief economist, reports that annualized driver turnover rates have recently been as high as 95 percent. He notes that the shortage falls between 35,000 and 40,000 drivers. Then there are added factors, notably the boom in e-commerce and the need for quick deliveries.

NEW AGE “Same day delivery is evolving into same-hour delivery in some places,

AREA DEVELOPMENT | Q1/2018

DepartmentsQ1SurveyIssue.indd 9

9

3/13/18 2:54 PM

and consumers are insisting on a broader selection and availability of goods,” observes Dan Letter, managing director of Capital Deployment NW Region for Prologis, a multinational logistics real estate investment trust.

A report by The Center for Technology Innovation at the Brookings Institute attributes the boom in ecommerce will lead to trucks quickly adopting autonomous vehicles.3 A number of companies, including Daimler and Volvo, are working on driverless truck adoption. They’ve made test runs in Europe.

In the U.S., Embark Trucks — with partners Ryder and Electrolux (which operates the Frigidaire Line) — has been running the longest autonomous route in the world — 650 miles starting in Texas and ending in California.

And, in early February, Embark com-

pleted a cross-country test drive from Los Angeles to Jacksonville, Florida.

San Francisco start-up Embark relies on Ryder’s trucks and drivers to ferry freight between the warehouse and the interstate. “Embark’s trucks pick up at the edge of the interstate, and from there the computer drives [the truck] 650 miles,” a company video explains.4 Embark doesn’t manufacturer trucks, but integrates autonomous technology into Peterbilt semis. That technology uses machine learning software and data from the sensors on board the truck to map its surroundings in real time and avoid obstacles.

The potential is huge. Market intelligence firm Tractica sees market growth accelerating as successful pilot projects come at an increasing pace.

In fact, Tractica estimates that world-

wide revenue from autonomous trucks and buses reached $84 million in 2017. It expects that with more competition within the industry, providing significant opportunities to various industry participants, the market will reach a value of $35 billion by end of 2022. During that period, Tractica forecasts that annual unit shipments will increase from approximately 343 vehicles in 2017 to 188,000 units in 2022.5 While there still may be some resistance, autonomous trucks may provide a solution to today’s driver shortage and other issues.

1

http://www.trucking.org/article/ATA-Truck-Tonnage-IndexRose-3.7%25-in-2017http://www.trucking.org/News_and_Information_Reports.aspx 3 http://www.businessinsider.com/why-driverless-trucks-willcome-before-self-driving-cars-2016-9 4 http://embarktrucks.com/ 5 https://www.prnewswire.com/news-releases/worldwide-revenuefrom-autonomous-trucks-and-buses-is-expected-to-reach-avalue-of-35-billion-by-the-end-of-2022-300590205.html 2

Location Economics T H E N E W S C I E N C E F O R A DVA N C E D S I T E S E L E C T I O N

Industry-leading labor data and customized indices to navigate complex real estate decisions • Software • Interactive apps • Consulting National to neighborhood analyses

Economicmodeling.com/cre AREA0761.indd 1

10

AREA DEVELOPMENT

DepartmentsQ1SurveyIssue.indd 10

15/11/17 3:34 AM

for free site information, visit us online at www.areadevelopment.com

3/13/18 2:55 PM

Providing the Necessary Tools

NV Energy’s Economic Development Department can provide the most cutting edge comprehensive listing of available properties for companies to consider in the state of Nevada. Nevada Site Locator is the state’s most advanced and only searchable GIS site selection database that is geared towards assisting businesses, brokers and developers searching for the perfect location.

` Save hours of research time ` Generates site-specific demographic and business analysis ` Download comprehensive easy to read reports

www.nevadasitelocator.com

AREA0384.indd 1

13/02/15 11:47 PM

FIRSTPERSON KIM NICHOLS

CEO

FRANKLIN APPRENTICESHIPS

What do most people think of when apprenticeship programs are mentioned?

Nichols: In Europe, apprenticeship programs are a natural course toward secondary education, secure employment, and career advancement for both blue-collar and whitecollar careers. In the U.S., the first thought is blue-collar careers, lower starting wages, and the stigma behind not getting a college degree — something that is considered a vital credential for a middle-income job.

More recently, however, the white- vs. blue-collar color lines are becoming blurred. Apprenticeship programs not only open doors to careers. They also create opportunities for blue-collar workers to advance to white-collar professions — with or without a college degree.

It’s been noted that advanced manufacturing companies are experiencing — and will continue to experience — difficulty finding skilled workers. How will apprenticeship programs help to alleviate this problem?

Nichols: The skilled labor shortage has multiple layers, including the retirement of current knowledge workers.

Recent studies show an estimated 2.7 million jobs in manufacturing are likely to be needed as baby-boomers retire.

The apprentice/mentor model is a perfect forum from which to create a direct knowledge transfer.

There’s also the changing perception of job security in the manufacturing industry, which was once considered a safe career bet, especially for those who chose to not pursue a college degree. Many Americans who have witnessed plant closures now consider the industry a career risk. Apprenticeship programs are built with security, advancement, and highly transferable skills in mind.

Finally, there are talent shortages and concerns over emerging skills — 65 percent of tomorrow’s workers will have jobs that don’t exist today. The thrill of advanced manufacturing is something that can re-define the industry for our next generation of talent — Gen Z. They are a generation poised, anxious, and naturally inclined to the skills brought on by advanced manufacturing.

12

AREA DEVELOPMENT

13ADQ12018.indd 12

What are the specific benefits of apprenticeship programs?

Nichols: Employers benefit from more structured training programs, more efficient recruitment practices, and increased retention. Apprenticeship programs are proven to enhance workforce loyalty, performance, and productivity. This, of course, all feeds back to the bottom line.

Individuals have the opportunity to learn in a real-life environment and get paid to earn credentials and/or college credits — without the need to incur college debt. Apprenticeship programs also ensure greater opportunity for advancement and future employability. Communities that adopt apprenticeship programs enrich relationships between employers and educators, reduce unemployment, and attract and retain a well-trained workforce as a basis for economic growth.

How do these systems function in Europe?

Nichols: The European apprenticeship systems have grown to become a natural part of educational culture and traditions.

Of course, each country has its own set of standards and policies. That includes the legal frameworks, qualification and certification standards, public and private funding obligations, training models with intermediaries, employers and educators, and work training contracts between the apprentice and the company. These systems work to regulate the cooperation and coordination of key stakeholders, and to enhance efficient governance and management structures.

Should U.S. companies model their programs on those in Europe?

Nichols: The U.S. has historically modeled apprenticeship programs from Europe. It was part of our nation’s heritage, and it will continue to be a part of our nation’s future. We need to continue to use those models from which to catch up and further develop our own systems. European coun-

for free site information, visit us online at www.areadevelopment.com

3/9/18 3:16 PM

tries, overall, are a lot further along than we are in program development. They’ve spent decades developing and enhancing program quality and effectiveness. So, we should consider how to learn both from their current successes and past failures.

While countries such as Germany and Switzerland are most identified with apprenticeships, it’s unlikely the U.S. can copy these models because of their deep roots in the education system. The UK model is more closely aligned with U.S. employer expectations, as it’s largely run by the private sector. With one of the most expansive apprenticeship systems in the world, the UK trains slightly more women than men in over 300 occupational fields offered in apprentice roles.

These include entry-level positions right through to management, and industries that have been around for less than a decade. Supporting the system are more than 1,000 intermediaries that establish, manage, and deliver apprenticeship programs on behalf of employers — standing between the employer, the apprentice, and the government.

Can U.S. training and educational programs already in place be incorporated into the apprenticeship model?

Nichols: Yes, but it will take time and adjustment. Refining dated programs and building current curriculum, collaborating and remaining abreast of employer needs, and evaluating performance criteria to meet credit standards are some examples of the cohesiveness that is required.

How can businesses, educators, and economic developers work together to develop apprenticeship programs?

Nichols: Collaboration, communication, and commitment are needed. They need to collaborate to make apprenticeship programs a collective commitment as opposed to an isolated conversation, and to seek out third-party advisors that have the expertise and experience to help coordinate a collective goal that is set up for success.

What specific steps does a company need to take to establish an apprenticeship program?

Nichols: First a company must determine if apprenticeships, as a strategy, meet their workforce needs, and if the

roles they need to fill are “apprenticeable.” A company must then identify key partners — intermediaries, training providers, community colleges, workforce agencies, apprenticeship agencies, or community organizations — to help knit together all of the resources.

A company should next develop program components for the specific role to include standards or core competencies, training plans (on-the-job and related technical instruction), individual learning plans (milestones, wage progression, credentials), mentor plans, and ongoing assessment and recruitment plans.

The company can then recruit the first cohort for program implementation and completion. Regular evaluations are needed to ensure milestones are being met, and skills learned in the classroom are being applied in the workplace.

Are there any examples of successful programs that you could highlight for our readers?

Nichols: South Carolina’s Schaeffler Group’s apprenticeship program applied classical European and American apprenticeship training concepts. Initially, the program focused on tool and die makers, then skilled set-up machinists, and, more recently, electrical-mechanical and programming. Since inception, more than 300 apprentices have been recruited with a 90 percent graduate retention rate. Graduating apprentices received a two-year associate’s degree from NETC, and an Apprenticeship Journeyman License from the U.S. Department of Labor.

THE ASSIGNMENT Area Development’s editor recently asked Kim Nichols, the CEO of Franklin Apprenticeships, about how modernized apprenticeships can change the perception of the manufacturing industry while helping to satisfy its workforce needs, as well as the needs of other advanced industries.

AREA DEVELOPMENT | Q1/2018

FirstPersonKimNichols.indd 13

13

3/9/18 3:18 PM

GLOBALIZATION/ GOVERNMENT POLICY

Trade Policy Creates Risk for North American Industrial Outlook The industrial forecast is strong. Will a revamped NAFTA change that?

By Jason Tolliver, Vice President and Head of Logistics & Industrial Research for the Americas, Cushman & Wakefield

S

ince the mid-1990s, the North American industrial market has experienced a record-setting run. As supply chains have become interconnected and the need for additional warehouse inventory has increased, we’ve registered some of the strongest leasing tallies and tightest market conditions on record.

And while we’re forecasting another strong few years in the sector, trade policy is among the greatest risks to the industrial outlook.

The deadline to finalize a renegotiated NAFTA treaty is looming, and there have been mass amounts of speculation on how a revamped NAFTA, or nonexistent NAFTA, might impact certain sectors of the economy. From a commercial real estate perspective, the politics and policymaking that comes out of these negotiations will be key determinants in how the North American industrial market performs.

First, a History Lesson Those who follow CRE know that NAFTA has had a profound effect on the North American industrial market. Since the treaty took effect in 1994, the amount of truck traffic flowing between the U.S., Canada, and Mexico has increased dramatically, with annual loaded truck containers bound for the U.S. from its northern and southern neighbors increasing 184.1 percent.

As cross-border trade, traffic, and foreign direct investment flows have increased, so too has the need for additional warehouse inventory. Since 1994, North American warehouse stock has grown by over five billion square feet, with U.S. warehouse inventory growing by more than 3.5 billion square feet. This growth is one of the top reasons the industrial sector stands out in the commercial real estate market.

Under NAFTA, supply chains across North America have largely become su-

14

AREA DEVELOPMENT

TradePolicy.indd 14

pranational, allowing tariff-free trade flows between the U.S., Canada, and Mexico. In 2016, over three-fourths of exports from Canada and Mexico were destined for the U.S., and more than half of those countries’ imports came from the U.S. Although U.S. trade is more diversified than its neighbors, with its largest trading partners accounting for no more than approximately 20 percent of imports or exports, concentrated exposure to specific industries ties the U.S. economy to its NAFTA partners.

Still, the nature of our current production system extends beyond our neighbors to the north and south. A large portion of U.S. trade with the world, but especially with Mexico, is part of an interconnected global supply chain, where a product is produced in one country, then shipped to another country, and so on, until production is completed.

Think of automobile assembly as a way to envision this fragmented nature of production. For example, Ford and General Motors use regional supply chains which move semi-finished products across NAFTA borders multiple times before the final product rolls off the factory floor. This helps keep overall production costs low and allows automakers to compete globally by lowering the cost of their products abroad. So, while your Ford might come from Detroit, it’s parts are likely from Mexico.

This cost-effective strategy doesn’t hurt the U.S. financially. In fact, it’s contributing to a healthy economy.

Lower production costs mean lower

for free site information, visit us online at www.areadevelopment.com

3/9/18 4:39 PM

consumer prices, and that means more money in consumers’ pockets to purchase other goods that also generate demand for industrial space. If changes in trade policy were to make it costlier to access intermediate inputs, the disruption would cascade through regional supply chains, thus affecting demand for commercial real estate.

Back to the Present The NAFTA negotiation process makes headlines every day, and the buzz won’t end any time soon. While progress is reported to have been made on topics such as digital trade and food safety standards, among the remaining sticking points is a U.S. proposal for a “sunset” clause that would automatically terminate the agreement after five years unless all parties expressly agree to keep it. The impact from such a clause on commercial real estate is unclear, but even the prospect of automatic withdrawal would likely hinder manufacturing-related investments, as manufacturers have a much longer time frame in mind when making such investments.

Even if you haven’t been keeping a close eye on NAFTA negotiations, it’s unlikely you’ve missed the rhetoric about bringing auto jobs back home. By far, the most controversial issue is the U.S. attempt to cut its auto-related deficit with Mexico by shifting auto production back to the United States. This proposal would add a clause that requires half of an auto’s content to be made in the U.S. To receive duty-free treatment under NAFTA as it stands today, 62.5 percent of an auto must contain North American content. To put that number in perspective, it is the highest content requirement of any trade agreement in the world. The U.S. proposal would raise that requirement to 85 percent, with the added stipulation that 50 percent be U.S. content. While it’s highly unlikely that Canada and Mexico would ever agree to such provisions, it’s also not certain that higher content requirements would decrease the U.S. trade deficit either. What is certain is that this clause would send disruptions through the auto industry, which has one of the most heavily integrated supply chains of any industry.

Though the automotive sector tends to dominate attention, changes to NAFTA would make an impact on several North American industries, including agricultural trade.

You may remember the headlines that came out last fall after news broke that the price of avocados would spike under a new NAFTA.

A World Without NAFTA? In the absence of NAFTA, we are looking at two scenarios. Some production in Mexico would likely fall in favor of manufacturing in the U.S. or Canada. However, it is possible that many of the parts and components now crossing borders would continue to cross without the benefit of duty-free treatment, but also without the burden of proving rules of origin and at a higher cost to consumers.

Much of the production in Mexico, for example, is focused on lower-margin passenger cars, like the Ford Fusion or Chevy Cruze. It would be much less cost-effective to produce these vehicles in the U.S. or Canada. In some cases,

companies could decide it is better to absorb higher tariffs than to absorb higher production costs by relocating manufacturing activities to the United States. In those instances, changes in commercial real estate demand would be minimal, although production of low-margin items in Mexico would be scaled back or eliminated entirely. The demise of the agreement might also drive U.S. automakers to source components from Asia instead of Mexico in order to pay a lower tariff. In either case, increased demand for commercial real estate is not likely to occur. In fact, demand for industrial real estate could suffer if firms chose to source product from outside of North America.

In addition to impacting the flow of goods, trade policy can affect the flow of people. Restrictions in the flow of workers would make an already tight labor market even tighter. The NAFTA professional visa program is the largest work visa program in the U.S., representing more than one third of its 2.3 million foreign-born workers and trainees. We rely on foreign-born workers to fill jobs as engineers, truck drivers, construction workers, and more. Considering labor shortages are becoming more prevalent — especially in the construction sector in the southern U.S. — policy changes could make the business of filling jobs much more difficult.

Best Guess Here’s the truth: the fate of NAFTA, and any resulting shifts in commercial real estate demand, will take time to unfold. Trade negotiations of any kind, particularly those that are this influential, are seldom quickly accomplished. Even when an agreement is reached, it can take months or even years for the changes to take effect. For context, Canada has proposed a timeline of roughly two years for renegotiations, which reflects past negotiations. The original NAFTA negotiations took 20 months and another 13 months after signing before implementation.

And don’t count on the U.S. to speed things up. Over the past decade, U.S. free-trade agreements have taken even longer to negotiate and implement; on average, taking 27 months for negotiations and 58 months for implementation.

So, the best bet is that uncertainty surrounding trade policy will last for quite a while.

Predicting with certainty what changes to commercial real estate after NAFTA would occur is difficult because it is impossible to know what tariff regime would replace it. It’s also difficult to quantify the impact of uncertainty on business investment and the broader spillover effects into nontrading industries. Because tariffs are a tax on trade flows and not on net production, even incremental increases could have a disproportionate impact on industries that trade extensively across the border. The dismantling of NAFTA would likely cause financial-market volatility, negatively affecting near-term business confidence, hiring, and investment — and, therefore, economic growth and demand for commercial real estate.

The take away? Negotiators seem far from reaching consensus on any of these issues in the next few months, and as a result, trade policy will remain the greatest risk to the North American industrial outlook. n AREA DEVELOPMENT | Q1/2018

TradePolicy.indd 15

15

3/9/18 4:39 PM

SITE SELECTION/LABOR

STEM Grads: At the Core of the Tech Location Decision The search for tech talent is leading companies to look at some traditional as well as surprising locations and also putting workspace buildout in a new perspective.

By Steffen Kammerer, Senior Vice President and Lead of Technology Group, JLL

Toyota Technical Center, Ann Arbor, Michigan

P

erhaps because of the dot-com boom at the turn of the century, there has been speculation that the surging U.S. technology sector could eventually burst. But this time around, it’s not a bubble. Tech adoption is steadily increasing as society becomes more and more dependent on its various forms.

As a result, the industry is growing at an exponential rate. In fact, the tech sector closed 2017 as the largest contributor to U.S. office leasing for the third straight year — responsible for 29.9 million square feet of leasing activity over the calendar year, according to JLL’s U.S. Office Outlook Q4 2017.1 As the sector grows its real estate footprint, with new companies forming and major players expanding, finding both affordable real estate and a reliable talent pipeline has become more challenging than ever. But the pipeline can be tapped; just start by following the STEM degrees.2

Tapping the Talent Pipeline Some of the most prominent figures in the tech industry have gotten there without a college degree, but highly skilled talent is the key ingredient to success for tech companies. However, the number of job openings is going up, while the number of qualified candidates is going down.

With the rising costs of real estate near prime talent pipelines such as Stanford and MIT, companies have to get creative with their site selection strategy. You will always find tech talent in San Francisco, Silicon Valley, and Boston, but the cost of

16

AREA DEVELOPMENT

STEMGrads.indd 16

doing business in these markets is simply too high for some startups or even established companies looking to expand. But most importantly, companies need to ensure that they tap a location where the talent well won’t dry up.

That’s why some of the biggest names in the tech industry have planted roots in Colorado. Boulder, Fort Collins, and the Denver metropolitan area are all among the nation’s top 25 markets for highest rates of educational attainment. In addition to Oracle and IBM, homegrown startups like Webroot and Gusto showcase the state’s deep talent pool.

But it’s not only about having a highly educated workforce. For the tech industry, you need a workforce specialized in computer science, which narrows your options down even more. While California and Massachusetts host 11 of the top 25 computer science degree programs in the U.S., Pennsylvania stands out with four of the top-rated programs. With a strong localized focus on tech and innovation, Pittsburgh is enjoying a growing robotics industry.

Texas has boasted both population and employment growth throughout the current economic cycle, all while continuing to churn out tech talent.

Rice University, Texas A&M, and the University of Texas, Austin have some of the best computer science programs in the nation. Unsurprisingly, Austin is a hotspot for startups and established tech companies alike.

By looking at the top markets with the highest rates of science and math

for free site information, visit us online at www.areadevelopment.com

3/9/18 4:47 PM

degrees, you’ll discover some surprising inclusions. For example, Columbus, Indiana, about 45 miles south of the Indianapolis tech scene, is second only to Silicon Valley. And following Columbus, to round out the top three? Huntsville, Alabama — home to NASA’s Marshall Space Flight Center, Cummings Research Park, and one of University of Alabama’s three campuses.

Another market with a steady pipeline of talent is Ann Arbor, Michigan, home to the University of Michigan and innovative outfits such as ProQuest and the Toyota Technical Center. Michigan is home to two of the nation’s top-rated computer science degree programs.

Catering to Tech Talent But it’s not just about choosing the right city to access talent.

It’s also about deciding where to drop anchor within the metro.

Does it make sense to lease in the heart of a business district, or look out to the suburbs? To make that decision, it’s important to understand where millennials prefer to work and live.

Millennials, who will soon comprise more than half of the U.S. workforce, flocked to cities in recent years. But as they age, they may fully complete the circle and move back to the suburbs to raise a family and adopt the slower — and often more affordable — suburban lifestyle. Work-life balance is more of a concept than a reality to many millennials at their current life stage, but that’s bound to change. Therefore, tech companies need to consider the long-term consequences behind their location decisions.

Being Attractive on the Inside That said, millennials aren’t the only generation to consider. Generation X and even baby-boomers will still be a part of the tech workforce for years to come. In addition to choosing the right location for these workers, designing spaces for all of these generations’ work styles is critical to retention and longstanding appeal for job-seekers.

And for many employees, workspaces of the past just don’t cut it. Today, employees demand a combination of tech-enabled collaborative, creative, and independent work spaces to accommodate various aspects of their work. With vacant spaces unlikely to cater to these needs, investing in workspaces is often required.

Adding the amenities today’s tech employees desire may sound costly, but after buildout costs are considered, tech offices end up being 15 percent cheaper than traditional office spaces. The overall trend to more open space in the office means less physical materials are needed. In turn, hard costs for a tech office fit-out are upwards of $20 cheaper per square foot than for traditional offices — leading to savings that can be applied to equip offices with the modern, highend technology and amenities that will attract talent.

By carefully considering educational, workplace, and real estate trends, tech companies of all shapes and sizes could come out on top in the fierce battle for tech talent. n 1 2

http://www.us.jll.com/united-states/en-us/research/property/office http://link.jll.com/2017-tech-outlook

Cape Coral, Florida: Strategic Location for Regional Business

Cape Coral-based Architectural Metal Flashings embraced a long-term opportunity when it became a preferred manufacturer for the rising solarpowered Babcock Ranch community.

Owners Jeff and Darla Bonk chose North Cape Industrial Park because there is room for expansion and its proximity to I-75 makes it a breeze to reach customers stretching from Marco Island to Babcock Ranch.

“We have found it to be very friendly here,” she says. “We have a long-term plan to be part of Cape Coral and the business community.”

Cape Coral is ranked the No. 1 fastest-growing metro area in the nation.

Bring your vision to Cape Coral, where your customers—here and around the world—are within reach.

AREA0764.indd 1

STEMGrads.indd 17

Cape Coral Economic Development Office +1 (239) 574-0444 ecodev@capecoral.net bizcapecoral.com

AREA DEVELOPMENT | Q1/2018

17

21/11/17 5:27 PM

3/9/18 4:42 PM

SITE SELECTION

Are Technology Advances Affecting the Headquarters Location Decision?

Companies are re-evaluating locations and layouts of HQs and regional hubs as workplaces evolve.

By Tom Gresham

A

©Tom Rossiter

few years ago, Bill Bouchey, director of interior design at HOK’s New York studio, worked on a project renovating the Montreal regional headquarters of a large financial institution. The project proved emblematic of contemporary workers’ evolving preferences and the ways companies are striving to both accommodate and encourage those workers in their new habits. The undertaking saw the company reduce its footprint on its main campus in downtown Montreal and open up new space at two smaller facilities — one located uptown and one located in a transition area between urban Montreal and the suburbs.

The goal, Bouchey says, was to respond to trends such as remote working, flexible working, and hoteling to allow employees to work “in a more agile way, including being able to work remotely part of their workweek and part of the time to travel to other locations that were connected to the corporate culture but weren’t necessarily all the way downtown.”

In the new arrangement, workers who resided in the suburbs might split their time between working at home, working at one of the satellite facilities, and working at the main campus, depending on their inclinations and the demands of their jobs. The company “wanted to use this project to help attract and retain people,” Bouchey notes. “They know that people are looking for flexibility in how they work and conduct themselves as corporate professionals.”

Consumers Credit Union recently opened its HOK-designed headquarters in Kalamazoo, Mich., moving 150 employees who previously worked in four separate buildings into a “collaboration center.” The open floor plan includes modern workstations, informal gathering spaces, and a learning lab featuring the latest technology for staff training.

18

AREA DEVELOPMENT

AreTechnology.indd 18

Emphasizing Agility and Flexibility The changing nature of work has created challenges for companies as they develop new headquarters and regional hubs and renovate existing ones.

“Technology has changed everything,” says Meredith O’Connor, an international director and co-chair of the Headquarter Practice Group at JLL, so that new models for the workplace “seem to change almost by the month.”

In response, companies are prioritizing agility and flexibility in their facilities — both in the design of the spaces and in the strategic decision of where to actually locate them. In the case of the Montreal project, research demonstrated the paths that many of the companies’ commuters were taking to get downtown, enabling the company to identify convenient locations for the satellite offices along the route.

“We’re not arbitrarily picking the locations for these places,” Bouchey explains. “We’ve done some internal work that tells us that there are people who would benefit from it — that people are actually asking for it. It’s a matter of how does this relate to where employees come from, and how do we create centers of excellence that appeal to the current demographic?”

Bouchey says locating facilities in areas that are convenient for workers is a matter of not only keeping existing workers satisfied but also of pursuing and attracting talent. For instance, he

for free site information, visit us online at www.areadevelopment.com

3/12/18 1:42 PM

says companies often consider opening regional hubs in areas that are hotbeds for young, skilled knowledge workers.

The flexibility to reduce the influence of the large, central campus is a direct result of technology, O’Connor says. “When you had large brickand-mortar headquarters located on sprawled-out campuses, everything you needed was on that campus,” she points out. “You had your HR department, your finance department, your legal department, all of your C-suite, and all of the key decisions had to center around that particular building or that place. But now with technology enhancements and the ability to communicate anywhere anytime, some companies are asking, ‘Is it really necessary?’”

O’Connor says decentralizing from a main headquarters to devote resources to regional hubs can help organizations better access their customers and give those customers a sense of connection to the community — which can be a crucial strategy for customer-service-focused industries such as banking. On the other hand, according to O’Connor, decentralization of an organization can create some management challenges related not only to the physical locations of facilities but also to the sometimes “roaming” workplace locations of workers.

“Things have become so flat that people get comfortable not necessarily having to report to anybody or having to know really whom to report

to,” O’Connor explains. “Losing that hierarchy can be challenging sometimes. Other times, you can say it creates a better culture. It depends on the company itself, but I think having a centralized headquarters certainly brings the hierarchy that makes that part of it easier to understand.”

CAN-DO ATTITUDE Before your doors open or the first product is produced, Mississippi and its community college system provide customized

Welcoming Workers Back Although technology now allows certain types of workers to complete their tasks remotely, O’Connor says many organizations are re-emphasizing the value of employees spending time meeting face to face and collaborating with each other in person. That makes the design of the workspaces at regional hubs and central headquarters crucial.

“We’re seeing companies work to get employees back into the office, but they have to give them a place that they’re proud to be in,” says O’Connor. “That’s why companies are spending money in that area.”

She says companies should embrace the trend as a chance to deepen employees’ sense of connection to their workplace, fellow workers, and the company mission: “It’s really an opportunity for executives to think about changing a culture or creating an identity or brand, where employees are very comfortable and happy to be coming back into the office…They have a sense of pride… and they enjoy the work…and they find a place where a lot of collaboration is happening that wasn’t happening in the past when people

workforce training, giving you a skilled team of employees from Day 1. As new production techniques and processes develop, our team continues to train your team. Our eight universities – including four research institutions – are honing talent capable of giving your business a competitive edge.

Let Mississippi deliver job-ready employees for your business.

MISSISSIPPI WORKFORCE mississippi.org/workforce

AREA DEVELOPMENT | Q1/2018 AREA0776.indd 1

AreTechnology.indd 19

19

09/02/18 3:47 PM

3/12/18 1:42 PM

MISSISSIPPI DEVELOPMENT AUTHORITY Mississippi Is Winning A winning formula needs the right ingredients. Mississippi has them all.

Mississippi’s pro-business environment fosters growth and attracts new investment. State and local leaders work hand-in-hand with Mississippi’s corporate partners to create new career opportunities statewide.

In April, Toyota announced plans to build a $10 million training center to showcase how more than 1,500 Mississippians produce Corolla vehicles, shipped to international markets. The announcement celebrated the 10-year anniversary of the Japanese automaker locating a state-of-the-art manufacturing facility in Blue Springs. Eight months later, the plant hit a major milestone when team members assembled the plant’s one millionth Corolla. The same team members at the plant assembled 500,000 vehicles faster than any other Toyota plant in North America. Toyota is experiencing the winning formula for success in Mississippi.

“This is an opportunity to tell the story of the quality work Mississippi team members put forth daily,” said Sean Suggs, vice president of manufacturing for Toyota Mississippi. “The interactive visitor and training center allows us to spotlight the Corolla’s rise to the best-selling car in the world, as well as delve into the history of Toyota and our Blue Springs facility. It represents a continued commitment to our team members and the Northeast Mississippi community.”

Thanks to the state’s highly efficient one-stop permitting process, Continental Tire broke ground just 10 months after announcing the tire maker was locating in Hinds County. The project netted the state a number of economic development awards and accolades by the world’s fourth-largest tire manufacturer. The plant reflects an investment of $1.45 billion and 2,500 new jobs, while significantly reinforcing Mississippi’s leadership position in the Southern Automotive Corridor.

20

AREA DEVELOPMENT

MississippiProfile2018.indd 20

The more than 1,500 team members at Toyota Motor Manufacturing Mississippi in Blue Springs assembled 500,000 Corollas faster than any other Toyota assembly plant in North America.

“Building this new facility in Mississippi is a critical part to our growth strategy for Continental Tire,” said Nikolai Setzer, a member of Continental’s executive board and head of Continental’s global tire business. “This is the first new plant, globally, for the truck tire business in more than 10 years. And, at $1.4 billion, this is the largest investment ever for our CVT business. We are convinced that the state of Mississippi provides the best options for Continental to grow our tire business.”

Mississippi solidifies its status as an economic development magnet by recruiting top-tier companies with a highly skilled, motivated workforce. Efforts to enhance the state’s workforce are evident through initiatives such as the Mississippi Works Fund.

The program allocates $50 million to enhance the state’s workforce training partnerships between universities, community colleges, and companies.

The wins keep coming as the state continues to provide a welcoming business environment unlike any other.

To learn more about the Mississippi Advantage, visit www.mississippi.org, or call the Locate Mississippi team at 1.800.360.3323.

Billy Klauser, Chief Economic Development Officer Mississippi Development Authority P.O. Box 849 Jackson, MS 39205 800-360-3323 • Fax: 601-359-4339

www.mississippi.org bklauser@mississippi.org

for free site information, visit us online at www.areadevelopment.com

3/12/18 1:21 PM

©Susan Fisher

environment of every were in closed offices.” group.

At offices everywhere, “It’s important to first including regional and understand the objectives central headquarter of a group,” Bouchey campuses, private offices says. “You have to do this are being jettisoned for to right-size not only the open floor plans, and footprint but to underdedicated desks are bestand the attitudes and ing exchanged for flexproclivities of each group. ible spaces and universal For instance, sales groups workstations. In a 2017 almost always can work JLL survey, 70 percent of in a smaller footprint and U.S. employees said they be out of the office 50 perwould trade an enclosed At the HOK-designed New York headquarters of J. Walter Thompson, cent of the time, as long office for an open-plan an emphasis on agility means giving employees a variety of spaces that as when they come into workspace in exchange can accommodate both collaborative and solitary work. the office they can shut for access to innovative a door somewhere and environments such as conduct a transaction call. community, collaborative, So strategy comes first.” or creative workspaces.1 Migdal echoed the importance of examBradley Migdal, senior managing diining the needs of workers before creating rector at Cushman & Wakefield, says he solutions. Otherwise, companies risk erectbelieves that an open, collaborative space t e c h n o lo g y ing obstacles for their employees. creates a better office experience: “It allows “In a virtual world that requires video people to create a connection with their enabled and teleconferencing connections with colleagues, which in turn creates better clients, the lack of personal, quiet, and conteam-building and longer tenure.” a d va n c e s fidential space is becoming more challengO’Connor further notes that the invening,” Migdal notes. “Companies need to tive use of space to encourage the mingling are understand the workload and the need for of workers from all departments and levels a quiet/confidential space before designof an organization can pay major divileading ing the workspace.” dends. Creative collaborations that would to O’Connor also emphasizes that the key never have been drawn up on paper can to embracing an open, flexible plan that materialize from something as mundane as r e c o n s i d e r at i o n eschews dedicated offices is providing waiting in line at a coffee shop installed in choices for private spaces. For example, at a common area. of JLL’s office in Chicago, O’Connor says, “If “From the perspective of an executive, you need a small conference room for just it’s priceless in its ability to make people how two or four people, they’re everywhere. communicate in a way that they were nevWherever you look in our office, you can er able to communicate before,” O’Connor and find spaces where you can just close a door says. and have some privacy.” where In addition, O’Connor says, companies Research-Based Design to are providing amenities — such as fitness According to HOK’s Bouchey, comcenters and coffee shops — more readily panies are closely studying how their lo c at e at larger offices in exchange for the loss of employees work to develop more efficient privacy that comes with the move away spaces that align with worker habits. For workers. from dedicated, closed-door offices. Forinstance, at the Montreal regional headmerly, such amenities were considered quarters of the financial firm, an analysis “nice to have,” but O’Connor says they revealed that the facility had too many are becoming requirements to remain large conference rooms that often sat competitive as an employer. “Everything empty. The new plans called for more twois about keeping your workers happy,” she and four-person huddle rooms that better concludes. n fit the way workers actually conduct daily business. However, Bouchey says, it was 1 http://fmlink.com/articles/jll-happiness-employee-engagementcritical that the company aimed to underproductivity/ stand how its different units worked and not to apply the same template to the work AREA DEVELOPMENT | Q1/2018

AreTechnology.indd 21

21

3/12/18 1:43 PM

TaxReformCoverarticle.indd 22

3/15/18 1:45 PM

GOVERNMENT POLICY

Tax Reform Through the Eyes of a Design-Build CEO The Tax Cuts and Jobs Act gives businesses more incentive to expand in the U.S. as well as provide employees with better equipment and training.

By Stephen Gray, CEO, Gray Construction

THE UNITED STATES HAS HISTORICALLY BEEN heralded as a leading destination for businesses looking to succeed. International and domestic companies alike have benefited from America’s stable political climate, abundant natural resources, skilled labor force, and trusted U.S. currency. However, one area where the U.S. has trailed other advanced economies is its tax code.

Fortunately, the landscape has changed with Congress passing, and President Trump signing, the Tax Cuts and Jobs Act. Some key provisions of this bill include: • F ederal corporate income tax rate of 21 percent, effective Jan. 1, 2018 • Reduced income tax rate on pass-through business entities’ qualifying business income • No corporate alternative minimum tax • Territorial tax system

• Full expensing of new and used equipment for five years • Encouragement of repatriation of cash held outside the U.S. through a 15.5 percent tax rate Until now, the highest marginal federal corporate tax rate in the U.S. was 35 percent, which often surpassed 40 percent once state taxes were taken into account. The tax rate of countries like Germany is less than half of that, putting U.S.-centric companies at a distinct disadvantage when competing in the global market. The new law levels the playing field with the much lower 21 percent rate for C corporations, while also closing many tax loopholes and emphasizing corporate responsibility.

For pass-through entities such as S corporations, LLCs, and partnerships, the Tax Cuts and Jobs Act establishes a 20 percent exclusion of qualified business income, subject to certain caps, from an individual’s taxable income, providing a reduction of up to 10 percentage points in the highest effective rate in many cases.

The new law also permits immediate expensing of the cost of “qualified property” — whether new or used — acquired and placed in service after Sept. 27, 2017 and before Jan. 1, 2023. For example, a manufacturing company that purchases new machinery would be able to immediately write off its cost, and then further benefit from the lower 21 percent federal tax rate on profits earned from products generated by that equipment.

In short, businesses will now have more incentive to expand in the U.S. as well as provide employees with better equipment and training, in turn leading to increased competitive performance on the global economic stage. For capital-intensive businesses such as manufacturers, it is vital to retain as much cash in the business as possible to help fund the cost of facilities and associated machinery and equipment.

An Idea Whose Time Has Come Like all legislation, the new tax law is not perfect. However, it is clear that comprehensive tax reform is good for skills, wages, and jobs, all of which feed into a strong economy. The recommendation from the National Association of Manufacturers (NAM) for the government to conduct a study every three years to examine how the U.S. tax code compares to the tax codes of other countries is an excellent idea1 — as opposed to waiting another 30

AREA DEVELOPMENT | Q1/2018

TaxReformCoverarticle.indd 23

23

3/13/18 2:59 PM

Former Corporate U.S. Tax System

VS

• 35% corporate tax rate

• 21% corporate tax rate

• Corporations benefit from storing capital abroad

• Full expensing of new and used equipment for 5 years

• Depreciation of investments

• Incentive to repatriate capital held outside U.S.

years to revisit this topic.

In 2015, Clemens Food Group broke ground on a 650,000-square-foot fresh pork processing facility in Coldwater, Michigan, in response to growing demand for its products. Upon becoming operational in 2017, the highly automated, state-of-the-art facility has been able to double its fresh pork business.

Doug Clemens, president and CEO of Clemens Food Group, points out that the company would have invested another $30 million two years ago to put in a second production line, if immediate expensing had been an option. “As a 122-year-old privately held company, capital expenditures are extremely important to us,” he said. “We need to have as quick a return as possible.”

For Clemens Food Group, Gray Construction’s fresh pork processing customer, this would have created at least 25 percent more jobs. From Gray’s perspective, construction workers would have increased by 15 percent. Moving forward, in our case, the new tax law has created the opportunity and incentive for Gray to hire more team members, specifically engineers.2

Reinvesting in Workforce, Equipment, and Facilities The broad intent of the business side of tax reform was to simplify and equalize the tax code in ways that leveled the playing field for U.S. businesses, especially those that manufacture in America. The U.S. has been losing tax revenue with every business and every job that otherwise would have expanded or been created (or retained) over the past 30 years. While the tax law has a “price” in terms of the lower corporate tax revenue stream, overall growth in the economy is projected to more than offset this cost. For this to happen, businesses need to act responsibly with their tax savings by reinvesting in their workforce, equipment, and facilities — and not just passing everything through to the executives or shareholders.

24

Current Corporate U.S. Tax System

AREA DEVELOPMENT

TaxReformCoverarticle.indd 24

Since the law was enacted, many companies, including manufacturers, have responded in these responsible ways.

For example, Boeing announced a $300 million investment into its workers, including $100 million going toward workforce development in the form of training, education, and other capabilities to help the company effectively compete in the evolving sector.

“For Boeing, the reforms enable us to better compete on the world stage and give us a stronger foundation for the investment in innovation, facilities, and skills that will support our long-term growth,” said Dennis Muilenburg, chairman, president, and CEO of Boeing in a statement.3 AT&T and Comcast responded to tax reform with news that they would give thousands of their employees special bonuses.4 FedEx, which has been vocal in its support of tax reform,5 has also promised to invest in its workforce through hiring,6 as well as purchasing new equipment and technology. Wells Fargo and Fifth Third Bancorp also announced7 they would raise their minimum wage and provide bonuses and further employee investment.

Just before the North American International Auto Show, Fiat Chrysler Automobiles (FCA U.S. LLC) said it would move production of RAM Heavy Duty trucks from Mexico to Michigan.8 This is part of a $1 billion investment that will result in 2,500 jobs. The company also said it would pay $2,000 bonuses to 60,000 employees.

“These announcements reflect our ongoing commitment to our U.S. manufacturing footprint and the dedicated employees who have contributed to FCA’s success,” said Sergio Marchionne, the CEO of FCA, in a media release. “It is only proper that our employees share in the savings generated by tax reform and that we openly acknowledge the resulting improvement in the U.S. business environment by investing in our industrial footprint accordingly.”

More recently, Apple announced that it would repatriate billions in cash leading to a total investment of $350 billion9 in the U.S. economy over the next five years, including the for free site information, visit us online at www.areadevelopment.com

3/13/18 2:59 PM

creation of some 20,000 jobs. Walt Disney Co. also said it would give its 125,000 employees a one-time cash bonus10 as a result of federal tax reform.

Increased Economic Activity It is exciting and encouraging to see these companies and others stepping forward in such meaningful ways so quickly after the new law has been enacted. If executed effectively, this tax reform has the potential to increase economic activity by creating a more competitive global business environment; opening the door for manufacturing companies to reinvest into the economy through new capital investments or expansions; and by putting more money in the pockets of every employee, including through newly created jobs.

Robert Barro, professor of economics at Harvard University, predicts the tax reform overhaul will create an additional 1.1 percent of GDP growth through 2019.11 This is how tax reform was sold to the American public and is how it should be delivered. The truth is, an improved business tax code benefits everyone. For example, all Americans with money in the stock market have seen substantial gains driven by the new tax law, many through their 401k plan investments, which will allow for a better retirement.

As business owners, we have three choices with these tax savings: 1. Distribute to the shareholders.

2. Hold the savings in cash in the business.

3. Create new jobs and invest in new equipment and/or projects.

The greatest benefit to the country would be to push the savings into new jobs, equipment, and projects. At Gray, we believe many of the changes represented in the new tax reform plan will prove to be building blocks for substantial growth in our industrial economy for years to come. ■ 1

http://www.nam.org/Newsroom/Press-Releases/2017/12/NAM-on-Tax-Cuts-and-Jobs-Act--HistoricProgress-for-Manufacturers/ https://www.cnbc.com/video/2017/11/22/gray-construction-ceo-we-will-be-hiring-engineers-if-taxreform-gets-passed.html 3 http://boeing.mediaroom.com/2017-12-20-Boeing-CEO-Muilenburg-Applauds-Tax-LawAnnounces-300-Million-in-Employee-Related-and-Charitable-Investments-to-Spur-Innovationand-Growth 4 https://www.cnbc.com/2017/12/20/tax-reform-reaction-att-is-giving-bonuses-to-200000-employees. html 5 https://www.cnbc.com/2017/09/27/tax-reform-must-get-done-before-wages-can-go-up-fedex-ceofred-smith.html 6 https://www.washingtonpost.com/news/business/wp/2017/12/20/fedex-says-new-tax-cuts-couldboost-annual-profits-by-1-3b/?utm_term=.539ce58caaf0 7 https://www.usatoday.com/story/money/2017/12/20/handful-companies-promise-bonuses-payraises/971199001/ 8 http://media.fcanorthamerica.com/newsrelease.do?id=18780&mid=1 9 https://www.cnbc.com/2018/01/17/apple-announces-350-billion-investment-20k-jobs-over-5-years. html 10 https://www.bloomberg.com/news/articles/2018-01-23/disney-to-give-employees-1-000-bonus-inwake-of-tax-reform 11 https://www.wsj.com/articles/tax-reform-will-pay-growth-dividends-1515110902 2

Tax Reform’s Impact on C and S Corporations C Corporation

S Corporation

Tax Rate

21%

29.6% for qualified business income

Dividends

Taxed @ 23.8%

Not taxed

Stock Basis

Original cost

Increased by undistributed income

AMT

Not applicable

Applicable to individual owners of S corporation

ESOP Ownership

Taxed

Not taxed

AREA DEVELOPMENT | Q1/2018

TaxReformCoverarticle.indd 25

25

3/13/18 3:00 PM

ADVANCED TECHNOLOGY

What Does Industry 4.0 Mean for U.S. Manufacturing?

The Fourth Industrial Revolution is transforming global production and supply chains, but the future depends on how well the industry’s human leaders can understand its machines.

By Craig Meyer, President, Industrial Brokerage, JLL

T

he robots aren’t just coming — they’re already here, at least on sophisticated factory floors and warehouse aisles across the United States. Today, smart factories have become a reality as the Internet of Things (IoT) connects any factory device to the Internet — from industrial robots to 3D printers — enabling goods to be produced around the clock and managed remotely. At the same time, sensor-bearing drones are altering the places where we warehouse those goods by scanning bar codes, picking merchandise, and safely moving small items around the facility with nary a human in sight. In the not-too-distant future, connected, driverless trucks will also whisk those items to and fro across the supply chain.

All this has become possible in just the few short years since the Fourth Industrial Revolution began. So what does the future of Industry 4.0 1 spell for U.S. industrial leaders?

For one, it means an opportunity to ramp up productivity and profit. By 2020, Gartner analysis predicts Internet of Things (IoT) technology will be in 95 percent of electronics2 for new product designs. For industrial leaders who can master these new tools, this means the chance to boost productivity by as much as 30 percent, fuel predictive maintenance, and ultimately generate all-new sources of revenue, according to Accenture.3 To date, U.S. production structure, innovation, and a culture of automation make its industrial sector “well positioned for the future,” according to the World Economic Forum’s (WEF) 2018 Future of Production assessment.4 It was here, after all, that the moving assembly line originated, and it is here, too, that a mere two in five industrial employees are directly involved in hands-on production.5 Yes, the U.S. is already home to one of the key resources needed to drive successful technology adoption: a skilled and educated workforce.

26

AREA DEVELOPMENT

WhatDoesIndustry.indd 26

And yet, the U.S. share of global manufacturing value has declined over time, from 29 percent in the early ’80s to 18.6 percent in 2015, with slower growth than seen in China, South Korea, Germany, and Mexico. To maintain its competitive edge in the global arena, the U.S. will need to ensure both its machines and its people become even more productive.

Disrupting Warehouse Design Now, With All New Levels of Connectivity When the full gamut of materialhandling and production systems can be connected and automated — from loading/offloading trucks and organizing inventory, to preparing synthetic goods — then the industrial facilities that house them can be configured differently, too.

For instance, when human safety (and height) is not a concern, warehouses can grow up, rather than out.

for free site information, visit us online at www.areadevelopment.com

3/13/18 2:43 PM

Adding floors to distribution facilities in pricy urban markets can help add capacity in a key market without the need to invest in more land. U.S. developers are staying ahead of this curve, so far, with the average ceiling height for a Class A distribution center moving well beyond 32 or 36 feet clear.

Increased automation also means aisles can be made narrower, since humans and human-driven lift trucks won’t have to worry about freely and safely navigating around the shelves. Once upon a time, the space between columns averaged 30 feet, whereas today we’re looking at an average hovering around 54 feet — which of course means more storage capacity in the same space.

Human-free warehouses and factories are still a long way off, however, making strong human-machine collaboration a must-have in today’s industrial buildings.

Humans, Meet Data The U.S. manufacturing sector is the second-largest in the world, with a manufacturing value added (MVA) of nearly $2 trillion in 2016, according to the WEF report cited above.

The report describes the nation’s assets, including American’s ability to innovate and leverage the emerging technologies of the Fourth Industrial Revolution, while attracting and retaining advanced human capital.

Indeed, IoT-fueled automation and robotics are already being used to spare personnel from time spent on more menial tasks, while at the same time creating new need for human interpretation. This interpretation piece is critical, considering the volumes of new data now deluging the industry. The ability to measure processes in far greater detail, along with more rigorous KPI (Key Performance Indicator) quantifications, is a game-changer from an industrial real estate perspective. Robotics and automation are changing the way we work by taking on some of the workload and improving safety, focus, and productivity. They also bring in more information than current analytics platforms can reasonably handle.

Data points are flooding supply chain networks throughout the production and distribution cycles, from materials sourcing to equipment efficiency, and humans are still needed to make sense of as much of it as possible. This, in turn, makes tech-savvy talent a must-have — and tech-forward cities a must-have location.

Cities where skilled STEM talent is nurtured and easily found are, therefore, likely to retain their appeal, including established innovation hubs like the San Francisco Bay Area, Boston, or the Research Triangle in North Carolina. But other markets could also fare well where civic leaders are successfully championing smart-city principles, investing in economic development, job training, and academic initiatives. Austin, Denver, Pittsburgh, Detroit, and Cincinnati, for example, are all emerging hotspots in the tech-talent world,

and other municipalities are also working to actively train and nurture up-and-coming tech talent.

At this point in time, winning with technology still means winning over those who can master it. That’s true for today’s capabilities, as well as for whatever advance may be coming down next in the pipeline. As AI, augmented reality, and predictive analytics technologies improve, expect more emphasis on the human-machine interface. And as more people begin to work alongside more (and more sophisticated) machines, the highly centralized production model of the past will be upended even further, in favor of a more decentralized, collaborative environment unlike anything we’ve seen in the past.

Room for Improvement on the Road Ahead To stay ahead through Industry 4.0, manufacturing and supply chain leaders must continue to invest in advanced technologies and human capital. But there are other areas of opportunity, too. While the WEF ranks the U.S. highly — top five or better — in most categories, it does indicate improvement is needed in areas like institutional framework (based on regulatory uncertainty and legal systems) and sustainability (based on the impact of production on the environment).

Industry 4.0 could take manufacturing and distribution to all new heights of efficiency and innovation than ever before.

Key to fulfilling that potential, however, will be the human understanding of what is possible, and what is not, in the fast-changing Internet of Things. ■ 1

https://www.i-scoop.eu/industry-4-0/ https://www.gartner.com/smarterwithgartner/gartner-top-strategic-predictions-for2018-and-beyond/ 3 https://www.accenture.com/us-en/_acnmedia/Accenture/next-gen/reassembling-industry/pdf/ Accenture-Driving-Unconventional-Growth-through-IIoT.pdf 4 http://www3.weforum.org/docs/FOP_Readiness_Report_2018.pdf 5 https://fas.org/sgp/crs/misc/R42135.pdf 2

Find the Right Location for Your Next Project.

FacilityLocations is a GIS map-driven, online economic development directory used to research potential locations during the business re-location or expansion process.

FacilityLocations.com AREA DEVELOPMENT | Q1/2018

WhatDoesIndustry.indd 27

27

3/12/18 1:27 PM

TECHNOLOGY/ PROJECT PLANNING

University Innovation Parks Link the Academic and “Real World”

Research and innovation parks continue to evolve to meet the needs of students, faculty, and private-sector tenants alike.

By Steve Kaelble

I

n an era of ever-increasing global competition, innovation is the key to long-term corporate prosperity.

University-affiliated research parks and innovation zones aren’t a brandnew idea, but they are more relevant than ever in today’s environment, as forward-thinking companies strive to stay ahead, generate better ideas, and bring those ideas to life.

These developments go by a variety of names and definitions and structures, but the common thread is the goal of creating partnerships between universities and the private sector that will drive innovation. The end result is a win-win-win for all of the various partners, including corporations, universities, and the communities in which these developments blossom.

Private-sector companies benefit by gaining access to expertise and new technologies. Universities benefit by commercializing their promising research, achieving a better understanding of what the “real world” needs from their graduates, and creating internship and job opportunities for their students. University communities gain from technology-led economic development.

“You get this sort of symbiotic relationship from a research park,” says Ronald J. Miller Jr., executive director of the Leon County Research and Development Authority, which oversees the Innovation Park of Tallahassee.

A great place to begin a conversation about linking companies with university expertise is the granddaddy of

28

AREA DEVELOPMENT

University.indd 28

Arizona State University is partnering with the Mayo Clinic to create an innovation zone focused on biomedicine and health sciences.

all of these kinds of developments, the Research Triangle Park in North Carolina. The “triangle” in its name refers to the three university communities in relatively close proximity that serve as a magnet for innovation activity: University of North Carolina in Chapel Hill, North Carolina State University in Raleigh, and Duke University in Durham.

Research Triangle Park planted its flag on the map in the late 1950s and early 1960s. The company that invented Astroturf was its first tenant in 1960, and IBM soon followed. Today there are 200 companies in this innovation neighborhood, with some 50,000

technology experts making things happen in such fields as microelectronics, biotechnology, telecom, pharmaceuticals, environmental sciences, and chemicals.

A Wide Range of Activities These days, though, the number of university research and innovation parks is approaching 200, according to the Association of University Research Parks.1 The concept gained a lot of momentum in the early 1980s, says Miller.

“A lot of this goes back to the BayhDole Act in 1980, in which the federal government said you can take intellectual property developed as a result of

for free site information, visit us online at www.areadevelopment.com

3/12/18 1:32 PM

Location.

Location.

Innovation.

Welcome to Innovation Zones at ASU, a portfolio of co-location offerings at Arizona State University — named the country’s most innovative university by U.S. News & World Report. Companies benefit from direct connections with ASU students, world-renowned research and nationally leading programs in engineering, bioscience, business, cybersecurity, health care and more. You’ll be surrounded

by Fortune 500 companies as well as dozens of innovative startups.

ASU offers you both location and innovation.

View locations at innovationzones.asu.edu.

AREA0780.indd 1

16/02/18 5:10 PM

it uses magnetic-based technology,” federal funding and the university has he notes. a right to license it,” he explains. “That opportunity to license technology made them start thinking, what can we Becoming Part do with this stuff?” of the Ecosystem Quite a lot, it turns out, and the Arizona State University, meanactivities go far beyond technology while, has established a whole portfolio licensing. “Our industry partners are of innovation zones that allow the priengaged in a wide range of research vate sector to plug directly into univerArk Biosciences lab space in the new and development activities,” says Cliff sity technology and expertise. The ASU Innovation North facility at Cherokee Farm Hawks, president and CEO of the Polytechnic Campus in Mesa, for exInnovation Campus Cherokee Farm Innovation Campus at ample, provides research collaboration the University of Tennessee. “Our partners at Cherokee Farm opportunities in everything from advanced manufacturing represent a broad range of R&D scientific disciplines and to aviation, robotics, and energy. Some 300 acres of adjacent activities, including but not limited to data analytics, mateland are ready for companies of all sizes to settle in, says rial science, and cyber security.”

Todd Hardy, managing director of the university’s innovaHe rattles off a number of specific extion zones. amples. “Arkis Biosciences is currently “When a company comes to one of our working closely with researchers at our innovation zones, they do so because they Joint Institute for Advanced Materials would like to work with the university in an facility and benefiting from the lab faciliintegrated way,” Hardy explains. “The comties and spectroscopy capabilities,” Hawks pany is thoroughly integrated in what we says. “AUBO Robotics manufactures lightdo in every way that can be connected with weight collaborative robots for industrial the objectives of the company.” and academic use, and works closely with Some 50 companies have chosen locathe College of Engineering in the areas of tions in another of the innovation zones, the mechanical and aerospace engineering.

ASU Research Park in the Phoenix area. Just CEC Inc. works directly with the College of as many new and established tech compaEnvironmental Engineering.” nies have addresses at SkySong, the ASU The synergies are easy to spot. For Scottsdale Innovation Center. The university example, “the Joint Institute for Adis also partnering with the Mayo Clinic to vanced Materials, or JIAM, is a new, create an innovation zone focused on bio140,000-square-foot material science R&D medicine and health sciences. Other zones facility home to technologies and talent are tied into ASU campuses elsewhere. that are available in only a handful of faAt any of these zones, Hardy says, “Comcilities around the world,” Hawks explains. panies become part of our community, part “Material science-related companies might of our ecosystem, partners that are integratwant to work with Suresh Babu, who ed very deeply.” Corporate partners can be works with private industry at JIAM in as big as Fortune 500 headquarters. Or they both basic and applied research.” can be as small as a couple of people getting Whatever the area of specialty, “Tenants an innovative company off the ground. “We benefit greatly through interaction with can support companies just getting started university personnel by identifying the and help them grow in place,” Hardy says. specific applied research needed to address Innovation parks are attractive to a broad specific challenges and improve the comspectrum of operations, some more obvious pany’s business,” he says. And not only is than others. For example, the tenant list at the park near and affiliated with a major Cal Poly Technology Park, in the California research university, it’s also just 25 minutes community of San Luis Obispo, includes a from the Oak Ridge National Laboratories. data management and analytics company Miller’s development in Tallahassee also boasts a conneccalled Healthcare IQ, a company called Tyvak that provides tion to a major national research facility, the National High space vehicle products and services, and a maker of oil inMagnetic Field Laboratory. That has helped Innovation Park dustry technology products called Applied Technologies of Tallahassee become known for a specialization in magnetAssociates. It also includes the California Strawberry Comics. “Research parks all have their niches, and you try to demission, bringing a focus on sustainable farming and other velop industry clusters around the niches,” Miller explains. activities.

Just one example of how that plays out is the presence of “Every research park is different and a lot has to do with Danfoss Turbocor at Innovation Park of Tallahassee. “Their who started it, whether it’s a university or whether it’s govtechnology is based on an oil-less compressor for HVAC, and ernment-funded. In our case, we were started around 1980,”

“The presence

of corporate partners on or near campus provides easy access to internships and other real-world opportunities for students — making their experience richer.

30

AREA DEVELOPMENT

University.indd 30

”

for free site information, visit us online at www.areadevelopment.com

3/12/18 1:32 PM

Miller says of Innovation Park of Tallahassee. This particular development was enabled by Florida legislation that allows each county to create its own research park, with a wide variety of economic development tools such as tax-exempt financing vehicles.

The Tallahassee park ties into not just one but three local educational institutions — Florida State University, Florida A&M University, and Tallahassee Community College. The partnership has built a strong chemistry between the institutions, Miller says. The two universities, in fact, collaborate on a college of engineering. And that college, in turn, benefits from the presence of private-sector companies at the innovation park in many ways. For one thing, it gives educators a better understanding of the skill sets that the private sector is seeking, which results in the development of pertinent curriculum additions.

Widening Student Opportunities That points to a significant plus for universities that build private-sector partnerships: opportunities for students. The presence of corporate partners on or near campus provides easy access to internships and other real-world opportunities. “It makes students’ experience much richer, and they are more informed of the challenges of the real world,” Hardy says.

That is one of the driving forces behind Rose-Hulman Ventures, part of the Rose-Hulman Institute of Technology in the western Indiana community of Terre Haute. It’s an institution that ranks highly among engineering schools that are focused primarily on bachelor’s- and master’s-level education, and its Rose-Hulman Ventures connection to the real world serves that educational need, while also sparking private-sector innovation.

Rose-Hulman Ventures is located within a certified technology park, but serves clients located elsewhere. “We operate very much like an engineering consulting firm, working within the confines of Rose-Hulman,” says Elizabeth Hagerman, vice president of Rose-Hulman Ventures and of corpo-

Where innovation grows.

rate engagement at the institute. Companies connect with Rose-Hulman Ventures for help with product design, prototyping, proof of concept, and technological problem-solving and improvement.

“Companies come to us when they have an idea that they need to build out but they may not have an engineering capability in-house,” she explains. The more than a dozen fulltime staffers include seven project managers who are engineers with lots of private-sector design and development experience. These project managers pull together development teams that include engineering student interns — that’s the educational connection. “This is not a technology-transfer model,” Hagerman points out. “Clients have the idea in the first place, but we may improve upon the idea.”

A key difference of this model involves intellectual property. In the typical tech park model, the university may retain intellectual property rights and license them to commercial ventures. “In our operating model, the IP stays with the client. Any IP developed during the course of a project will be the property of the client,” Hagerman says. “We need to make sure our clients are satisfied in order to win their work. If this can bring in some projects, that translates into more experiences for students.”

An Evolving Concept Research and innovation parks continue to evolve to meet the needs of students, faculty, and private-sector tenants alike. According to Association of University Research Parks, as many as one in five parks is planning the addition of non-student housing.2 A lot of parks have also been adding or planning retail and restaurant offerings, and working toward a more urban feel.

What isn’t changing is the strong link between the academic world and the “real world” that builds through innovation park connections. As Miller observes, “There’s a feedback that happens for both components.” n 1 2

https://aurp.memberclicks.net/assets/documents/aurp_batelllereportv2.pdf Ibid

Customize your space to your research and development needs.

Visit CherokeeFarm.org for more information.

Come innovate with us.

Our Partners:

AREA0781.indd 1

University.indd 31

AREA DEVELOPMENT16/02/18 | Q4/2018 31 5:17 PM

3/12/18 1:35 PM

32nd annual CORPORATE SURVEY & the 14th annual CONSULTANTS SURVEY

For complete Survey results, go to areadevelopment.com/survey

Survey2018.indd 32

3/13/18 3:53 PM

Although the U.S. economy is strong, there may still be some hesitancy in investment decisions brought about by an uncertain legislative environment.

By Geraldine Gambale, Editor

All indications are the U.S. economy is strong — and should remain so through 2018. The Commerce Department reported the GDP grew at a 2.6 percent annual rate in the fourth quarter of 2017,1 with the industrial sector rising 2.4 percent — its biggest gain since 2010.

Then, in January 2018, U.S. businesses added approximately 200,000 jobs,2 and wages grew at the fastest pace in more than eight years. All this “good news” caused investors to worry about the potential for a Fed hike in interest rates in anticipation of inflation. Nonetheless, economic analysts were not too concerned about a long overdue market correction.

AREA DEVELOPMENT | Q1/2018

Survey2018.indd 33

33

3/13/18 3:54 PM

C O RP O R A TE S UR VE Y RESPONDENTS’ PROFILE Current operations of respondents: Manufacturing Distribution/Logistics/Warehousing Finance/Insurance/Real Estate Construction & Trades Data Processing, Software & Other Computer-Related Services Energy Industry Hospitality Industry Healthcare/Life Sciences Retail Other

37% 13% 14% 11% 2% 1% 1% 1% 3% 17%

Domestic: 1 2 3 4 5 or more

49% 13% 6% 4% 28%

Foreign*: 1 2 3 4 5 or more

9% 32% 0% 18% 41%

* Of the 20% of survey respondents

Respondents’ titles: Chairman, President, Partner, CEO, or Owner CFO, COO, Controller, Financial Officer V.P., Secretary, or Other Corporate Officer Real Estate Mgr./Dir.; Facility Mgr./Dir.; Development Mgr./Dir.; V.P. Real Estate Business Unit Manager or Director Other

Number of facilities currently operating worldwide:

who say they operate foreign facilities

60% 6% 5%

11% 10% 8%

Number of people employed worldwide: Fewer than 20 20-49 50-99 100-499 500-999 1,000 or more

26% 14% 12% 20% 7% 20%

Primary role in company’s location decisions: Final decision 63% Preliminary recommendation 24% Information gathering 7% Not involved 6%

Change in the number of your company’s 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 Decreased number of facilities by 3 or fewer Decreased number of facilities by 4 or more

What’s more important, economists believe, are the positive effects of President Trump’s signature Tax Cuts and Jobs Act, which slashed the corporate tax rate down to 21 percent from 35 percent and should help to put U.S. businesses on a level playing field with their global competitors, spurring the U.S. economy to grow even further.

34

AREA DEVELOPMENT

Survey2018.indd 34

8% 12% 74% 4% 2%

Jay Timmons, president and CEO of the National Association of Manufacturers (NAM), says that as a result of the tax cut, manufacturers will “increase capital spending, expand their businesses, and hire more workers.” He further predicts that “nearly half will increase employee wages and benefits.”3

for free site information, visit us online at www.areadevelopment.com

3/13/18 3:54 PM

WHEN YOU ARE

READY TO GROW OUR SITES ARE READY TO GO.

Don’t let us slow you down. Iowa’s Certified Sites program designates the project-ready industrial sites you’re looking for to build a new facility.

They come credentialed, with site-related data and documentation assembled up front. Which makes developing on an Iowa Certified Site relatively risk-free to you. Visit our website below. Ready, set, grow. iowaeconomicdevelopment.com/certifi edsites

iowaeconomicdevelopment

AREA0783.indd 1

businessiowa

26/02/18 9:31 PM

NEW/EXPANDED FACILITIES PLANS WILL MOVE FORWARD WITH PLANS FOR NEW OR EXPANDED FACILITIES AS A RESULT OF THE RECENTLY PASSED CUT IN THE CORPORATE TAX RATE:

34% 66%

Yes No

Those planning to open new domestic facilities — 38% of total survey respondents — will do so within: 1 year 2 years 3 years 5 years or more

WILL MOVE FORWARD WITH PLANS FOR NEW OR EXPANDED FACILITIES AS A RESULT OF RECENTLY PASSED OR PROPOSED REGULATORY REFORMS:

Location of new domestic facilities

(as a percentage of total number to be opened): 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)

34% 66%

Yes No

OPTING OUT OF TRADE AGREEMENTS LIKE TPP OR RENEGOTIATION OF NAFTA UNDER THE TRUMP ADMINISTRATION WILL HAVE A POSITIVE OR NEGATIVE EFFECT ON NEW FACILITY/EXPANSION PLANS:

57% 43%

Positive Negative

Will open a new facility (not relocate an existing one)

32% 24% 20% 24%

4% 11% 5% 11% 23% 9% 8% 6% 9% 14% 1%

Those planning to open new foreign facilities — 7% of total survey respondents — will do so within: 1 year 2 years 3 years

38% 25% 38%

within the next five years: Yes No

43% 57%

Early in his presidency, Trump signed an Executive Order to cut business regulations — another move applauded by industry. A June 2017 report from the Manhattan Institute delved into how regulations stifle business growth because of their inefficiencies and costs.4

36

AREA DEVELOPMENT

Survey2018.indd 36

Another item on the President’s agenda is opting out of (e.g., TPP) — or renegotiating (e.g., NAFTA) — trade agreements that put the United States at a competitive disadvantage. In January 2018, President Trump told the World Economic Forum in Davos, “We support free trade, but it needs to be fair and reciprocal.”5

for free site information, visit us online at www.areadevelopment.com

3/13/18 3:55 PM

COR POR ATE SUR V EY

A N A LY S I S The past year has seen a wave of headlines that may impact facility and expansion planning. From the economic policies of the Trump administration — such as reduced corporate tax rates, regulatory reforms, threatened tariffs, and withdrawal from trade agreements — to technology advancements and rising supply chain costs, the U.S. is confronting economic opportunity (and uncertainty!) at levels not seen since the last major tax overhaul in 1986. Businesses across the globe and in all industry segments are currently assessing their geographic portfolios and growth strategies in order to determine whether — and where — to locate workforce and investment in the U.S.

2018: A Decisive Year for Corporate Investment in the U.S.

Area Development’s Corporate Survey, which solicits corporate executives’ input about a myriad of location factors, offers great insight into their strategies to maximize return on investment while optimizing their geographic “footprint.” The bottom line — a close analysis of the data indicates that the U.S. will likely see billions of dollars of cumulative investment and tens of thousands of new jobs in 2018, in a multitude of new, expanded, relocated, and consolidated facilities.

These facilities will be geographically diverse, and state and local jurisdictions offering impactful incentives — deemed “somewhat” to “very” important [to a project moving forward in a particular location] by more than two thirds of survey respondents — can favorably differentiate themselves in a competitive location analysis. The use of incentives to address project needs may be decisive in business location decisions, enabling communities to secure projects with long-term economic and fiscal impact providing far greater value than the cost of the incentives, and providing “win/win” results — a viable return on investment for businesses and tax revenue, quality jobs, and a stronger economic base for the locality, region, and state.

Another incentive-related “takeaway” from the survey is the diversity of incentives that executives consider important. From our perspective, this highlights the importance of offering flexible, creative incentive packages that can be tailored to meet specific project needs — offsetting upfront costs; providing sites, buildings, and critical infrastructure; facilitating workforce development; and/or mitigating ongoing tax, research, or operating expenses — enabling the attraction (or retention) of the industry sectors, projects, jobs, and investment deemed important by a particular state or locality.

With a limited supply of quality sites, tight labor pools, and a rapidly shifting tax and economic policy environment, businesses must move quickly and strategically to optimize and maximize the opportunities presented by the last year’s headlines. Based on Area Development’s survey, we expect that those strategies are being formulated right now, and companies will be moving quickly to begin executing them — making 2018 an exciting and highly consequential year for corporate location decisions.

By Dan Breen, Executive Vice President; and Jubal Smith, Managing Director; JLL Location Economics

Location of new foreign facilities (as a percentage of total number to be opened): Canada

11%

Mexico South America

11% 16%

Western Europe

11%

Eastern Europe Middle East

5% 11%

Africa

11%

Australia Asia

5% 21%

Let’s look at the results of Area Development’s most recent surveys of our corporate executive readers, as well as the consultants to industry who serve them, in order to determine the effects of tax cuts, regulatory reform, and trade agreements on business executives’ upcoming site and facility plans and priorities. The answers from both groups of participants are somewhat surprising.

Survey Respondents React to Administration’s Policies Half of the respondents to our Corporate Survey are with manufacturing (37 percent) or distribution/ logistics/warehousing (13 percent) firms. Sixty percent are the owners or top executive of these firms and are responsible for their companies’ final location decision. About half are with firms employing fewer than 100 workers, and only 20 percent operate foreign facilities. Keeping that in mind, it’s interesting to note their responses when asked about recent tax and legislative reforms under the Trump administration.

AREA DEVELOPMENT | Q1/2018

Survey2018.indd 37

37

3/13/18 3:55 PM

COR POR ATE SUR V EY Will expand an existing facility within the next five years: 45% 55%

Yes No

Those planning to expand existing domestic facilities — 33% of total survey respondents — expect to do so within: 1 year 2 years 3 years 4 years 5 years or more

22% 32% 11% 3% 32%

Those planning to relocate existing domestic facilities within the U.S. — 19% of total survey respondents — expect to do so within: 1 year 2 years 3 years 5 years or more

27% 36% 32% 5%

PLAN TO RELOCATE A DOMESTIC FACILITY TO OFFSHORE OR NEAR-SHORE:

3% Those planning to expand existing foreign facilities — 6% of total survey respondents — expect to do so within: 43% 14% 43%

1 year 2 years 5 years

RELOCATION PLANS Will relocate an existing facility within the next five years: Yes No

38

AREA DEVELOPMENT

Survey2018.indd 38

PLAN TO RELOCATE A FOREIGN FACILITY BACK TO THE U.S. (RESHORE):

2% Financial inducements or penalties under the Trump administration will have an effect on plans to: Offshore Reshore No Effect

1% 7% 92%

22% 78%

for free site information, visit us online at www.areadevelopment.com

3/13/18 3:56 PM

(800) 626-2930 • ThinkKentucky.com

KENTUCKY’S BUSINESS CLIMATE IS CHANGING Kentucky already offers companies an ideal location, low business costs and incredible workforce. Now, we bring Right to Work to the table. For companies considering a new or expanded location, that makes a good decision even better.

With even more pro-business changes coming, you’ll want to Think Kentucky.

Making Business Strong.

Making Life Exceptional.

AREA0779.indd 1

12/02/18 7:18 PM

COR POR ATE SUR V EY

A N A LY S I S Investment Decisions: A Complex Evaluation in an Uncertain Environment

The 2017 Corporate Survey provides a first look at how executives involved in the investment decision process dealt with last year’s political and economic uncertainty in the U.S., and around the world.

It appears that the recently passed corporate tax rate cut or regulatory reforms have had a limited impact, for now, on the decision to open or expand a facility, with only 34 percent of respondents citing it as a reason for investment. There was clearly more optimism in 2016, when that survey demonstrated at the time that 68 percent of respondents believed that economic conditions under President Trump would be favorable for moving ahead with new facilities or expansion plans. But this really comes as no surprise since international supply chains and global market development are driving forces for many companies. And this uncertainty is also reflected in the number of facilities that remained the same or decreased for 80 percent of respondents (79 percent in 2016). If corporate investors were delaying investment project decisionmaking in 2016 due to the election year, it appears that the existing state of affairs underlines the same caution from investors.

The Corporate Survey results illustrate a level of uncertainty by investors — a clear indication of how challenging the investment project decision-making process has become. When comparing the combined ratings, the difference between the number-one factor and number-five factor is only 5.4 percent, compared to 10.4 percent the previous year.

What this implies is that these top five factors are ultimately playing an even bigger role in the decision-making process today.

Investment decision-making and site selection in general are experiencing greater complexity today as relevant data is so readily available. Evaluating all options has become an even more demanding task for decision-makers, in part because of technology that has given access to so much information that an investor can’t possibly evaluate all of the options.

As we reflect back on 2017 from a site selection perspective, it was definitely a year of uncertainty and caution, and the survey results reflect this — many projects put on hold while decision-makers wait to see how political uncertainties will unfold. In the meantime, there’s enough data out there to keep them busy evaluating their options.

By Marc Beauchamp, President & CEO, CAI Global Group

Although nearly half of the respondents to our Corporate Survey say they have plans to open a new facility within the next five years (43 percent) or expand an existing facility within the next five years (45 percent), only a third of the respondents claim a cut in the corporate tax rate will cause them to move forward with plans for new or expanded facilities. Similarly, only a third say they will move forward with new facility or expansion plans as a result of recently passed or proposed regulatory reforms. The respondents are, however, more enthusiastic about opting out of trade agreements like TPP or renegotiating trade agreements like NAFTA: 57 percent say these moves will have a positive effect on their plans for new or expanded facilities. Perhaps these respondents agree that current trade agreements have put U.S. businesses at a disadvantage to their foreign competitors — especially for smallersized, primarily domestic firms like those represented by these corporate respondents.

The respondents to our Consultants Survey provide a counterpoint to the Corporate Survey responses.

About 80 percent of the responding

40

AREA DEVELOPMENT

Survey2018.indd 40

for free site information, visit us online at www.areadevelopment.com

3/13/18 3:56 PM

SITE SELECTION FACTORS/TRENDS Availability of skilled labor having an effect on new facility/expansion plans or current operations: Yes No

If yes, workers are primarily lacking:

53% 47%

Basic skills (e.g., reading comprehension, mathematical competency, etc.) 58% Advanced skills (e.g., advanced welding,

58%

machine tool programming, bioprocessing, etc.)

STEM skills (science, technology, engineering, mathematics)

42%

Combined Ratings* consultants work with durable goods manufacturers, with 60 percent saying they work with large-sized firms (500 to 1,000-plus employees). Two thirds of the responding consultants believe their clients will move forward with plans for new or expanded facilities as a result of cuts in the corporate tax rate, and 50 percent say recently passed or proposed regulatory reforms will also spur their clients’ planned new facility or expansion moves. And, importantly, 67 percent believe opting out of or renegotiating trade agreements will have a negative effect on their clients’ plans.

The difference between the corporate executives’ and consultants’ outlooks on tax and legislative changes may be due to the sizes of the consultants’ client companies.

Larger companies tend to have global operations and would be put at a disadvantage if their foreign-sourced goods or parts were subject to high tariffs. (Consider large automakers’ multinational supply chains.)

In fact, nearly a quarter of the respondents to our Consultants Survey say their clients have plans to

CORPORATE SURVEY 2017 Site Selection Factors

2017

2016

Ranking 1. Highway accessibility 2. Labor costs 3. Availability of skilled labor 4. Quality of life 5. Tax exemptions 5T. Occupancy or construction costs 7. Proximity to major markets 8. Corporate tax rate 9. State and local incentives 10. Available land 11. Expedited or “fast-track” permitting 12. Proximity to suppliers 13. Energy availability and costs 14. Available buildings 15. Right-to-work state 16. Training programs/technical colleges 17. Inbound/outbound shipping costs 18. Low union profile 19. Environmental regulations 20. Availability of long-term financing 21. Accessibility to major airport 22. Raw materials availability 23. Water availability 24. Availability of unskilled labor 25. Proximity to innovation/commercialization R&D centers 26. Availability of advanced ICT services 27. Waterway or oceanport accessibility 28. Railroad service

91.3 91.1 88.8 87.2 85.9 85.9 84.6 83.2 81.3 76.9 76.7 76.4 76.0 75.9 74.7 72.8 71.8 71.4 70.2 64.6 56.4 56.0 55.3 52.0 44.7 42.7 31.2 29.9

94.4 (1)** 89.6 (3) 89.8 (2) 76.4 (10) 79.7 (7) 86.0 (4) 78.1 (9) 82.3 (6) 84.0 (5) 75.3 (12) 71.7 (13) 66.0 (20) 78.5 (8) 75.5 (11) 70.1 (16) 66.7 (18) 69.1 (17) 70.8 (14T) 70.8 (14) 66.7 (18T) 52.4 (22) 53.7 (21) 46.3 (24) 51.9 (23) 39.2 (26) 40.9 (25) 18.1 (28) 33.7 (27)

* All figures are percentages and are the total of the “very important” and “important” ratings of the Area Development Corporate Survey and are rounded to the nearest tenth of a percent. ** 2016 ranking

AREA DEVELOPMENT | Q1/2018

Survey2018.indd 41

41

3/13/18 3:56 PM

A N A LY S I S Corporate Survey Rankings Weighted Toward Manufacturing Functions

As in the past, we look forward to reviewing the annual survey responses, and are always curious to see if the view of the corporate world is different from that which we have been experiencing on actual projects. Specifically, • Do this year’s results differ from past years’ results?

• Do the responses reflect what we, as location advisors, currently are experiencing with our clients on actual recent engagements?

• Do the survey results capture trends being observed by location advisors?

In general, the responses are very consistent with surveys compiled in past years. Recognizing that the respondents are heavily weighted with manufacturing functions (based on the number of respondents from that sector), the top location factors make a great deal of sense. However, if the weighting were to shift toward distribution or office sectors, we believe we would see a slightly different ranking of top location factors.

In recent engagements, we have seen an increased emphasis on “proximity to customers” for both distribution and office projects. Additionally, although not yet included within the formal project specification and requirements for distribution projects, proximity to rail — due to increased reliance on truck delivery and a perceived imbalance of driver supply and demand — is becoming an increasingly important factor. Alternative deepwater ports have entered the conversation due to congestion at West Coast ports and the Panama Canal expansion, which may provide for faster ship unloading and delivery.

Location engagements involving office functions are experiencing increased client request for reliable air access. Although this has always been a strong client requirement for office location work, it has become even stronger on recent projects.

Aside from the factor rankings, the data collected include responses to several questions addressing potential business response to the recent U.S. tax regulation changes. We are surprised to see a fairly neutral response in terms of the impact of this change as it pertains to future investment decisions. Most respondents indicate that the changes (including a lowering of corporate net income tax rates) would not serve as a catalyst for facility or operations expansion. This is not what we have been experiencing with our clients — and have seen renewed client interest in domestic investment as a result of the potential for repatriated funds. In our opinion, as a result of the lower tax rate, companies repatriating funds (currently held in foreign accounts) will look to increasing investment in U.S.-based capital projects. This process clearly has already begun.

By Les J. Cranmer, Senior Managing Director; and Art Wegfahrt, Corporate Managing Director; Savills Studley, Inc.

Corporate tax reductions will affect plans to hire and train more workers: Yes No

42

AREA DEVELOPMENT

Survey2018.indd 42

41% 59%

Role of apprenticeship programs in your facility: Already have them in place Would like to establish an apprenticeship program Don’t think they would work for my firm

37% 33% 30%

for free site information, visit us online at www.areadevelopment.com

3/15/18 4:11 PM

WHEN WE CUT RED TAPE, WE DO IT WITH A BUZZ SAW. Governor

The saying, “time is money,” carries some real weight down here in Arkansas.

We know that you don’t have the luxury of wasting valuable resources when you could be getting down to business. That’s why Governor Asa Hutchinson is cutting red tape in a big way and running our state government like you’d run your business. Want to learn more about how we’re creating an environment for industry to prosper, visit ArkansasEDC.com/asa.

AREA0774.indd 1

ArkansasEDC.com/asa 1-800-ARKANSAS

06/02/18 8:44 PM

COR POR ATE SUR V EY

A N A LY S I S Managing the EDO Investment Portfolio to Maximize Job Growth

Investment bankers follow a well-established set of general guidelines. They determine client risk tolerance, diversify investments, and take long- and short-term actions to create wealth.

The data provided in this year’s survey allows EDO professionals to learn from these guidelines to create wealth for their communities. When I look more closely at the numbers, here are the analogies that I see.

Seventy-three percent of the companies making an investment decision employ fewer than 500 people; 85 percent of the investments will be less than $50 million. Therefore, the EDO that spends more than 70 percent of its time on the small to medium-size companies is going to be more successful than the EDO that spends an inordinate amount of time focusing on or looking for larger projects.

Regarding long-term vs. short-term actions, nearly half of the respondents who are planning to open new domestic facilities say that their ultimate decision will be within two to three years, and 74 percent of the survey respondents say the information-gathering process takes a year or longer. Time is on the side of the EDO to plan, then act.

Looking at the top 20 combined ratings, 16 of the 20 are in the four portfolio categories of financial, workforce, transportation, or available sites and buildings. We know the overall economy is strong, but the survey results show this is driven by factors other than recent economic fiscal policy. The question then becomes, “Which of these four broad categories does the EDO professional have the most ability to influence?” Of the four broad categories, this year, increasing the inventory of available right-sized sites and buildings is where EDOs can make a real impact. The other categories are important, but the investment conversation has to start somewhere, and when companies are seeking new locations, the conversation begins with site inventory.

By Von Hatley, Managing Director, Jones Walker Consulting, LLC

America’s drug crisis affecting your ability to find enough qualified workers: Yes No

49% 51%

Legalized marijuana laws will affect your decision to locate a facility in states that have enacted such laws:

The quality of the workforce will be negatively affected in states that are legalizing marijuana use: Yes No

44

AREA DEVELOPMENT

Survey2018.indd 44

Yes No

43% 57%

62% 38%

for free site information, visit us online at www.areadevelopment.com

3/15/18 4:11 PM

Changes in minimum wage laws will affect: Current operations

60%

Plans to add employees

55%

Location of new or expanded facilities

44%

Sustainability efforts are very or somewhat important to your company’s: Operational efficiency

85%

Civic responsibility

77%

Employees

89%

Customer image

87%

Bottom line

85%

offshore a domestic facility within the next five years, and nearly a third say their clients have reshored a facility in the recent past or plan to reshore in the near future. Furthermore, more than a third of the responding consultants say financial inducements to reshore operations or penalties to offshore operations under the Trump administration would affect their clients’ plans. Meanwhile, only five percent in total of the Corporate Survey respondents have offshoring or reshoring plans, and nearly all (92 percent) say the administration’s inducements or penalties would have no effect on their plans. Fifty percent of the Corporate Survey respondents cite tax concerns, government regulations, labor availability and costs, infrastructure concerns, and energy costs as the reasons behind offshoring. And the corporate respondents cite energy and transportation/supply chain costs, as well as tech transfer/intellectual property protection, as the reasons behind reshoring operations.

Importantly, when examining the results of both the Corporate and Consultants surveys, one should also keep in mind that only 32 percent of

A N A LY S I S After a decade of the “new normal” where capital investment dollars waited on the sidelines, 2017 leapt out of the starting gate and has continued at a torrid pace thru the first quarter of 2018. In a world awash in global instability, the U.S. remains both a safe haven for foreign dollars and a growth accelerator, as repatriated dollars, corporate tax cuts, and — perhaps to some degree — a fear of presidential tweets have clearly loosened the reins on a decade’s worth of pent-up capital.

Loosening the Reins on Pent-Up Capital

As always, Area Development’s Corporate Survey serves as an interesting annual quantification of the tangible experiences my colleagues and I encounter in the field. Some of the more interesting observations that the survey captured are as follows: • I t is no surprise to us that the southeastern states are the overwhelming choice for manufacturing and capital investment. Aggressive and proactive economic develop teams, available land, new infrastructure, strong incentives, growing labor demographics, customized training regimes, and sophisticated business-oriented state governments are just a few of the reasons mega-deals land in this region.

•C -suites still and always will call the shots. Effectively connecting with those C-suite players has a greater impact than anything else on the success or failure of winning a project for both EDOs or consultancies. Even if real estate or tax departments provide easier access, they are the implementers and often behind the timing curve in the corporate location decision process. It’s best to spend time and resources courting the top.

•C hallenging state and local tax conditions and the new federal tax legislation are going to eventually turn personal decisions — i.e., “Do I leave a high tax state because I can’t deduct my home or want to deal with the costs anymore?” — into personnel issues that will likely affect company relocation plans — i.e., “I can’t find enough good employees on Long Island or northern California even though I pay a great wage because the location is just too expensive. So we have to relocate.” Within the next year or so, when folks start paying the 2018 tax bill, we’ll likely see these state and local tax issues rise further to the top of the list.

•6 7 percent of respondents say that incentives are very or somewhat important to a project moving forward in a particular location. That’s more than ever for the survey, but in reality, that percentage should be 100 percent. Companies may not openly admit it, but all are aggressively shopping locations, and incentives are a factor. Locations are increasingly seen as commodities. They need to continuously show their value proposition in terms of generating a value-added workforce at a reasonable cost. If they can’t, they will be out of the hunt.

By T om Stringer, Managing Director & Practice Leader, Site Selection & Business Incentives, BDO Consulting

AREA DEVELOPMENT | Q1/2018

Survey2018.indd 45

45

3/13/18 3:58 PM

COR POR ATE SUR V EY Importance of incentives to a project moving forward in a particular location:

If regulations regarding sustainability are loosened under the Trump administration, company would still engage in sustainability efforts: 83% 17%

Yes No

Very important Somewhat important Minor consideration Of no importance

34% 33% 24% 9%

Type(s) of incentives considered most important when making a location decision: Cash grants Tax incentives

34%

(tax credits, exemptions, etc.)

68%

(bonds, loans, etc.)

26% 38%

Other financial incentives

Worker training incentives Other incentives

A N A LY S I S

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

58%

The fact that about 90 percent of the Corporate Survey respondents indicate labor costs and skilled labor availability as “very important” or “important” to a location decision must not be understated and offers lessons to both companies wanting to select the optimal site and to communities seeking to grow their economic base and win projects. While incentives, tax structure, high quality of life, and access to customers/markets are always key project drivers, a community that does not have the adequate labor profile is devastating to a project’s success in that location, and also limits the economic developer’s ability to successfully compete for a project. Additionally, since labor is often the highest operating expense associated with a project, much more than the cost of real estate or taxes, misreading the labor market can further reduce profitability of a location due to high turnover, inability to fill positions, and/or the need to recruit from outside a labor shed area to find and relocate workers.

Labor Is Paramount

For the corporate entity seeking to reduce risk, a detailed and comprehensive study of an area’s established labor pool and talent pipeline is critical. This would include a demographic analysis of workers in the marketplace by occupation and skill, a deep dive on overall labor market migration (and population migration) trends both historically and looking forward, a thorough analysis of training providers and educational institutions (and the types of graduates/skills they produce), and an in-depth discussion with employers regarding availability of workers and competition for local skilled labor among firms.

For economic developers seeking to win more deals, an equally thorough understanding of their communities’ labor force is critical. Where are your skill gaps and what can be done to encourage local universities, community colleges, and trade schools to meet labor market demand? What is your long-term demographic plan to create/attract talent and stay ahead of trends in workplace and industry to position your community to win? How can you effectuate a conversion of the unemployed or underemployed to meet industry demand via on-the-job training and workforce training grants/incentives? How and where can you guarantee that next significant corporate investor/project its future workforce?

As technology continues to grow and markets innovate, the question of available labor and cost will remain at the forefront of the site selection decision. As a company — or community — investing in your economic future, are you thoroughly prepared for success?

By Doug Rasmussen, Director, Site Selection & Incentives Advisory, Duff & Phelps, LLC

46

AREA DEVELOPMENT

Survey2018.indd 46

for free site information, visit us online at www.areadevelopment.com

3/13/18 3:58 PM

AS A TOP 5 STATE FOR MANUFACTURING ESTABLISHMENTS, FLORIDA IS BUILT FOR YOUR BUSINESS. Why do more than 20,000 manufacturing companies call Florida home? Because not only do we have the space to accommodate them, we also have the custom-trained workforce, infrastructure and trade expertise to ensure success. Add to that a pro-business and costcompetitive environment, and it’s easy to see why Florida ranks among the nation’s top five states for manufacturing. And we have no doubt that your company can make something big of that. Discover what a future in Florida means for your business at floridathefutureishere.com/possibilities, or call 877-YES-FLORIDA.

AREA0778.indd 1

12/02/18 7:19 PM

C O NS U L TA N TS S UR VE Y CLIENTS’ OPERATIONS Respondents working on projects in the following industries: Manufacturing — Durable Goods Manufacturing — Non-Durable Goods Manufacturing — Other Distribution/Logistics/ Warehousing Financial Services/Insurance/ Real Estate Data Center/Processing/Software/ Other Computer-Related Services Energy Industry Hospitality Industry Healthcare/Life Sciences Retail Construction & Trades Other

81% 47% 32% 74% 39% 37% 16% 10% 39% 8% 5% 8%

In terms of their employment numbers, client companies utilizing consultants’ services are generally: Small (20-99 employees) Mid-size (100-499 employees) Large (500-999 employees) Very large (1,000 or more employees)

2% 38% 23% 38%

Most of the clients asking the consultants to perform a location search have: Not actively initiated the site selection process 42% Already gathered preliminary data 65% Already narrowed down the geographic area in which they wish to locate 63% Already chosen several “finalist” 22% communities Expect the consultant to narrow or make the location decision for them 30%

the respondents to the Corporate Survey say they use the services of consultants for their site and facility planning needs. Nonetheless, the corporate and consultant respondents are pretty much in agreement when it comes to sustainability efforts. Even if regula-

48

AREA DEVELOPMENT

Survey2018.indd 48

CLIENTS’ NEW/EXPANDED FACILITIES PLANS

Clients will move forward with plans for new or expanded facilities as a result of the recently passed cut in the corporate tax rate: Yes No

67% 33%

Clients will move forward with plans for new or expanded facilities as a result of recently passed or proposed regulatory reforms: Yes 50% No 50%

Opting out of trade agreements like TPP or renegotiation of NAFTA under the Trump administration will have a positive or negative effect on clients’ new facility/expansion plans: Positive 33% Negative 67%

Clients plan to open a new (not relocate an existing) domestic facility within five years: Yes 94% No 6%

Clients that expect to open new domestic facilities plan to do so within: 1 year 2 years 3 years 4 years 5 years or more

21% 47% 29% 2% 2%

tions regarding sustainability are loosened under the Trump administration, 83 percent of the Corporate Survey respondents say their companies would still engage in sustainability efforts, and 97 percent of the Consultants Survey respondents say their client

for free site information, visit us online at www.areadevelopment.com

3/13/18 3:58 PM

companies would do the same.

Both groups consider sustainability efforts important to a company’s operational efficiency, employees, civic responsibility, and customer image — and ultimately its bottom line.

Survey Respondents’ Workforce Concerns With the unemployment rate reaching 4.1 percent in January, we would think availability of labor, especially skilled labor, would be our Corporate Survey respondents’ primary concern.

However, just slightly more than half of the respondents (53 percent) say availability of skilled labor is having an effect on their new facility or expansion plans — or even their current operations. Of those, nearly 60 percent say workers are missing basic (reading, math, etc.) as well as advanced skills (advanced welding, machine tool programming, etc.)

When ranking the site selection factors, the Corporate Survey respondents placed availability of skilled labor in the #3 spot, considered “very important” or “important” by 88.8 percent. In comparison to this, 100 percent of the respondents to our Consultants Survey rated availability of skilled labor as “very important” or “important,” ranking this criterion #1 among the site selection factors. Additionally, nearly all (98 percent) of the responding consultants say availability of skilled labor is affecting their clients’ facilities plans or current operations, and a lack of advanced skills was cited by 92 percent of the consultants.

The consultants are also

more concerned about availability of unskilled labor, giving this factor a combined rating of 71.6 percent, whereas only 52 percent of the Corporate Survey respondents say availability of unskilled labor is “very important” or “important.”

But it’s also interesting to note that more than a third of the Corporate Survey respondents say they already have apprenticeship programs in place, and a third would like to establish apprenticeship programs for their operations. Further, the consultants placed training programs/technical schools among the top 10 site selection factors, with a combined importance rating of more than 90 percent.

The corporate respondents are, however, concerned about raises to the minimum wage: 60 percent say these increases will affect their current operations, and 55 percent say the hikes will also affect plans to add employees. And both the Corporate and Consultants Survey respondents rank labor costs as the #2 site selection factor.

America’s opioid drug crisis is another top concern, yet the two groups of survey respondents differ when it comes to the effect of this crisis on the workforce. Only about half of the Corporate Survey respondents say it is having an effect on their ability to find enough qualified workers, whereas nearly two thirds of the Consultants Survey respondents claim the crisis is affecting their clients’ ability to do the same.

However, the consultants are much less concerned

Location of clients’ new domestic facilities (as a percentage of total number to be opened): 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)

2% 9% 16% 12% 17% 13% 4% 6% 14% 7%

Clients plan to open a new (not relocate an existing) foreign facility within five years: Yes 47% No 53%

Clients that expect to open new foreign facilities plan to do so within: 1 year 2 years 3 years 4 years 5 years or more

28% 38% 28% 3% 3%

Location of clients’ new foreign facilities (as a percentage of total number to be opened): Canada 20% Mexico 20% Caribbean 3% Central America 1% South America 6% Western Europe 11% Eastern Europe 16% Middle East 3% Africa 1% Australia 4% Asia 15%

AREA DEVELOPMENT | Q1/2018

Survey2018.indd 49

49

3/15/18 4:12 PM

CONSUL TANTS SUR V EY

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

90% 10%

Those clients planning to expand existing domestic facilities expect to do so within: 1 year 35% 2 years 48% 3 years 15% 4 years 2%

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

40% 60%

Those clients planning to expand existing foreign facilities expect to do so within: 1 year 2 years 3 years

35% 39% 26%

CLIENTS’ RELOCATION PLANS

Clients plan to relocate an existing domestic facility(s) to a foreign location within five years: 23% 77%

Yes No

Clients who expect to relocate domestic facilities to a foreign location plan to do so within: 1 year 2 years 3 years

23% 62% 15%

Primary reasons for moving these facilities offshore: Tax concerns Government regulations Labor costs Labor availability Infrastructure Energy costs New markets/Market proximity Proximity to research centers/ Industry consortium

23% 15% 85% 46% 8% 8% 38% 15%

Clients relocated a facility back to the U.S. from a foreign location (reshored) in the recent past or are planning to do so in the near future: Yes No

31% 69%

Clients plan to relocate an existing domestic facility(s) within the U.S. within five years: Yes No

72% 28%

Clients planning to relocate existing domestic facilities within the U.S. expect to do so within: 1 year 2 years 3 years

50

AREA DEVELOPMENT

Survey2018.indd 50

16% 66% 18%

about the effects of legalized marijuana on the workforce. Two thirds of the consultants say it will not negatively affect the quality of the work force, and 71 percent say legalized marijuana laws will not affect their clients’ decisions to locate a facility in states that have enacted such laws. More than 60 percent of the Corporate Survey respondents say legalized marijuana will affect the quality of the workforce, and 43 percent say it would affect their decision to locate in a state that has enacted legalization of marijuana.

for free site information, visit us online at www.areadevelopment.com

3/15/18 4:12 PM

AREA0765.indd 1

22/11/17 12:56 AM

CONSUL TANTS SUR V EY

Combined Ratings*

If so, reasons for reshoring a foreign facility to the U.S.: Labor costs Energy costs Product quality issues Transportation/Supply chain costs Geopolitical/Government policy concerns Tech transfer/Intellectual property protection Other

11% 11% 58% 42% 58% 37% 11%

Financial inducements or penalties under the Trump administration will have an effect on clients’ plans to: Offshore Reshore No Effect

10% 27% 66%

SITE SELECTION FACTORS/TRENDS Availability of skilled labor having an effect on clients’ facility plans or current operations: Yes

98%

No

2%

If yes, workers are lacking: Basic skills (e.g., reading comprehension, mathematical competency, etc.) 51% Advanced skills (e.g., advanced welding, machine tool programming, bioprocessing, etc.)

92% STEM skills (science, technology, engineering, mathematics) 63%

Corporate tax reductions will affect clients’ plans to hire and train more workers: Yes 50% No 50%

52

AREA DEVELOPMENT

Survey2018.indd 52

CONSULTANTS SURVEY 2017 Site Selection Factors

2017

2016

Ranking 1. Availability of skilled labor 2. Labor costs 2T. Proximity to major markets 4. State and local incentives 5. Highway accessibility 5T. Available land 5T. Available buildings 5T. Accessibility to major airport 9. Tax exemptions 10. Training programs/technical schools 11. Energy availability and costs 11T. Proximity to suppliers 13. Expedited or “fast-track” permitting 14. Inbound/outbound shipping costs 15. Occupancy or construction costs 16. Low union profile 17. Right-to-work state 18. Environmental regulations 19. Availability of unskilled labor 20. Quality-of-life 21. Corporate tax rate 22. Availability of advanced ICT services 23. Raw materials availability 24. Water availability 25. Railroad service 26. Proximity to innovation/ commercialization/R&D centers 27. Availability of long-term financing 28. Waterway or oceanport accessibility

100.0 98.3 98.3 96.6 95.0 95.0 95.0 95.0 93.3 91.7 90.0 90.0 88.3 88.2 85.0 80.0 78.3 75.0 71.6 71.2 70.0 67.8 66.6 55.0 53.3

100.0 (1)** 95.8 (3) 95.8 (3T) 95.8 (3T) 98.7 (2) 95.8 (3T) 88.9 (11) 88.8 (12) 95.8 (3T) 91.7 (10) 93.0 (8) 93.0 (8T) 87.3 (13) 84.6 (15) 86.0 (14) 82.0 (16) 76.4 (19) 80.3 (17) 69.0 (22) 63.3 (24) 78.9 (18) 69.5 (21) 64.8 (23) 72.2 (20) 45.1 (26)

51.8 41.7 41.6

62.0 (25) 40.8 (27) 29.6 (28)

* All figures are percentages and are the total of the “very important” and “important” ratings of the Area Development Consultants Survey and are rounded to the nearest tenth of a percent. ** 2016 ranking

In fact, the Corporate Survey respondents are very concerned with quality of life. They ranked this factor #4, with an 87.2 combined importance rating. On the other hand, the respondents to our Consultants Survey, only placed quality of life in the #20 spot among the site selection factors, with a 71.2 combined importance rating.

for free site information, visit us online at www.areadevelopment.com

3/13/18 4:00 PM

America’s drug crisis affecting clients’ ability to find enough qualified workers: Yes

64%

No

36%

The quality of the workforce will be negatively affected in states that are legalizing marijuana use: Yes

33%

No

67%

Legalized marijuana laws will affect clients’ decisions to locate a facility in states that have enacted such laws: Yes No

29% 71%

Sustainability efforts are very or somewhat important to your clients’: Operational efficiency 76% Civic responsibility 83% Employees 86% Customer image 90% Bottom line 69%

Other Important Factors Twelve of the site selection factors actually received a combined “very important” or “important” rating of 90 percent or more from the respondents to the Consultants Survey. Among these are the related factors of highway accessibility and proximity to markets and suppliers, as well as available land and buildings and access to an airport to fly top executives — and their consultants — in and out. For the Corporate Survey respondents, highway accessibility is the #1 factor, considered “very important” or “important” by 91.3 percent. And, interestingly, only 56.4 percent think access to a major airport is critical.

As expected, the responding consultants believe state and local incentives (#4 among the factors with a 96.6 percent importance rating) and tax exemptions (#9 among the factors with a 93.3 percent importance rating) are critical site selection criteria. Although the Corporate Survey respondents don’t rate or rank these factors as highly, they are still prominent — tax exemptions placed #5 (85.9 percent) and state and

If regulations regarding sustainability are loosened under the Trump administration, clients would still engage in sustainability efforts: Yes 97% No 3%

Relative importance of incentives to clients when making location decisions: Have always been of great importance 57% Are more important now than in the past 29% Are less important now than in the past 14%

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.)

86% 88% 20% 75% 81%

local incentives took the #9 spot with an 81.3 percent combined importance rating. And two thirds of the Corporate Survey respondents say incentives are very or somewhat important to a project moving forward.

When it comes to types of incentives, more than 85 percent of the consultants say their clients believe cash grants as well as tax incentives to be most important. Two thirds of the Corporate Survey respondents consider tax incentives most important, but only a third give cash grants prominence.

Final Take-Aways Manufacturers’ optimism, as reflected in NAM’s Q4/2017 Manufacturers’ Outlook Survey, is at a 20year high.6 NAM CEO Jay Timmons notes this “is a direct result of manufacturers witnessing a sea change in policymaking in Washington, D.C., empowering them to hire more, invest more, and build more — all in America.” The respondents to Area Development’s Consultants Survey would agree with the scope of these projections and the ratio-

AREA DEVELOPMENT | Q1/2018

Survey2018.indd 53

53

3/13/18 4:00 PM

SPONSOR S

Arkansas

Iowa

Jeff Moore, Executive Vice President, Marketing & Communications Arkansas Economic Development Commission 900 West Capitol Avenue, Suite 400 Little Rock, AR 72201 501-682-7317 www.arkansasedc.com JMoore@arkansasedc.com

Debi Durham, Director Iowa Economic Development Authority 200 East Grand Avenue Des Moines, Iowa 50309 515-725-3000 info@iowaeda.com www.iowaeconomicdevelopment.com

Kentucky

Florida

John Bevington, Commissioner for Business Development Kentucky Cabinet for Economic Development 300 West Broadway Frankfort, KY 40601 (502)564-7670 ThinkKentucky.com econdev@ky.gov

Tim Vanderhoof Senior VP, Business Development & Marketing Enterprise Florida 800 N. Magnolia Ave. Suite 1100 Orlando, FL 32803 407-956-5600 www.enterpriseflorida.com tvanderhoof@enterpriseflorida.com David Coddington, Vice President, Business Development Greater Fort Lauderdale Alliance 110 E. Broward Blvd., Ste. 1990 Fort Lauderdale, FL 33301 954-627-0123 Fax: 954-524-3167 www.gflalliance.org dcoddington@gflalliance.org

nale behind them; however, the results of our Corporate Survey of our readers do not reflect a direct correlation between investment and hiring plans and the recent tax and legislative changes.

As previously stated, this divergence of opinion may be a function of the size and/or types of companies responding to the two surveys. However, in Q4/2017, the Institute for Supply Management’s (ISM) semi-annual poll also gave less importance to the impact of tax and regulatory changes on businesses’ capital spending plans. Factory purchasing managers expect spending to rise 2.7 percent in 2018 (less than the 8.7 percent reported for 2017). When asked what was behind their 2018 investment plans, about two thirds cited the general business outlook, while less than 6 percent attributed their plans to business tax reform.7 I began this analysis with a look at the general business outlook, which is positive. Nonetheless, an analysis of our Corporate Survey by Marc Beau-

54

AREA DEVELOPMENT

Survey2018.indd 54

champ, president & CEO of CAI Global Group, claims “the results illustrate a level of uncertainty by investors — a clear indication of how challenging the investment project decision-making process has become.”

As we move further into 2018, it’s hoped that any hesitancy in 2018 investment decisions resulting from this challenge can be overcome. However, as Willy Shih, a manufacturing expert and professor at Harvard Business School recently told IndustryWeek, decisions to build new plants in the U.S. or reshore operations won’t materialize overnight.8 1

https://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm https://www.cnbc.com/2018/02/02/nonfarm-payrolls-jan-2018.html http://www.nam.org/Newsroom/Press-Releases/2017/12/NAM-on-Tax-Cuts-and-Jobs-Act-Historic-Progress-for-Manufacturers/ 4 https://www.manhattan-institute.org/html/prometheus-bound-how-regulations-stifle-us-manufacturing-renaissance-10342.html 5 https://www.weforum.org/agenda/2018/01/president-donald-trumps-davos-address-in-full8e14ebc1-79bb-4134-8203-95efca182e94/ 6 http://www.nam.org/Newsroom/Press-Releases/2017/12/NAM-Survey--Manufacturers--Optimism-Reaches-Record-High-Amid-Progress-on-Tax-Reform/ 7 https://www.bloomberg.com/news/articles/2017-12-11/companies-in-u-s-plan-to-slow-theirinvestment-hiring-in-2018 8 http://www.industryweek.com/economy/has-us-manufacturing-been-unleashed 2 3

for free site information, visit us online at www.areadevelopment.com

3/13/18 4:00 PM

INFRASTRUCTURE/ GOVERNMENT POLICY

Infrastructure and Its Role in the U.S. Economy The federal government is leaning toward the creation of publicprivate partnerships to finance much-needed improvements to the nation’s infrastructure, which is vital to the manufacturing sector as well as national security.

By Mark Crawford

© Rory McGlasson, The Walsh Group

I

nfrastructure is a hot topic these days. President Donald Trump recently met with state leaders to discuss the implementation of nationwide infrastructure improvements.

Infrastructure is a critical economic and social issue for the U.S. Not only does a modern infrastructure system improve economic performance and create jobs at state and national levels, it also improves safety for the American public.

According to the American Society of Civil Engineers (ASCE) 2017 Report Card,1 the national grade for U.S. infrastructure is a D+ — the same grade the country received in 2013, indicating little progress has been made over the last four years toward restoring America’s infrastructure. For example, an estimated 17 percent of American dams — more than 15,000 — are considered high hazard, meaning failure would likely result in loss of life.

About 11.2 percent of roads are in poor condition, resulting in vehicle damage, traffic delays, and billions of gallons of gasoline wasted.

Infrastructure is also essential for national security reasons, including being able to effectively support critical manufacturing industries. The U.S. Department of Homeland Security has identified several manufacturing sectors that are especially important for national defense or response to threats and disasters, including the energy, iron and steel, power transmission equipment, aviation and aerospace, and railroad rolling stock

Walsh Construction crew places beams for the bridge carrying Rte. 2021 over I-81 in Lennox, Susquehanna County, Pa. The bridge was replaced in September 2017 under the Pennsylvania Department of Transportation’s (PennDOT) Rapid Bridge Replacement Project, which is a public-private partnership between PennDOT and Plenary Walsh Keystone Partners (PWKP).

manufacturing sectors — all of which must be supported by modernized infrastructure.2

Who Pays?

Everybody agrees the United States needs better infrastructure — the question is how do we pay for it? ASCE estimates that by 2025 about $4.5 trillion will be required to upgrade surface transportation, wastewater infrastructure, power plans, airports, waterways and ports, dams, solid waste facilities, levees, public parks, rail, and schools.

The Trump administration recently released a new infrastructure proposal that moves away from a “project-

based” system in which the federal government provides funding for certain infrastructure projects. Instead, the plan will support the creation of public-private partnerships (PPPs), where states and private investors provide most of the funding for infrastructure projects. Any federal funding would serve as incentives to get private investors on board, or for special or “transformative” projects, such as high-speed rail.

Although PPPs are popular in Europe for infrastructure upgrades, their acceptance in the U.S. infrastructure sector has been slow. According to PricewaterhouseCoopers (PwC), in AREA DEVELOPMENT | Q1/2018

Infrastructure.indd 55

55

3/13/18 2:35 PM

such as governance, regula2015, only five PPP deals worth a total of tory frameworks, permits, $2.4 billion closed in the U.S.3 A big reason Everybody the and planning. “Although the for this is that not all projects are attractive U.S. is a strong performer in to investors, who are looking for long-term United States needs terms of rule of law and taxadeals with lucrative returns. So even if an tion policies for incentivizing infrastructure project is critical to a region, it infrastructure — the question is investment, it falls short when may not meet the return-on-investment reit comes to planning, procurequirements of investors and not get done. do we pay for it? ment, and contract manageNow, however, the U.S. government and ment,” says Heathcote.4 investors are coming together on a broader range of projects. State governments are also getting creative The U.S. can improve its performance in these areas by in finding the investors they need to get their projects off the creating federal guidelines for procuring PPPs and dedicated ground.

PPP units. Another method is to better measure how its For example, Pennsylvania became the first state to buninfrastructure currently performs. Heathcote believes that dle small projects into a big package in order to attract the transparent, publicly available post-completion reviews — interest of larger firms. “The Rapid Bridge Replacement Projthat check not only costs and schedule, but benefit realizaect bundled 558 bridges to create a deal worth $900 million,” tion — “would lead to a long-term improvement in deliverstates PwC. It was Pennsylvania’s first-ever infrastructure ing quality projects.”

PPP project and highly successful, reducing project costs by Because roads tend to be state-procured, states need to be 20 percent and completing construction faster than tradiproactive in creating PPPs to efficiently fund new highway tional procurement programs. In fact, it was so successful and bridge projects. However, most states cannot afford to that Northampton County in Pennsylvania adopted a similar do it alone — federal dollars are still usually required to PPP structure to replace and rehabilitate many of its bridges. make these PPPs a reality.

“This PPP pipeline now stretches across more than 20 “One step would be to expand the Transportation Infrastates, including many that have never closed a public-pristructure Finance and Innovation Act (TIFIA) and Water Invate partnership transaction before,” says PwC. “And more frastructure Finance and Innovation Act (WIFIA) programs and bigger deals are taking place. Nine PPPs closed in the to provide further credit assistance for road, rail, and water first three quarters of 2016, compared with five deals in all of projects and remove restrictions and disincentives for reve2015. And several were giant, including a $3.9 billion deal to nue-generating projects,” says Heathcote. “Asset-recycling, redevelop and operate Terminal B in New York’s LaGuardia where the government leases existing infrastructure assets to airport and Maryland’s $2 billion light-rail Purple Line.” private companies to then invest proceeds in new projects, provides an additional funding mechanism.”

Finally, Heathcote adds, more than funding, the federal Leadership, However, Is Required government must provide leadership. “Not having a clear President Trump’s plan to stimulate $1 trillion in investnational infrastructure plan has adversely impacted the U.S. ment through PPPs has hit some uneven ground. “Recent market before,” he says. “The government must take steps comments over the role the private sector will play raise to reduce uncertainty over its current proposal, and chart a new questions as to how to close this gap,” notes Chris clear path forward. Doing so will enable all stakeholders to Heathcote, CEO of the Global Infrastructure Hub, an initiaplan effectively and ensure they’re ready to answer the call tive launched by the G20 in 2014 with the mandate of growwhen the time comes.” ■ ing the global pipeline of quality, bankable infrastructure projects.

1 https://www.infrastructurereportcard.org/ 2 For infrastructure PPPs to really take off, the federal https://www.huffingtonpost.com/christian-caballero/manufacturing-and-infrast_b_6603128.html 3 https://www.pwc.com/us/en/capital-projects-infrastructure/publications/assets/pwc-us-publicgovernment must fully understand the underlying factors private-partnerships.pdf 4 http://thehill.com/opinion/white-house/355175-public-private-partnerships-cant-overcome-usthat affect the delivery of successful infrastructure projects,

agrees better

how

infrastructure-gap-alone

Find the Right Location for Your Next Project.

FacilityLocations is a GIS map-driven, online economic development directory used to research potential locations during the business re-location or expansion process.

FacilityLocations.com 56

AREA DEVELOPMENT

Infrastructure.indd 56

for free site information, visit us online at www.areadevelopment.com

3/12/18 1:46 PM

TRANSPORTATION/ LOGISTICS

Get On Track With a Rail-Served Site The economic and environmental benefits of freight rail transportation should be considered when developing your next facility.

By Colby Tanner, Economic Development AVP, BNSF Railway

S

hould your new or expanded facility be rail-served? Whether you ship consumer goods or industrial commodities, immediate access to the resources of a Class I Railroad can provide significant benefits.

Class I Railroads — freight railroads with operating revenues of $433.2 million or more — have the scale and expertise to bring real development and supply chain advantages to companies looking to expand or open new distribution centers, warehouses, or other facilities.

These Class I Railroads are BNSF Railway, CSX Transportation, Canadian Northern Railway, Canadian Pacific, Kansas City Southern Railway, Norfolk Southern, and Union Pacific Railroad. Chances are, at least one of these major freight transportation providers will be able to meet your location and capacity needs. In total, the U.S. freight rail network covers more than 140,000 miles and moves more freight than any other freight rail system in the world, according to the Federal Railroad Administration (FRA).1 Let’s take a look at some of the potential benefits of working with a railroad to create a rail-served facility.

1. Rail offers a cost-effective, competitive supply chain solution.

The United States has the most efficient and cost-effective rail system in the world. The U.S. rail industry transports 40 percent of the nation’s goods, in terms of distance and weight, for

BNSF’s logistics center in Sweetwater, Texas, serves industrial customers including Cape and Son, Vulcan Materials, and Fairmount Santrol.

only 10 percent of the intercity freight revenue. And the value of that transportation continues to rise. Since 1980, prices for rail transportation have fallen by more than 50 percent in real dollars adjusted for inflation, according to the Association of American Railroads (AAR).2 Volatile fuel costs, increased regulations, and driver shortages contribute to making rail a cost-efficient alternative to entirely over-the-road transportation options.

2. Rail is positioned to meet your capacity needs as you grow.

U.S. freight railroads invest heavily to maintain and expand their networks in order to meet their customers’ capacity demands today and into the future. And future demand is expected to be robust. The U.S. Department of Transportation projects that demand for rail freight transportation, measured in tonnage, will increase 88 percent by 2035.3 Railroads are responding with heavy capital investments (unlike other modes of transportation U.S. railroads own and maintain their own rights of way). According to AAR, from 1980 to 2016, privately owned AREA DEVELOPMENT | Q1/2018

GetOnTrack.indd 57

57

3/13/18 2:40 PM

freight railroads have devoted more than $630 billion to capital investments,4 with an estimated $22 billion more spent in 2017. A major driver of these investments is the need to position railroads to be able to handle growing capacity needs going forward.

3. Rail can reduce your environmental impact.

Moving freight by rail instead of with trucks reduces greenhouse gas emissions an average of 75 percent, according to AAR.5 One double-stacked intermodal train can carry the equivalent of several hundred truckloads to any of the country’s major markets. In 2016 alone, BNSF customers saved 34 million metric tons of carbon dioxide from being emitted into the atmosphere — the equivalent of removing seven million cars from the nation’s roads.

• Transload — If building or expanding your facility at a rail-served site is not feasible, you can still access rail networks. In conjunction with motor carrier and logistics partners, railroads offer transloading services, where your freight is trucked to a transload facility, loaded onto the rail network, transported by rail, and then trucked to its destination. Transloading allows customers to obtain the cost convenience of using individual railcar service without having to have a rail-served facility.

• Logistics Parks — For shippers of consumer goods in containers or trailers, many railroads offer attractive co-location opportunities. Transportation costs typically account for more than 50 percent of total distribution costs. Locating your distribution center or warehouse at a logistics park can substantially Major intermodal facilities are lower those costs, reducing dray4. Railroads deliver age charges, maximizing truck significant facility typically located at established turns, adding fuel savings, and development resources. lowering emissions. A competiWith departments variously railroad hubs offering access tive cost per square foot further labeled as “Economic Developboosts the bottom line. ment,” “Business Development,” to large markets and include Logistics parks are located on “Industrial Development,” or “Real land around one of a railway’s Estate,” major railroads offer cusChicago, Kansas City, and existing intermodal shipping tomers deep resources in facility facilities, cutting miles out of the development. Experts are available Dallas/Fort Worth. supply chain. Major intermodal to help customers through the enfacilities are typically located at tire process, from real estate market established railroad hubs offerresearch and planning through ing access to large markets and include Chicago, Kansas property acquisition, construction, and the commencement City, and Dallas/Fort Worth. Logistics parks serve a range of of shipping. Incorporating your transportation needs from logistics and retail customers. For example, BNSF Logistics the inception of a project typically leads to significant cost Park Kansas City serves companies including Amazon, UPS, and time savings in the development process. And customKubota, Spectrum Brands, and Horizon Global. ers are taking advantage. At BNSF alone, our customers and local economic development organizations invested nearly $7.7 billion in new or expanded facilities in 2017.

5. Railroads share their logistics and

“

development expertise.

• Certified Sites — Each major railroad has its own unique programs. At BNSF, for example, we have a certified sites initiative for customers who ship industrial or agricultural products by the carload. Certified sites are pre-selected areas of land considered prime for development following extensive vetting to confirm they meet critical criteria, including availability of utilities, public services, highway access, proper zoning for industrial usage, and transparency of current land ownership. On average, by utilizing a certified site, customers can save up to nine months of development time.

• Logistics Centers — Some railways also offer carload customers co-location opportunities at strategically located logistics centers. At these facilities, the railway typically owns the land and builds the shared track, mainline turnouts, and other required infrastructure. Logistics centers can accommodate multiple industries and support rail, truck, and transload services. BNSF’s logistics center in Sweetwater, Texas, for example, serves industrial customers including Cape and Son, Vulcan Materials, and Fairmount Santrol.

58

AREA DEVELOPMENT

GetOnTrack.indd 58

Class I railroads have a wealth of expertise in the development of rail-served facilities as well as in supply chain logistics. BNSF, for instance, works closely with our carrier partners to help businesses transporting a variety of consumer goods create an intermodal transportation plan that allows them to grow and keep their transportation costcompetitive. We also help businesses design intermodal transportation plans that enable them to reduce their carbon footprint on containerized loads, while realizing cost savings and consistent and timely service.

So, does creating a rail-served facility track with your objectives? With the economic and environmental benefits of freight rail transportation, coupled with the advantages inherent in developing a rail-served facility, we think it makes sense to investigate the opportunities of working with a Class I railroad. n 1

https://www.fra.dot.gov/Page/P0362 https://www.aar.org/BackgroundPapers/Overview%20of%20America%27s%20Freight%20RRs.pdf https://expresslanes.codot.gov/programs/transitandrail/resource-materials-new/AARStudy.pdf 4 https://www.aar.org/BackgroundPapers/Freight%20Railroad%20Capacity%20and%20Investment.pdf 5 https://www.aar.org/BackgroundPapers/Railroads%20and%20Greenhouse%20Gas%20Emissions.pdf 2 3

for free site information, visit us online at www.areadevelopment.com

3/12/18 1:48 PM

ENERGY/ GOVERNMENT POLICY

The Renewable Energy Industry Must Adapt to U.S. Tax Reform Renewable energy production facility developers must reconsider how to optimize their capital structures in the new tax environment.

By Dorian Hunt, Tax Credit Investment Advisory Services, and Christine Spratley, Location Investment Services, Ernst & Young, LLP

S

ince 2009, renewable energy production in the United States has grown at unprecedented levels: nationwide solar installations grew from 1.2 gigawatts (GW) to 25 GW, while wind grew from 31 GW to 75 GW.1 This growth was enabled partially by a favorable tax environment that included tax credits and accelerated depreciation benefits.

The election of President Trump introduced uncertainty relative to renewable energy in the United States. The recently enacted Tax Cuts and Jobs Act (TCJA or tax reform) has provided some clarity for the sector, and its provisions have introduced new opportunities for renewable energy as well as some new challenges.

Let’s explore the various provisions included in the TCJA and its impact on U.S.-based manufacturers of renewable energy equipment and renewable energy production facilities. Following is a summation, albeit non-comprehensive, of

provisions of the TCJA that could have meaningful impacts on various sector stakeholders: • Corporate tax rate reduction — The federal corporate tax rate has been reduced from 35 percent to 21 percent.

• New transition tax — A transition tax will be imposed on untaxed foreign earnings of foreign subsidiaries of U.S. companies by deeming those earnings to be repatriated.

Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5 percent rate, and the remaining earnings are taxed at an 8 percent rate.

• Section 199 repeal — Section 199 allowed a taxpayer to claim a deduction for qualified production activities; this deduction has been repealed for tax years beginning after Dec. 31, 2017.

• Immediate expensing — Bonus depreciation has been increased from 50 percent to 100 percent for “qualified property” acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.

• Base erosion anti-abuse tax (BEAT) — The BEAT is a tax intended to penalize payments made by multinational companies to foreign parent entities from U.S. subsidiaries.

Implications for Manufacturing The reduced corporate tax rate, as well as the opportunity to immediately expense newly acquired assets, is likely to provide an immediate cash-tax benefit, allowing for manufacturing operations in the U.S. to be more profitable. The repeal of Section 199 may have a negative, although limited, impact to manufacturers. This impact may be offset by the benefits provided by the lower tax rates and immediate expensing provisions. The transition tax introduces an immediate burden on those U.S.-based manufacturers that are holding earnings in foreign subsidiaries, but provides them an ability to bring back cash with a significantly lower tax burden than under the previous statute.

Overall, it is anticipated that the new regime could create and nurture the renewable energy supply chain in the U.S. AREA DEVELOPMENT | Q1/2018

RenewableEnergy.indd 59

59

3/13/18 3:09 PM

that a combination of the lower corpoManufacturers may have the opportunirate tax rate and the BEAT will restrict ty to retain more cash to invest in equipthe supply of tax equity, increasing the ment and workers. Siting manufacturing It is expected that cost of capital to developers. This will operations in the U.S. could provide undoubtedly create a headwind that renewable energy manufacturers the opcertain existing will partially offset the increased value portunity to directly serve the growing renewable energy of the lower tax bill the project will renewable electricity generation market. production facilities generate over its life. Increased yield In addition, establishing a U.S. presence requirements will place pressure on may help to avoid newly instituted tar(i.e., those near the project developers to optimize other asiffs on solar equipment imports.2 end of their accelerated pects of their capital structures in order Renewable energy equipment manuto achieve the types of returns to which facturers do not exist in isolation. The depreciation schedule) they have become accustomed. future demand for renewable energy immediately became Exacerbating this pressure on will be driven by a number of policy capital cost are the solar trade tariffs and technological considerations. On the MORE VALUABLE mentioned above. Whether equipment policy side, renewable energy adoption when tax rates fell to is manufactured in the U.S. to avoid could be bolstered by the preservation of 21 percent, as the tariffs, or equipment is purchased from the Clean Power Plan, the implementaoverseas and burdened with the tariffs, tion of a national renewable portfolio expected taxable the outcome is that renewable energy standard or a carbon trading regime, income from those project developers will have increased or the extension of the Investment Tax installed costs, making it more difficult Credit (ITC) and/or the Production Tax projects will be taxed to achieve historical or desired returns Credit (PTC). at a lower rate. on new installations.

On the technology side, incremental improvements in solar panel and wind turbine technology are expected to inIn Sum crease power density and generation The TCJA has changed a number of metrics; however, the largest technology key aspects of investing in the U.S. at variable to consider is arguably the adboth the federal and state levels. The vancement of storage technology. Taking complexity and interdependent implicathese factors into consideration, the National Renewable Entions of the changes are just beginning to be understood by ergy Laboratory (NREL) predicts in its average case projecprofessionals and industry stakeholders. The clear intention tions that in 2030 renewable energy is expected to constitute of the TCJA has been to make the U.S. more business-friend26 percent of the overall U.S. electricity generation portfolio, ly. The degree to which that intention will be realized is deup from 15 percent in 2016.3 This anticipated ever-increasing pendent on a number of factors that will become clarified as time passes and industry stakeholders react. demand for renewable energy suggests an ongoing need for What does all of this mean for U.S. manufacturers, foreign new renewable energy equipment to be manufactured. companies with U.S. manufacturing operations, and those foreign companies that — in light of tax and tariff reform — Implications for Renewable Energy may be considering entering into the U.S.? Companies must Production Facilities now re-evaluate how they think about their strategic growth In order to gauge the potential impact of the TCJA across projects. Companies should be prepared to take a fresh look the renewable energy supply chain, we must also consider at all planned capital expenditures given a lower overall U.S. renewable energy production facilities. It is expected that tax rate. certain existing renewable energy production facilities (i.e., Additionally, potential repatriation could help domestic those near the end of their accelerated depreciation schedentities fund previously “mothballed” projects. A business ule) immediately became more valuable when tax rates fell planning refresh will require coordination between staketo 21 percent, as the expected taxable income from those holders within an organization, including operations, supply projects will be taxed at a lower rate. chain, real estate, legal, human resources, and tax. These However, financing these facilities may become more stakeholders will need to not only identify, through a thorchallenging. A major component of renewable energy proough site selection search, the optimal location for investduction facility finance in the U.S. comes in the form of ment, but also identify the availability of state and local tax so-called tax equity. Tax equity is a financing mechanism credits and incentives and the upfront and operational cost whereby an investor contributes capital to a renewable enoffsets that would enhance the ROI of the proposed manuergy production facility in exchange for a special allocation facturing project. of the tax incentives that project generates. In recent years, the supply of tax equity has been steadily increasing, resulting in a shrinking cost of capital for developers and making Continued on page 63 these developments more attractive. However, it is expected

60

AREA DEVELOPMENT

RenewableEnergy.indd 60

for free site information, visit us online at www.areadevelopment.com

3/13/18 3:09 PM

BUSINESS GLOBALIZATION

Reshoring Gains Traction in U.S. Manufacturing U.S. manufacturers are picking up momentum in bringing the jobs back they outsourced decades ago to low-cost countries — a move called reshoring.

By Mark Crawford

A

ccording to the Reshoring Initiative, an organization that helps manufacturers decide if they can successfully relocate their overseas operations to the U.S., reshoring and FDI (foreign direct investment) job announcements soared in 2017. For the first three quarters of 2017, announcements were up 250 percent from 2016 YTD, representing a gain of nearly 180,000 manufacturing jobs.1 Over the last 10 years, leaders in the U.S. FDI/reshoring movement include GM (12,000 jobs), Boeing (7,800 jobs), Toyota (6,000), Mahindra (6,000), Volkswagen (4,000), and Volvo (4,000). In addition, Ford, Foxconn, Mercedes-Benz, GE, Caterpillar, Polaris, and Intel have each brought back more than 2,000 jobs.2 Factors that are accelerating the reshoring movement include favorable domestic economic conditions; advanced technologies such as automation, robotics, and the Internet of Things; reduced domestic energy costs; the just-lowered corporate tax rate; aggressive tax incentives from various states; as well as increased labor costs overseas.

In particular, the labor cost differential between China and the U.S. has narrowed significantly over the past five years, greatly reducing profits for offshore enterprises. Increased shipping costs further erode the bottom line. Disruption of supply is also a concern with longer supply chains. This is especially true for possible shortages of materials or parts that can only be sourced from a few suppliers, which would have serious impacts on delivery and production schedules. Increasingly, the cost advantage of lower wages overseas is undercut by higher supply chain costs and quality issues. When all these factors are considered together, more U.S. manufacturers are starting to look at the United States as the place to manufacture.

“It still takes six weeks to bring a product from China to the U.S., whereas

here you have an opportunity to produce that product domestically and get it to the customer in days, instead of weeks,” says John Malloy, CEO for Victaulic, a global pipe and tool manufacturer in Easton, Pa.3 Advantages of a U.S.-only supply chain include: • Improved quality control and safety • More reliable and less costly shipping • Shorter and more reliable supply chains • Faster decision-making • American job creation • Positive impact on the national economy • Improved brand through “Made in America” “In fact,” says Harry C. Moser, founder and president of the Reshoring Initiative, “regaining a ‘Made in America’ label is the fourth-most frequently mentioned reason for reshoring, out of the 43 reasons that we track.”

Manufacturing Jobs/Year 2016: The Tide Has Turned

New Offshoring New Reshoring & FDI Net Jobs Gained *ESTIMATED

2000 – 2003 Annual Average

2016

~% Change

~240,000 *

~50,000 *

-80%

12,000 * ~-220,000

77,000 ** ~+25,000

+500% N/A

* * CA L CU L AT ED – R e s h o r i n g L ibr ar y t h rou gh De c. 31, 2016

Source: The Reshoring Initiative AREA DEVELOPMENT | Q1/2018

Reshoring.indd 61

61

3/13/18 3:37 PM

Total Cost of Ownership (TCO)

The Tax Advantage

“

The key to successful reshoring is The U.S. corporate tax climate is more truly understanding, at a deep level, the favorable now than it has been in deMost companies total cost of ownership (TCO) of your cades, thanks to the Trump administraproduct — the complete cost of every tion’s Tax Cuts and Jobs Act, which cuts make SOURCING step of making that product overseas the corporate tax rate from 35 percent and shipping it to the United States. Obto 21 percent, the lowest rate since 1939. decisions based vious factors are labor costs, materials, The legislation also eliminates the corquality and rework, waste, and logistics porate alternative minimum tax (AMT), solely on PRICE, and shipping. which prohibited companies from deHowever, “most companies make ducting research and development costs, often resulting in sourcing decisions based solely on price, or capital investments in low-income often resulting in a 20 to 30 percent misneighborhoods. When coupled with a 20 to 30 percent calculation of actual offshoring costs,” competitive state tax credits and incenstates Moser. Other factors — overhead, tives, the new tax climate makes reshorMISCALCULATION balance sheet, risks, corporate strategy, ing look even more attractive. and other external and internal business For Victaulic, 80 percent of what components — must also be considered it sells in the U.S. is manufactured in of actual to determine the true total cost of ownerU.S. plants. “I envision in the next few ship. The Reshoring Initiative has made years that we bring the last 20 percent OFFSHORING it easier for companies to accurately back from low-labor-cost countries as determine TCO with a free online TCO automation continues to make our U.S. costs. estimator that helps determine these operations even more competitive,” says cost factors, allowing company leaders Malloy. The company also plans to invest to make informed decisions regarding tens of millions over the next several sourcing and reshoring, or winning bids years to build a light assembly operaagainst offshore competitors.4 tions facility that features cutting-edge technologies, as well as to upgrade other Using this approach, Mitchell Metal existing facilities.5 Products in Merrill, Wisc., was recently honored with the first National Reshoring Award, sponsored by the Reshoring Walmart is still committed to its 10-year initiative to supInitiative and the Precision Metalforming Association. port U.S. manufacturing jobs and produce $250 billion in Mitchell Metal Products is a contract manufacturer that additional goods in the U.S. by 2023. According to data from makes products for original equipment manufacturers across its suppliers, approximately two thirds of Walmart’s U.S. a wide range of industries. The company wanted to win a merchandise spending is for items that are made, assembled, contract to manufacture a cultivator handle subassembly sourced, or grown in the United States. Walmart has anaproduct for a U.S.-based manufacturer of lawn and garden lyzed 1,300 categories to determine which ones provide equipment. This company had been obtaining this product the best potential for U.S. manufacturing. Talkbusiness.net from Southeast Asian companies for a number of years. “To reports that the “work plan has been prioritized across the win the bid, we had to display our value compared to the top 75 categories that make the most sense to onshore prototal costs involved with, and compared to, the offshore duction. More than 500 unique projects have been approved supply chain,” says Tim Zimmerman, president of Mitchell across 65 departments in the past 4.5 years.”6 Metal Products. “We used the TOC calculator to document the total cost to our customer of its offshore source, versus According to talkbusiness.net, some of the jobs created in purchasing from us.”

2017 as a result of the Walmart initiative are: To make it a financially successful project for Mitchell • 70 jobs added at Mars Wrigley Confectionery in Topeka, Kan. Metal Products, a cross-disciplinary team representing sev• 70 jobs at WinCraft, a manufacturer of licensed sports eral internal departments, two outside consultants, and the apparel in Winona, Minn. customer was assembled to find innovative ways to reduce •1 50 new jobs created in DeKalb County, Ga., to support costs and optimize production. This involved creative reOzark Trail Coolers for Walmart designing of tooling, equipment, and workflow, including •3 50 jobs at China-based Sinomax, maker of polyurethane engineering an internal work center that dramatically refoam bedding, in La Vergne, Tenn. duced the amount of time to perform assembly operations.

•5 0 jobs at Trident, a Chino, Calif.-based maker of cell phone The result was a massive increase in production volume, cases for Walmart going from 4,500 made overseas per year to 30,000 made in Wisconsin.

A recent analysis by Boston Consulting Group (BCG) “Not every project is a candidate for reshoring,” warns indicates that easing constrictive policy barriers to domestic Zimmerman. “The TCO helps make a data-driven analysis manufacturing could help U.S. companies recapture approxpossible. Trust the data.” imately $300 billion in consumer goods that are currently

”

62

AREA DEVELOPMENT

Reshoring.indd 62

for free site information, visit us online at www.areadevelopment.com

3/13/18 3:38 PM

manufactured overseas, especially furniture, cookware, and sporting goods.7 Reshoring these businesses could create up to 1.5 million American manufacturing jobs.

To explore this idea further, in July 2017 Wal-Mart presented its “Policy Roadmap to Renew U.S. Manufacturing” to representatives of government, industry, and non-governmental organizations from across the country. The purpose was to provide a comprehensive strategy for tackling these high-impact policy barriers, including workforce, coordination and financing, regulation, and tax and trade policies, with specific recommendations for accelerating the growth of U.S. manufacturing.8 “As we have worked over the last four years alongside our suppliers toward our goal to source an additional $250 billion in products that support American jobs, we’ve learned a great deal about the challenges our suppliers face in domestic manufacturing,” states Cindi Marsiglio, Walmart vice president for U.S. sourcing and manufacturing.

“The good news is we have also learned how to overcome the challenges, and because of our experience, Walmart is uniquely positioned to help facilitate broad engagement in accelerating the expansion of U.S. manufacturing.”

The Boston Consulting Group has estimated that Walmart’s 10-year manufacturing initiative will create 250,000 direct manufacturing jobs and about 750,000 support and service jobs to the manufacturing sector.9 n 1

http://www.reshorenow.org/blog/reshoring-initiative-2016-data-report-the-tide-has-turned/ https://news.thomasnet.com/featured/reshoring-numbers-show-gains-more-ground-to-cover http://www.mcall.com/business/mc-biz-victaulic-malloy-interview-20171125-story.html?utm_sour ce=Area+Development+Site+%26+Facility+Planning+Newsletters&utm_campaign=dc7ec3f5feSFP_This_Week_405&utm_medium=email&utm_term=0_94850a8d43-dc7ec3f5fe300778037&goal=0_94850a8d43-dc7ec3f5fe-300778037 4 http://reshorenow.org/tco-estimator/ 5 http://www.mcall.com/business/mc-biz-victaulic-manufacturing-jobs-announcement-20171120-story. html 6 https://talkbusiness.net/2017/12/wal-mart-pleased-with-progress-of-its-u-s-manufacturing-agenda/ 7 https://www.bcg.com/d/news/26july2017-policy-action-boost-us-manufacturing-167278 8 https://news.walmart.com/2017/07/26/walmart-outlines-policy-roadmap-to-renew-us-manufacturing 9 https://talkbusiness.net/2017/12/wal-mart-pleased-with-progress-of-its-u-s-manufacturing-agenda/ 2

3

Renewable Energy Continued from page 60 What does all this mean for renewable energy production facilities? Renewable energy production facility developers must reconsider how to optimize their capital structures in this new environment. Various factors such as BEAT and immediate expensing are likely to increase the scarcity of tax equity, making it a relatively more expensive financing tool than it has been in recent history. On the other hand, the lower 21 percent tax rate will increase the after-tax cash flows from the production and sale of electricity, making certain facilities more valuable. As more facilities are financed and placed into service, the optimal interplay of these provisions will become more apparent.

On the whole, the clarity provided by the passage of these new tax laws has removed a great deal of uncertainty. Renewable energy is a relatively young industry that has seen more than its fair share of change and upheaval. With the passage of the TCJA, industry stakeholders must once again rise to the occasion by adapting their business practices and finding new ways to optimize their growth strategies. n The views expressed are those of the authors and do not necessarily reflect the views of Ernst & Young LLP or any member firm of the Global EY organization. The authors do not bear any responsibility whatsoever for the content, accuracy or security of any websites that are linked (by way of hyperlink or otherwise) within the article.

1

Wesley Cole, Trieu Mai, James Richards, Paritosh Das and Paul Donohoo-Vallett, 2017 Standard Scenarios Report: A U.S. Electricity Sector Outlook, National Renewable Energy Laboratory, October 2017, https://www.nrel.gov/docs/fy18osti/68548.pdf, page 20.

2 Julia Pyper, “Trump Administration Issues 30% Solar Panel Import Tariff,” Greentech Media, January 22, 2018, https://www.greentechmedia.com/articles/read/breaking-trump-admin-issues-a-30-solartariff.

3 Wesley Cole, Trieu Mai, James Richards, Paritosh Das and Paul Donohoo-Vallett, 2017 Standard Scenarios Report: A U.S. Electricity Sector Outlook, National Renewable Energy Laboratory, October 2017, https://www.nrel.gov/docs/fy18osti/68548.pdf, page 20.

LOCATION. LOCATION. LOCATION. The best LOCATION on the web to help with your corporate LOCATION needs.

The best LOCATION to start your site and facility search.

The best LOCATION to stay on top of industry needs.

The best LOCATION for the newest and most relevant industry produced studies and research papers.

Visit www.areadevelopment.com AREA DEVELOPMENT | Q1/2018

Reshoring.indd 63

63

3/13/18 3:38 PM

ADINDEXWEBDIRECTORY

WANT SERIOUS CONTENT? Get More from Area Development.

Advertiser ARIZONA

Arizona Commerce Authority www.azcommerce.com

C2

Arizona State University www.asu.edu http://innovationzones.asu.edu/

29

ARKANSAS

Arkansas Economic Development Commission www.ArkansasEDC.com JMoore@arkansasedc.com

CONNECTICUT

areadevelopment.com The #1 site selection website

The #1 site selection newsletter

Weekly news & updates

twitter.com/ areadevelopment Join our growing list of followers

Real time content delivery

Cheshire Economic Development www.CheshireCT.org jsitko@cheshirect.org

FLORIDA

Enterprise Florida www.FloridatheFutureIsHere.com www.enterpriseflorida.com tvanderhoof@enterpriseflorida.com

47

Greater Fort Lauderdale Alliance www.GFLAlliance.org dcoddington@gflalliance.org

51

IDAHO

facilitylocations.com

IOWA

fastfacility.com

Iowa Economic Development Authority www.IowaEconomicDevelopment.com info@iowaeda.com

KENTUCKY

Kentucky Cabinet for Economic Development www.ThinkKentucky.com econdev@ky.gov

LOUISIANA

Stay in touch with the latest news, case studies, white papers and the industry’s most insightful site selection content and current contacts.

Louisiana Economic Development www.OpportunityLouisiana.com Paul.helton@la.gov

MICHIGAN

Michigan Economic Development Corporation www.MichiganBusiness.org

MINNESOTA

Fabcon-USA Fabconprecast.com Dave.Stanton@fabconprecast.com

MISSISSIPPI

Mississippi Development Authority www.Mississippi.org bklauser@mississippi.org

NEVADA

NV Energy www.NevadaSiteLocator.com

TENNESSEE

Cherokee Farm Innovation Campus www.CherokeeFarm.org chawks@cherokeefarm.org

64

AREA DEVELOPMENT

adIndexTSurvey2018.indd 64

13

17

Emsi www.EconomicModeling.com

Building & site database

43

City of Cape Coral Economic Development www.BizCapeCoral.com ecodev@CapeCoral.net

areadevelopment.com/RSS Research locations and economic development contacts

Page

10

35

39

1

5

7

19, 20

11

31

for free site information, visit us online at www.areadevelopment.com

3/15/18 3:40 PM

AS A TOP 5 STATE FOR MANUFACTURING ESTABLISHMENTS, FLORIDA IS BUILT FOR YOUR BUSINESS. Why do more than 20,000 manufacturing companies call Florida home? Because not only do we have the space to accommodate them, we also have the custom-trained workforce, infrastructure and trade expertise to ensure success. Add to that a pro-business and costcompetitive environment, and it’s easy to see why Florida ranks among the nation’s top five states for manufacturing. And we have no doubt that your company can make something big of that. Discover what a future in Florida means for your business at floridathefutureishere.com/possibilities, or call 877-YES-FLORIDA.

AREA0778.indd 1

12/02/18 7:19 PM

(800) 626-2930 • ThinkKentucky.com

KENTUCKY’S BUSINESS CLIMATE IS CHANGING Kentucky already offers companies an ideal location, low business costs and incredible workforce. Now, we bring Right to Work to the table. For companies considering a new or expanded location, that makes a good decision even better.

With even more pro-business changes coming, you’ll want to Think Kentucky.

Making Business Strong.

Making Life Exceptional.

AREA0779.indd 1

12/02/18 7:18 PM