Area Development Magazine - Q1 2015

The 29th Annual

CORPORATE

THE MANUFACTURING PARADOX

The 11th Annual

& CONSULTANTS

SURVEY

WELLDESIGNED INCENTIVES

AREADEVELOPMENT S I T E

A N D

F A C I L I T Y

P L A N N I N G

www.areadevelopment.com

www.facilitylocations.com

Q1/2015

INFRASTRUCTURE

Inve$tment BRIDGE TO ECONOMIC THE

GROWTH

GEORGIA

NO.1

STATE IN U.S.

FOR

BUSINESS

Source: CNBC, Site Selection and Area Development

Georgia’s low cost of doing business, availability of skilled labor and global supply chain are just a few of the reasons why more than 440 Fortune 500® companies thrive in Georgia.

Combine this with the Georgia Department of Economic Development’s recent “best in class” agency ranking by Development Counsellors International (DCI) - and you have a recipe for success. Visit Georgia.org to find out how you can become Georgia’s next success story.

We SPEAK Business Georgia Department of Economic Development

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Vital. Useful. Updated Daily.

The best information on site selection and facility planning available online • Current News: Real estate & industry news, and economic indicator reports updated throughout the day • Valuable Resources: Tax and incentive information, development contacts, and insightful surveys • Latest Studies, Research, White Papers: Aggregated from the top consultants, think tanks and institutions, and distilled into usable information • Reviewable Archives: Search the Area Development archives for content, opinion, and reports spanning the last five years from the top industry minds

Visit – www.areadevelopment.com

Providing What Others Don’t

CONTENTS 65 Shale Oil & Gas

FEATURES COVER STORY

16 The Manufacturing Paradox: Output Up, Employment Down Replacing aging plant and equipment will lead to acceleration in capital expenditure and, in turn, an increasing level of manufacturing relocation projects.

Development Changing the Way the Nation Does Business The development of oil and gas resources is driving infrastructure and manufacturing location decisions, while boosting U.S. competitiveness.

69 Seeking Data Nirvana: New Analytics That Enlighten Location Strategy

59 Well-Designed Incentives: Not a ZeroSum Game

Infrastructure Investment — The Bridge to Economic Growth

19

When the goals of both the company and the community in which it is locating are clear, incentives can be mutually beneficial.

Data and analytics that tie real estate to corporate strategy are more achievable today than ever before.

62 The U.S. — A Growing

71

Competitor for New Manufacturing Plants

Although conditions vary, much of the nation’s infrastructure is in dire need of repair and/or replacement, affecting business in general and some companies — as well as their location decisions — in particular.

As companies continue to review their global site selection options, they are realizing the strong, measurable advantages a U.S. location offers.

Special Report

Public Power Communities: Shining the Light on Innovation Public power utilities, which are owned by the communities they serve, have an inherent interest in helping those communities to innovate and prosper.

Exclusive Online Content NOW ONLINE...

FACILITIES

LABOR

LOCATION NOTEBOOK

• In Focus: Adaptive Reuse • Empowering Tenants in the Quest for Optimal Space

• Employers Still Struggling With the Affordable Care Act • What The Labor Board’s New Rules Mean For Your Company

• Entrepreneurialism Is Riding High in Kentucky

Area Development® Site & Facility Planning (USPS 345-510) is published five times per year (Q1/Winter, Q2/Spring, Q3/Summer, and Q4/Fall — and Annual Directory in December) 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.

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FOR FREE SITE INFORMATION, CALL 800-735-2732, EXT.

225, OR VISIT US ONLINE AT www.areadevelopment.com

Volume 50 | Number 1 Q1/2015

Quote:

“A business absolutely devoted to service will have only one worry about profits.

They will be embarrassingly large.”

Henry Ford (1863-1947), American industrialist and founder of Ford Motor Co.

4 Editor’s Note

10 First Person

Highway Access a Top Concern

Adams Nager, Economic Research Assistant, Information Technology And Innovation Foundation

DEPARTMENTS 12 Front Line

6 In Focus Utilizing Data to Enhance Energy Management Strategies

High-Speed Rail Spurs Economic Development

14 Front Line Contingent Labor Streamlines Manufacturing Operations

8 In The Know • Shale Gas Revitalizing U.S. Manufacturing Industry • NAM Has New Board of Directors • Investments in Energy Efficiency Create “Multiple Benefits” for Business • Business Location Tracker

S1

80 Ad Index / Web Directory

ANNUAL REPORT

(S1 follows page 22)

The 29th Annual

CORPORATE

&

The 11th Annual

CONSULTANTS

SURVEY

The location and expansion plans of our Corporate Survey respondents are not as robust as we had hoped, and their site selection priorities have been realigned, with facilities costs supplanting labor considerations.

www.areadevelopment.com Join Our Newsletter areadevelopment.com/newsletter

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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 2015 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 | Q1/2015

3

EDITOR’SNOTE

Q1/2015

Highway Access a Top Concern As we went to press on this issue, the Washington State Senate passed a $15 billion transportation package that included an incremental gas tax increase of 11.7 cents over the next three years. The bill was then headed for its House. The need to fix the nation’s crumbling infrastructure (explored in this issue’s cover story) is paramount, as evidenced by the results of our 29th Annual Corporate survey, which also appear in this issue.

Highway accessibility is the number-one ranked site selection factor by the corporate executives responding to our survey.

Also as we went to press, the figures for GDP growth for the 4th quarter of 2014 were revised down to 2.2 percent; this follows the robust 5 percent rate of GDP growth in last year’s 3rd quarter. Such seesawing growth may be why 61 percent of those responding to our Corporate Survey told us they believe the economy has not yet achieved a continuous growth track. Nonetheless, the Bureau of Economic Analysis expects GDP growth to average 3 percent this year.

Manufacturing is expected to be one of the drivers of U.S. economic growth over the next 10 years. Its share of output in GDP is projected to increase from 12.7 percent in 2013 to 13.7 percent in 2023. However, manufacturing employment will decline by more than half a million jobs between 2012 and 2022, according to the Bureau of Labor Statistics.

Dan Levine of Oxford Economics explains this paradox (see page 16). Needless to say, many low-skilled, labor-intensive industries will remain highly vulnerable to continued offshoring and automation. But even fast-growing advanced manufacturing industries will show modest employment declines, Levine says. So how can manufacturing drive economic growth? It has one of the highest economic multipliers of any industry — i.e., each $1 of manufacturing investment results in $1.33 of “spillover” economic activity.

Additionally, Levine contends that BLS employment numbers for manufacturing may not be entirely accurate because of the large number of contract or contingent workers employed at manufacturing plants. We examine this factor as well in this issue (see page 14).

A 2014 study by Arden Partners notes that 87 percent of those companies that use contingent labor say they do so for projects that require specified, top-tier skills, and 61 percent cite the general “war for talent” as a reason for using contingent labor. We will continue to explore this topic — as well as all of the other top-ranked location factors — as the year progresses.

www.areadevelopment.com EDITORIAL E-mail: editor@areadevelopment.com Editor Geraldine Gambale Staff and Contributing Editors Lisa Bastian Craig Guillot James Berger Cynthia Kincaid Dale D. Buss Beth Mattson-Teig Dave Claborn Phillip Perry Mark Crawford Mali R. Schantz-Feld Dan Emerson Steve Stackhouse 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 BUSINESS SERVICES Reader Service Barbara Olsen (ext. 225) olsen@areadevelopment.com Circulation Gertrude Staudt circ@areadevelopment.com CONFERENCE SERVICES

Editor

Program Manager Annie Gregson (212) 579-4469 annie@areadevelopment.com

2015 Editorial Advisory Board Justin T. Bickle Project Manager, Corporate Real Estate, DHL Global Business Services Rose Burden Executive Director, Southeast Area Negotiated Incentives Leader, Ernst & Young Christine Bustamante National Co-Leader, Global Location and Expansion Services, KPMG Gregory Burkart Managing Director, Specialty Tax Practice Leader, Duff & Phelps, LLC Les Cranmer Senior Managing Director, Savills Studley Dennis Cuneo Partner, Fisher & Phillips LLP Tim Feemster Managing Principal, Foremost Quality Logistics

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Larry Gigerich Managing Director, Ginovus

EXECUTIVE OFFICES

Stephen Gray CEO, Gray Construction

Bradley Migdal Executive Managing Director, Business Incentives Advisory Services, Transwestern

Minah C. Hall Managing Director, True Partners Consulting LLC

John Morris Leader of Industrial Services for the Americas, Cushman & Wakefield, Inc.

Scott Kupperman Founder, Kupperman Location Solutions, LLC

Kathy Mussio Managing Partner, Atlas Insight

Scott Redabaugh Managing Director, Dan Levine Practice Leader, Location Strategies and Economic Development Jones Lang LaSalle Oxford Economics, Inc. Dick Sheehy Director, Advanced Planning & Site Selection, CH2M HILL Jamie M. Lominack Real Estate Manager, Michelin North America Bill Luttrell Senior Locations Strategist, Werner Global Logistics, Werner Enterprises, Inc. Michael McDermott Consulting Manager, Global Business Consulting, Cushman & Wakefield

Eric Stavriotis Senior Vice President, CBRE Thomas Stringer Esq. Director, Business Advisory Services, Ryan & Company

Halcyon Business Publications, Inc. President Dennis J. Shea Finance Mary Paulsen finance@areadevelopment.com All correspondence to: Area Development Magazine 400 Post Avenue, Westbury, NY 11590 Phone: Toll Free: Fax:

516.338.0900 800.735.2732 516.338.0100

MEMBER of

Dean J. Uminski Executive, Site Selection Consulting, Crowe Horwath LLP

FOR FREE SITE INFORMATION, CALL

800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

If you’re considering relocating or expanding your business then Hoosier Energy should be top of mind. Our searchable property data and shovel-ready sites reduce big decisions down to manageable choices that could fit on the head of a pin. You’ll find the power of working with us is a lot more than the power we supply. Whether its existing facilities, a new site or community incentives, we have all the connections to positively impact your business.

HOOSIER S ITES.COM 812-876-0294

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INFOCUS

Utilizing Data to Enhance Energy Management Strategies

By Nate Kessman, Vice President of Business Development, Great Eastern Energy

In late 2010, Nate Kessman became the director of Business Development at Great Eastern Energy.

Focusing on customer loyalty and service, Kessman has used a team approach to help grow new markets and improve the customer experience.

For more information, please visit www.greateastern energy.com.

As industrial organizations search for ways to reduce cost and improve efficiencies, energy invariably winds up in the crosshairs. Add market volatility and the ever-changing demands on our power grid to the mix, and energy management becomes a moving target for CFOs, facility managers, and procurement departments alike. Before taking on another energy-efficiency project and diverting resources to costly equipment upgrades, try shifting your focus. The bull’s-eye might lie in your energy data.

By analyzing usage and consumption patterns through energy management software, facilities are able to bridge the gap between the theory of saving energy and the act of actually eliminating wasted dollars through reduction in energy usage.

Energy managers should be preparing for the future instead of trying to predict it. Looking at a recent utility bill and asking “where can we save?” might be a waste of time and resources.

Unfortunately, a utility bill is merely a summary of your total usage for the past billing period and lacks the real-time data necessary to change behavior and usage patterns.

Data-driven energy management uses a combination of smart meters and energy-management software to monitor energy usage in real-time, delivering to the user a clear picture of where and when energy is being used. Utilizing data in real-time allows facilities to make adjustments on the fly to correct errant consumption, or set alerts to monitor wasted energy, while still maintaining optimum production. This holds true no matter what type of equipment is being used. And, since every new day brings with it a new set of data, your organization develops the ability to benchmark usage peaks and valleys over time.

Who Benefits?

By aggregating information from local utilities, the facility, and weather-reporting services, energy management software (EMS) ensures that multiple departments across your organization will benefit.

• Facilities managers benefit because they can perform energy audits, track efficiency projects, and analyze consumption data.

• Risk management improves in purchasing departments through utility tariff analysis, bill auditing, and budget monitoring.

• Accounting departments rejoice when costs are reduced, data is stored for easy access during budget meetings, and audits and bills are paid on time. Further, this can avoid late fees and/or service disruptions.

• Most importantly, everyone benefits through improved sustainability, which is a direct result of a reduction in greenhouse gas emissions realized through reduced consumption.

Scalability Feel free to start with as few data points as you want and add up to thousands. The more data points that are added, the more can be controlled. Don’t just start with the largest pieces of manufacturing equipment; EMS gives you the ability to add data points from HVAC, lighting systems, elevators, water pumps, fans, computer terminals, or any other device that uses electricity.

As your organization continues to evolve, energy management strategies will help it to make more intelligent, profitable, eco-friendly energy decisions, in real time. Your organization can then track performance and efficiency in order to ensure that its goals are met year after year. Whether utility prices are rising or falling, your organization is driving down costs by reducing consumption through behavior modification and active monitoring. Data-driven energy management is clearly the perfect hedge against rising energy prices, as users are now able to infinitely tweak their usage no matter what time of day or year.

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AREADEVELOPMENT

FOR FREE SITE INFORMATION, CALL 800-735-2732, EXT.

225, OR VISIT US ONLINE AT www.areadevelopment.com

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IN THE KNOW Shale Gas Revitalizing U.S. Manufacturing Industry Figure 2: Staying low: US natural gas prices 2004-2014 Industrial prices at July of each year, (US Dollars per Thousand Cubic Feet) 16 12 8 4 0

2007

2008

2009

2010

2011

2012

2013

2014

Source: US Energy Information Administration database, http://www.eia.gov/dnav/ng/ng_pri_sum_dcu_nus_m. htm

Among the states that have approved hydraulic fracturing — or fracking — to extract natural gas from the shale rock layers deep beneath the earth’s surface are North Dakota, Ohio, Pennsylvania, Texas, and Louisiana. All of these states have seen economic and job growth as a result of the fracking activity.

When it comes to manufacturing, shale gas development has been a boon. According to a report by PwC released in early December 2014 — “Shale Gas: Still a Boon to U.S. Manufacturing?” — the surge in shale gas production will save manufacturers billions of dollars annually and will result in long-term manufacturing employment gains.

PwC estimates an annual cost savings of $22.3 billion

by 2030, assuming a high natural gas recovery and low price scenario. In its 2011 study, PwC had estimated an annual cost savings of just half that amount — $11.6 billion.

In terms of job creation, PwC estimates that continued shale gas activity could create 930,000 shale-gas-driven manufacturing jobs by 2030 and 1.41 million by 2040. In its 2011 study, PwC had projected some one million jobs by 2025.

“There’s no doubt that the shale gas boom in the U.S. helped trigger a resurgence in manufacturing,” said Robert McCutcheon, PwC’s U.S. industrial products leader.

“Reducing costs, creating jobs, and supporting investments and innovations are among the many impacts this game-changing resource has brought to the U.S. manufacturing space.”

Among the industries continuing to benefit are energyintensive manufacturing sectors such as metals, chemicals, and petrochemicals, which all use natural gas as feedstock.

According to the report, growing prospects for building pipelines for the infrastructure that’s needed to support natural gas demands in the U.S. could also bring additional benefits to U.S. manufacturers who support those build-outs.

NAM Has New Board of Directors The National Association of Manufacturers (NAM) — which comprises more than 14,000 members — has announced a new board of directors.

Gregg Sherrill, chairman and CEO of Tenneco Inc., is now chair of NAM’s board of directors, and John F. Lundgren, chairman and CEO of Stanley Black & Decker, Inc., is serving as vice chair for a two-year term.

“It is a privilege to represent manufacturing, and I appreciate the opportunity to serve as chairman,” said Sherrill. “Every manufacturer, from small companies to large multinationals, plays a key role in creating jobs and driving economic growth. As manufacturers, we have the unique opportunity to work together on issues that not only strengthen businesses but also keep America strong for generations to come.”

In addition, Tom Riordan, president and CEO of Neenah Enterprises, Inc., is the new chair of the Small and 8

AREADEVELOPMENT

FOR FREE SITE INFORMATION, CALL

Medium Manufacturers (SMM) Group, and Drew Greenblatt, president and owner of Marlin Steel Wire Products LLC, serves as vice chair.

“Manufacturing is the cornerstone of economic growth and job creation in the United States,” said Riordan. “However, small and medium-sized manufacturers continue to face an onslaught of new federal regulations, increasing healthcare costs, a crumbling infrastructure, and the highest tax rate in the world. I look forward to working with the NAM to build on recent gains by advocating policies that help us move forward, not policies that hold us back.”

The NAM’s leadership team will advocate policies that will grow jobs in the United States, attract foreign direct investment, ease the regulatory burden, lead the world in innovation, expand access to global markets, and ensure manufacturers have access to a skilled, modern workforce.

800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

Track business relocations and expansions on Area Development Online.

Studies/Research/Papers on Area Development Online.

We track announcements of all significant investment and job-creation projects throughout the United States and Canada at www.AreaDevelopment.com/NewsItems.

We cull insightful corporate real estate-focused studies, research, and papers from credible industry sources at www.AreaDevelopment.com/Studies.

BUSINESS LOCATION TRACKER Unmanned Aircraft Systems to be Manufactured in Wahpeton, ND ComDel Innovation and Altavian have signed a $3.2 million agreement to manufacture unmanned aerial systems and their components at ComDel’s high-tech manufacturing plant in Wahpeton, North Dakota.

Food Manufacturer to Establish Indiana Distribution Center John Morrell Food Group, the oldest continuously operating meat manufacturer in the country, plans to invest $43.5 million to locate a distribution center in Greenfield, Indiana, creating up to 260 new jobs by the end of 2016.

Utah Call Center to Create 600 Jobs AAA of Northern California, Nevada, and Utah plans to open a new, 55,000-square-foot call center in Clearfield, Utah, which is slated to be fully operational by January 2016.

Auto Parts Maker Expanding in Hopkinsville, KY

Food Processor Plans New Facility for Opelika, AL

Target Corporation will invest more than $52 million to establish a new online fulfillment center in West Manchester Township, a move that will create more than 250 new jobs during the next three years.

Procter & Gamble Plans $500 Million WV Manufacturing Hub

Japan-based Douglas Autotech Corp., an automotive parts manufacturer, is investing $14.1 million and creating up to 115 jobs in an expansion of its facility in Christian County, Kentucky.

Golden State Foods Corp. plans to build a new state-of-the-art meatprocessing facility in Northeast Opelika Industrial Park, investing $40–$45 million and creating 173 new jobs.

Target Corp. to Locate Online Fulfillment Center in York County, PA

The Procter & Gamble Company will build a one-million-square foot facility in Berkeley County, in the Eastern Panhandle of West Virginia, allowing it to produce multiple brands at one location.

New Corporate Headquarters for Gainesville, FL A global leader in software solutions for the transportation and logistics industry, Optym has opened its $4 million+ corporate headquarters in Gainesville, creating 100 new jobs.

Investments in Energy Efficiency Create “Multiple Benefits” for Business A new report from the American Council for an EnergyEfficient Economy (ACEEE) highlights the “multiple benefits” for the business sector that can be derived from investments in energy efficiency. Research has previously focused on the energy savings that can come from such investments; however, they can also result in increased productivity and product quality, enhanced system reliability, maintenance savings, an increase in life of equipment, decreased waste generation, as well as higher employee morale among other benefits.

According to the January 2015 ACEEE report — “Multiple Benefits of Business-Sector Energy Efficiency: A Survey of Existing and Potential Measures” — quantification of these benefits remains elusive due to a lack of standard definitions, measurements, and documentation, as well as variations in facility design and function. Additionally,

major energy improvements, especially to an industrial facility, may entail changes to core business processes.

Nevertheless, concrete examples of non-energy benefits do exist. For example, investing in a lighting retrofit not only reduces electricity consumption, but also reduces labor costs associated with the maintenance of older fixtures with a shorter operating life. An investment in an energy-monitoring system can provide insight into opportunities to optimize manufacturing inputs and eliminate waste.

Moreover, according to the International Energy Agency, these macro-level energy-efficiency improvements can be an important contributor to economic growth and social development, while promoting environmental goals and increasing overall prosperity (http://www.iea. org/publications/insights/ee_improvements.pdf) AREA DEVELOPMENT | Q1/2015

9

FIRSTPERSON ADAMS NAGER

ECONOMIC RESEARCH ASSISTANT

INFORMATION TECHNOLOGY AND INNOVATION FOUNDATION

Recent articles in the press suggest that the United States is undergoing a manufacturing renaissance.

Do you agree?

Nager: No. We took a hard look at the macro statistics surrounding U.S. manufacturing and found there are a lot fewer jobs coming back to the United States, and employment in manufacturing is much lower than is commonly believed.

Can you elaborate on that?

Nager: From 2000 to 2009, we lost a third of our manufacturing jobs in this country. We’ve now had four straight years of modest but stable growth. Unfortunately, that growth represents not structural recovery but cyclical recovery from the Great Recession. So in 2008 and 2009 we lost 2.5 million jobs. From 2010 to 2013, we gained 520,000 jobs. The jobs are coming back to places like the automotive industry, manufacturing of metals, and other industries that lost jobs because the demand wasn’t there.

So have proponents of the manufacturing renaissance misinterpreted or exaggerated the potential positive changes in our competitive position?

Nager: If we really were to see a renaissance, it would include gaining productivity over nations we compete with. But other countries are still gaining on us in terms of their R&D spending, and they are passing us in terms of investing in automation. When we look at where we expect our competitiveness to be, vis-a-vis 2007, we are less competitive now than when we were then. We’ve had four straight years of manufacturing growth, so we are trending in the right direction because we are no longer losing jobs at a rapid rate. However, whether or not this is permanent is a completely different question. At some point we might run out of jobs that are cyclically coming back like in the automotive industry and fabricated metals. If that happens we could potentially return to the pace of decline.

There have been reports that thousands of manufacturing jobs are coming back to the U.S. from overseas. Isn’t this good news?

Nager: We are doing a lot better than we were in the 2000s, when millions of jobs were going overseas. The Reshoring Initiative estimates that 30,000 jobs are coming back to the United States annually. Simultaneously about 30,000 jobs are off-shored.

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AREADEVELOPMENT

There’s the trickle in and the trickle out, but there’s no overarching trend.

Aren’t global shipping costs unusually high, thereby making it easier for the U.S. to produce more for U.S. and European markets at home?

Nager: Global shipping costs were very high from 2005 to 2008. They shot through the roof.

However, in 2009, when the global demand for shipping suddenly crashed because of the recession that quickly impacted the rest of the world, global shipping went from undercapacity to overcapacity overnight. So those shipping costs came crashing down. They decreased 93 percent in six months. Since then we’ve been at 2009 levels of very normal rates for global shipping.

Will the shale gas boom give U.S. manufacturing a substantial advantage?

Nager: Shale gas certainly isn’t hurting, and the fact that we have lower electricity costs can’t be a bad thing for our economy.

However, it’s hard to see how that would have a substantial impact on the majority of our manufacturing. Energy makes up less than 5 percent of costs for 90 percent of U.S. manufacturing. When you look at the actual impact on industrial energy costs from the shale gas boom, it’s pretty stable. The shale gas boom is not going to have a significant impact for the majority of U.S. manufacturers. Even industries that have high energy costs, and are directly impacted by shale gas as a direct input, have not yet shown growth. I think the shale gas benefits are largely constrained to the actual production of shale gas and inputs of mining and drilling.

If the manufacturing renaissance is a “myth,” how does perpetuating this myth hurt U.S. competitiveness policy? What should be done instead?

Nager: It’s hard to make informed policy when you don’t know where you stand. It’s very easy right now for a policymaker to read the news and say, ‘Great we fixed American manufacturing.’ But when you look at the data, we haven’t fixed anything. We are still in the same hole, and we are still facing the same problems. The myth provides political cover for policymakers to continue to ignore the problems. We need to have a government that is aware of, and can counter, foreign mercantile policies, which are nonmarket policies designed to distort markets and take jobs away from the United States.

FOR FREE SITE INFORMATION, CALL 800-735-2732, EXT.

225, OR VISIT US ONLINE AT www.areadevelopment.com

Are there any manufacturing sectors that are succeeding? If so, what are they doing right?

Nager: A lot of the automakers have corrected things. It’s wonderful that they survived the recession, and much of the measured growth from 2010 to 2013 is from American automakers returning to full production. The sectors that I think are doing well are those in clusters, like biotechnology in Boston. Lots of firms are in physical proximity to each other, and they are sharing ideas.

Places like Youngstown, Ohio, and Raleigh, North Carolina, have a lot of potential to be the backbone of American manufacturing in the future. Those are the kinds of places that our manufacturing policies need to be supporting.

What does the U.S. need to do to remain competitive in manufacturing?

Nager: We identify three main guidelines for actually improving American competitiveness. One is reducing our

costs through corporate tax reform. We also need to improve a company’s ability to become more productive by increasing federal incentives and increasing a firm’s ability to conduct R&D. And we need to make sure we excel in high-tech industries here in the U.S. Once jobs leave, it’s very hard to get them back. We need to have policies and a manufacturing strategy that allows the United States to fight back when foreign mercantilist policies threaten American jobs.

THE ASSIGNMENT Adams Nager, an economic research assistant at the Information Technology and Innovation Foundation, recently talked with Area Development about the state of manufacturing in the U.S. In his career, Nager has focused on macroeconomic growth, competitiveness, and tax theory.

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AREA DEVELOPMENT | Q1/2015

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FRONTLINE

High-Speed Rail Spurs Economic Development

C

alifornia is finally going ahead with its high-speed rail project. In January 2015 California state officials broke ground on the future high-speed rail station in Fresno, part of the 520-mile long high-speed (up to 200 mph) rail line that will connect downtown San Francisco to downtown Los Angeles. Estimated travel time is three hours or less. The $68 billion project is expected to be finished in 2029.

This is a controversial issue for several reasons, especially the high cost and eminent domain issues with Central Valley farmers. Proponents cite the long-term construction employment that will result, as well as the economic opportunities for growth along the line.

Fresno Mayor Ashley Swearengin also sees the project as a way to connect the Central Valley to the rest of the state’s economy. “High-speed rail brings attention and focus back to city centers,” she says. “It fills a deficit for Central California. It will be easier for people to live in the middle of the state and do business elsewhere.”

Benefits of High Speed Rail Economic benefits include construction and operations jobs and manufacturing and supply chain opportunities.

More than 25 rail manufacturing companies and suppliers have committed to expanding their U.S. operations if their bids are selected for building high-speed rail systems. For example, Siemens AG has recently purchased land to expand its train-manufacturing operations in Sacramento.

Improving railroad infrastructure has historically resulted in a 6:1 return on investment. According to www. highspeedrailworks.org, “Communities showing significant, demonstrable economic benefits due to rail station construction or renovation include Philadelphia; Davis (California); Meridian (Mississippi); Lafayette (Indiana); Washington, D.C.; Seattle; Milwaukee; and Saco-Biddeford

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AREADEVELOPMENT

By Mark Crawford

(Maine). The new station in Saco-Biddeford will generate $3.3 billion in construction investment and create more than 8,000 new jobs over the next two decades.”

Millenials (18 to 33 years in age) comprise an influential demographic group that supports high-speed train travel.

They are attracted to easy public transit and prefer to live in cities that support public transportation. Therefore, it’s predicted that more millenials will buy homes and invest in communities with high-speed rail.

High-Speed Rail Hotspots Currently, the only operating high-speed rail line in the U.S. is the Acela, which was introduced by Amtrak in 2000.

The train has greatly improved the ease and speed of travel along the Northeast Corridor (Washington, D.C.; Baltimore; Philadelphia; New York; and Boston). However, some of the rail infrastructure along the corridor is deteriorating and needs repair.

There are several other high-speed rail hotspots popping up. Texas Central Railway is an organization intent on building a high-speed rail line (up to 205 mph) that connects Dallas and Houston. An environmental study has been initiated. The Texas project will use the bullet trains popularized in Japan and is planned to open in 2021, according to Richard Lawless, chairman and chief executive of Texas Central Railway.

In Florida, All Aboard Florida wants to construct a highspeed rail line (125 mph) between Miami and West Palm Beach, with a possible extension to Orlando. Planning and preconstruction activities for stations in Miami, West Palm Beach, and Fort Lauderdale are under way. These include a large mixed-use development at the Miami station that will likely stimulate additional economic development in downtown Miami.

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Providing the Necessary Tools

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AREA0384.indd 1

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FRONTLINE

87%

WHY UTILIZE CONTINGENT LABOR?

61% 54% 31% 26%

Contingent Labor Streamlines Manufacturing Operations

Projects require specified, top-tier skillsets

Skills shortage/the “war for talent”

Source: Ardent Partners, 2014

Seasonal need Avoids (demand for long-term products/ commitment services increases during certain times)

No need to offer benefits, pay taxes, etc.

By Mark Crawford

L

abor is typically the number-one cost for manufacturing companies. They continue to be frustrated with trying to find highly skilled workers to fill their openings, especially as the economy improves. And, even though the Great Recession is five years behind us, many manufacturers are still reluctant to hire full-time workers, preferring to stay agile by using contingent (temporary) workers when needed.

“Companies must seek new ways to find the right talent, develop skills, and share expertise,” says Mike Ettling, president of UK-based HR Line of Business at SAP in a recent article on Forbes.com. “One of these strategic approaches is the growing reliance on consultants, intermittent employees, or contingent labor.”

Once only considered as a last resort by companies to reduce labor costs, contingent workers are now used by manufacturers on an increasingly regular basis. For example, Accenture indicates that contingent workers comprise up to one-third of the U.S. workforce.

“Businesses are increasing their dependency on contingent labor — even if the global economy is improving,” adds Ettling.

“According to Workforce 2020, a study conducted by Oxford Economics and sponsored by SAP, 83 percent of executives indicate they’re increasingly using contingent workers — at any time, on an ongoing basis.”

With this kind of impact, contingent workers must be more thoroughly integrated into HR’s long-term planning.

Desperate for Talent Ardent Partners predicts that, by 2018, nearly 45 percent of the world’s total workforce will be contingent. The company’s research indicates that the overwhelming driver behind hiring contingent labor is the pressing necessity to acquire the required top-tier skillsets needed to get the job done.

As a result, more manufacturing companies are turning to

14

AREADEVELOPMENT

staffing firms that specialize in providing workers with high levels of industry-specific training. In the medical-device industry, for example, part-time workers who are properly trained in current good manufacturing practices (cGMP) and other industry-specific standards are much more productive when they start work, with a far shorter learning curve.

“When an OEM is ramping up for a new product, labor requirements typically fluctuate significantly for its contract manufacturer,” states Terry Hamm, vice president of Quality Assurance/Regulatory Affairs for GW Plastics USA in Bethel, Vermont. “Using cGMP-trained, part-time employees who have been thoroughly trained to produce and assemble medical devices improves quality, reduces risk, and lowers overall cost.”

“Compliant” Labor Boosts Efficiency A staffing firm that provides highly trained contingent workers for healthcare product manufacturers is Operon Resource Management in Lowell, Massachusetts. Although not a manufacturer itself, Operon decided to become ISO 13485-certified (an international standard for quality management systems for medical device companies) so it could better align with the needs of its medical-device manufacturing clients at the deepest possible level.

“Developing a well-defined and documented quality management system allows us to understand the stringent quality requirements of this highly regulated industry and bring more value to our clients,” says Steve Sawin, president of Operon Resource Management.

Hamm agrees: “Compliant labor allows managers to focus on planning for continuous improvement…Using knowledgeable, highly skilled workers on the line who know medical-device manufacturing regulations speeds up production and eliminates many of the issues that cause line stoppage.”

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ECONOMICS

The Manufacturing Paradox: Output Up, Employment Down Replacing aging plant and equipment will lead to acceleration in capital expenditure and, in turn, an increasing level of manufacturing relocation projects.

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

L

et’s start with a basic question: During the next 10 years, is U.S. manufacturing expected to grow or shrink? The answer depends on what is being measured. As measured by output, the sector is an economic engine. At the same time, however, job losses in manufacturing are expected throughout the coming decade.

This article examines some of the trends behind this paradox and shares some insights into which manufacturing sectors are expected to grow or decline during the next five years.

The Projections Oxford Economics forecasts project that over the next 10 years, manufacturing output is expected to increase by 3.4 percent annually, as compared to 2.7 percent for the economy as a whole. That means that manufacturing is expected to make an increasingly large contribution toward positive U.S. economic growth.

In fact, the share of Manufacturing manufacturing output Output in GDP is projected to increase from 12.7 percent (2013) to 13.7 percent (2023).

By the measure of output, therefore, manufacturing is expected to be an engine of economic growth over the next 10 years.

However, employment projections for manufacturing tell a different story. The Bureau of Labor Statistics (BLS) projects employment in the manufacturing

16

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sector will decline by 549,000 jobs between 2012 and 2022.

Moreover, during that same 10-year span, BLS forecasts that 15 of the 20 most rapidly declining industries in the nation (based on employment) will be in manufacturing. By the measure of employment growth, therefore, manufacturing is an economic laggard.

In part, the dichotomy between employment and output can be explained by observing that many low-skill, laborintensive industries remain highly vulnerable to continued offshoring or automation (apparel-related industries, for example). But the fact is that even fast-growing advanced manufacturing industries are expected to show continued, albeit modest, employment declines. This can be clearly demonstrated by the following three examples: • Computer and electronic product manufacturing: Output is expected to accelerate to 4.3 percent per year during the decade; yet forecasts indicate employment will fall by 142,300 by Manufacturing 2022.

Employment • Computer and peripheral equipment manufacturing: This sector is expected to have the fastest growth in real output among all industries (9.2 percent annually); yet employment is projected to decline by 39,900 by 2022.

• Semiconductor and other electronic components: Again, BLS says output is expected to grow by 4.1 percent annually, while employment falls by 31,200 by 2022.

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Which Is the True Measure of Growth?

For two reasons, the focus on output growth is probably a more reliable indicator of manufacturing’s rising economic importance than employment projections. The first reason, substantiated in economic literature, is that manufacturing has one of the highest economic multipliers of any industry (in this context the economic multiplier is the estimated number by which the amount of capital investment by a company is “multiplied” to give the total amount of economic activity created). According to the Bureau of Economic Analysis, each $1.00 of investment by a manufacturing company actually results in $1.33 of economic activity when the “spillover” effects of that investment are considered. Output growth probably captures the industry’s very high economic multiplier effect more accurately than does direct employment alone.

The second reason for relying more on output as a true measure of manufacturing’s economic contribution rather than official employment projections is an admittedly subjective personal observation that is based on my experience consulting on many manufacturing expansion and relocation projects. Manufacturing plants tend to have many on-site workers that are not directly employed by the company operating the plant. It is not at all unusual that some combination of contract employees, leased employees, temp agency employees, and PEO (professional employer organization) employees comprise up to 50 percent of the workers on a factory floor. This is particularly true with companies that are addressing legacy union issues (either company-specific or prevalent in their industry or community). Theoretically, this complex web of sourced employees is captured by official government statistics.

In my opinion, however, some amount of skepticism is probably warranted as to whether or not workers from all of these sources are accurately captured in official government statistics that measure and project manufacturing employment.

One final observation on the importance of manufacturing: Oxford Economics forecasts the economic performance of over 3,500 cities globally. In the United States, one of the greatest predictors of strong economic growth in our metro level forecast models is a strong concentration of advanced manufacturing. The more advanced manufacturing in a region, the more likely that that region will be at the high end of these economic forecasts.

Given the sector’s above-average output growth and high industry multiplier effect, the attraction and retention of manufacturing companies will remain a cornerstone of robust economic development success, even if (as reported) direct employment in the sector is stagnant or slightly declining. The state of the sector’s capital stock is one reason to suspect that states and communities will continue to try to attract and retain projects from the manufacturing sector during the coming years.

TOP FASTEST-GROWING U.S. INDUSTRIES (next five years)

Consumer Electronics

8.4

Electric Components & Boards

7.4

Medical & Surgical Equipment

6.2

Other Precision Equipment

6.0

Aerospace

5.7

Telecommunications Equipment

5.7

Other Chemicals n.e.c.

5.6

Cement, plaster, concrete, etc.

5.3

Paints, varnishes, etc.

5.3

Other, Special Purpose

5.2

Figure 1

TOP SLOWEST-GROWING U.S. INDUSTRIES (next five years)

Tobacco

-3.1

Garments, etc.

-2.3

Leather Goods

-2.2

Manmade Fibers

-1.9

Printing & Recorded Media

-1.2

Textiles

-1.1

Pulp & Paper

0.0

Utilities

1.2

Food

1.9

Glass

2.2

Figure 2

U.S. INDUSTRIAL AVAILABILITY RATES (%) Region

Q3/2014

Q3/2013

11.2

12.3

8.1

9.2

South

11.0

12.5

West

8.1

9.2

10.6

11.6

East Midwest

United States

Source: CBRE, Inc.’s Q3/2014 U.S. Industrial Marketview Snapshot

Figure 3 AREA DEVELOPMENT | Q1/2015

17

Obsolescence Necessitates Accelerated Capital Spending

Retention and Attraction: Opportunities and Strategies

Aging physical plant has been a key driver behind several recent industrial relocation projects. Industrial moves are exceptionally disruptive to operations and hence take place very infrequently. More typically, as plants grow, managers and owners tend to improvise solutions — e.g., a storage area is added where space allows rather than where workflow dictates; or perhaps production gets split between adjacent facilities rather than consolidated under one roof. At some point, these inefficiencies, plus the cost of maintaining aging plant and equipment, begin to severely compromise the competiveness of the operation and a relocation project becomes necessary. This issue of aging and obsolete plant and equipment will likely be a key motivation behind many upcoming projects.

Growing output and aging plant would seem to portend lots of relocation activity. But which industries are expected to experience the strongest growth and which might decline? Based upon Oxford Economics’ forecast of key industries, the industries in figures 1 and 2 are expected to be the fastest-growing or fastest-declining manufacturing industries over the next five years (annual percentages changes, 2010 prices).

As communities seek to recruit or retain these potential manufacturing relocation projects, what strategies might they consider? One important differentiator in these projects is the distinction between advanced and basic manufacturing. Most new industrial space being built today seems to be targeted toward advanced manufacturing — the same part of the manufacturing sector that is most often included in a state’s target industries (i.e., EVEN FAST-GROWING ADVANCED MANUFACTURING benefit from enhanced incentives).

INDUSTRIES ARE EXPECTED TO SHOW CONTINUED, ALBEIT This makes sense as one recalls MODEST, EMPLOYMENT DECLINES. that a concentration of advanced manufacturing is among the most important indicators of metro-level economic growth.

Oxford Economics estimates that the average age of Those states that recognize the importance of attracting structures in the United States (nonresidential real estate and retaining lower-skilled basic manufacturing jobs might plus other large industrial equipment classes) is currently at want to reexamine (if applicable) the often heavy reliance on its highest since the 1960s. Replacing these aging assets will wages as a measure of project desirability. Projects creating be a significant contributor to an expected acceleration in opportunity for lower-skilled workers serve important (and capital spending expenditures, and that will include major very large segments) of most communities’ populations. new investments in manufacturing facilities.

Regardless of the level of state support, it is often local It might be a bit counterintuitive to observe that once a economic development efforts that can be the deciding factor manufacturer decides to move, its potential search area is often in whether a community retains an existing facility or wins a larger than a more basic/labor-intensive operation. That’s new project. because once committed to a move, there is (within reason) Industrial relocation projects have huge yearlittle marginal cost associated with moving an extra couple of one cash-outflow requirements — inventory needs hundred miles. The opportunity to reduce or improve utility to be stockpiled, operations disassembled and then costs, regulatory environment, or physical plant is typically far reassembled, etc. At the same time, the new facility greater than the costs to retain and relocate key plant managers often needs significant improvements to meet project and supervisors. Still another reason why manufacturing requirements. As examples, one recent project required search areas might be greater than expected is the absence of installation of an on-site freezer with back-up generator; suitable real estate product on the market. another needed the facility to be fitted with wastewater Finding industrial space is already challenging and will treatment equipment to manage sewage and water costs. likely get more so as the economy improves. In addition, Local economic development officials working with much of the vacant industrial space on the market is responsive local developers made a world of difference often aged or otherwise obsolete. CBRE, Inc. reports that in helping address these challenges. Local partners are there have now been 18 straight quarters of positive net often the ones best positioned to identify grants and other absorption in the United States industrial market and that financing mechanisms needed to help capitalize the cost industrial vacancy rates are now declining throughout the of specialized facility improvements. ■ United States (Figure 3).

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COVER STORY

LOGISTICS/INFRASTRUCTURE

By Dale Buss

INFRASTRUCTURE

Inve$tment THE

BRIDGE TO

ECONOMIC GROWTH Although conditions vary, much of the nation’s infrastructure is in dire need of repair and/or replacement, affecting business in general and some companies — as well as their location decisions — in particular.

RESIDENTS OF MICHIGAN are obsessed with crumbling roads, and it’s not just because spring reveals acres of nasty potholes and fractures in the state’s winter-ravaged 120,256 miles of paved thoroughfares. Business executives, policymakers, and even taxpayers in the resurgent state also recognize the economic damage caused by the long-term, unaddressed deterioration of Michigan’s highway infrastructure.

That’s why Michigan legislative leaders kept lawmakers in session nearly through Christmas last year to hammer out a new road-funding proposal, and why they’re confident that voters in May will approve a one-percentage-point increase in the state sales tax to activate the plan. It’s also why 97 percent of

respondents in the latest survey of the state’s CEOs by the Detroit Economic Club called for fixes to the state’s roads and bridges.

“People are pissed off, and they’re tired of waiting for us,” Michigan Senate Majority Leader Randy Richardville, a Republican from Monroe, Michigan, told The Detroit News, in an assessment that was typical of Michigan legislators as they felt constituent heat on the issue leading up to the passing of legislation in December.

Lobbyist David Waymire added the specter of frustrated businesses losing interest in Michigan. “Everyone is fed up with our roads and we’ve been disinvesting [in them] in this state for about 20 years now,” the partner at Martin Waymire Advocacy Communications in Lansing, Michigan, told Crain’s Detroit Business. Without addressing highway-infrastructure needs quickly and robustly, he said, “We’ll increasingly take our example from poorer Southern States with high unemployment.”

An Economic Development Issue The availability and condition of roads to, from, around, and away from America’s factories, distribution centers, industrial parks, and office complexes has become a more important economic development issue for the nation as a whole and for many states and localities.

“Differences in infrastructure will continue to grow in importance as we become even more of an economy where just-in-time manufacturing and distribution of goods are more critical,” says Larry Gigerich, managing director of Ginovus, an Indianapolisbased consulting firm. “States and communities that make the investments in increasing road infrastructure, and in existing infrastructure, will be in better shape for economic development.”

But while Michigan is an example of how road-infrastructure adequacy can play out politically and popularly, this issue is seen in two facets by economic

AREA DEVELOPMENT | Q1/2015

19

The I-35W bridge collapse in Minneapolis in August 2007 exemplifies the state of the nation’s deteriorating infrastructure.

daily drivers, and helps commuters reach developers, company site selectors, businesses, including huge distribution and the consulting community: (1) the facilities for Coors, the brewer, and importance of highway accessibility per Dillard’s, the Southern department store se to a site decision; and (2) separate Differences in chain. concerns about the poor condition of The North Tarrant Express also will highways and other roads and bridges INFRASTRUCTURE facilitate movement to and from the affecting business in general and some new Toyota Motor USA headquarters in companies in particular. will continue to Plano, Texas, that is gradually filling up In 2014, “highway accessibility” with 4,000 people in jobs that used to be ranked as the most important factor GROW in located in Southern California. The speed to U.S. corporate site selectors in of construction was a lure that factored a comprehensive survey by Area IMPORTANCE into the success of the Toyota project.

Development magazine, up from its second “The North Tarrant Express was on place ranking in the previous year’s as we become the area’s master development plan for study. That reflected the crucial role of a long time, and because people talked transportation and logistical efficiencies even more of about it for so long, new businesses were in a U.S. and global market with less and leery of moving into an area they knew less margin for error. an ECONOMY was going to be under construction — Certainly a sine qua non in Reno, and for how long?” says Robert Hinkle, Nevada’s ability to land the Teslawhere just-in-time head of corporate affairs for NTE Mobility Panasonic “gigafactory” for electricPartners, in North Richland Hills, Texas. vehicle batteries, for instance, was a huge “But instead of traditional construction, concession by the Nevada legislature for MANUFACTURING which is very linear and very sequential, ensuring the quickest and easiest possible and which can take literally decades, access for the plant from nearby Interstate and DISTRIBUTION we used a design-build methodology 80. The total of $1.3 billion in Nevada’s that means everything happens incentives included $100 million just for of goods are more simultaneously. So we condensed a 15- to roads to and from the diamond-shaped 18-year project into four and a half years.” plant site. Among other things, the state critical.

And in metro Chicago, one of Dean decided to purchase the right-of-way Uminski’s current projects is an industrial needed to link Interstate 80 and U.S. park for which transportation officials Highway 50 through the Tahoe-Reno authorized the construction of a new Industrial Park where Tesla already has interstate-highway interchange, which broken ground. is saving as much as 45 minutes in travel time for hundreds And in the Dallas-Fort Worth area, the recent opening of a of new, highly paid workers in facilities at the park. “That is fully rebuilt, 13-mile highway through one of the state’s most cutting transportation costs and giving people a much easier congested corridors is a boon to one of the most successful commute,” says Uminski, partner at Crowe Horwath in South economic development stories in the country. The North Bend, Indiana.

Tarrant Express traverses six cities, has more than 250,000

“

”

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“As more industrial parks are being developed with infrastructure in place — and with bigger buildings, such as central distribution facilities — states and communities are recognizing the need to have highway accessibility and interchanges and are using them as marketing tools,” Uminski adds. “Many places have let highway infrastructure go. Now everyone wants on-time delivery, so it had to be addressed sooner or later.”

Government Spending on Infrastructure To be sure, there are huge regional and local disparities in deterioration of the road infrastructure. The problem, of course, generally is bigger in areas of the country that are more subject to weather variations and where the transportation infrastructure is oldest. That would be the North, East, and Midwest. In Sunbelt states, by contrast, “more growth has put more pressure on infrastructure, but there are more taxes available to fix the roads because of the growth,” Gigerich explains.

Overall, however, despite many years of jawboning about the issue, governments’ advance in infrastructure spending “still isn’t large enough to get ahead of where it was as a share of GDP,” says Howard Sosoff, national practice leader for manufacturing and distribution in the Milwaukee office of BDO USA. “It still is declining.” In fact, for the last decade, there has been a 3.5-percent-a-year drop in the volume of highway, road, and bridge investments, according to a new report by the National Association of Manufacturers (NAM).

Add to that the inexorable decline of roads and bridges because of the elements, and The American Society of Civil Engineers estimates that one third of the country’s roadways are in need of repairs. In the most recent World Economic Forum rankings, the United States had fallen from 7th to 18th overall in the quality of its roads. And now, renewed U.S. economic growth promises to generate more wear from more vehicles on the roads.

Particularly acute is the danger of precarious bridges.

Nearly 10 percent of America’s 70,000 bridges are considered “structurally deficient” — in effect, accidents waiting to happen. Some already have, of course, most notably the August 2007 bridge collapse in Minneapolis that killed 13 people and injured 145. And there are plenty of warnings about the potential for similar calamities around the country.

“The United States is stuck in a decade-long period of decline [in infrastructure investment] that will eventually harm job creation, future productivity, and our ability to compete head-to-head with companies all over the globe,” said NAM President Jay Timmons, commenting on a study commissioned by NAM that offers a view into the economic benefits the U.S. economy would reap with a more concerted effort to address the nation’s infrastructure needs. “As we sit idle, our competitors are churning out investments in their infrastructure,” Timmons added.

Reversing the Trend When it comes to deals, these general concerns about highway infrastructure don’t translate into fatal flaws for

22

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particular sites. Even in Minneapolis, the bridge collapse didn’t become a major economic development drawback “because the city and the state have some other things going for them and can absorb some infrastructure blows because there are positive developments overshadowing them over time,” notes Scott Kupperman, head of Kupperman Location Solutions in Lake Forest, Illinois. “But I guarantee companies are asking about the care for bridges in that area.”

In general, says Brad Lindquist, senior managing director of Newmark Grubb Knight Frank Global Corporate Services, in Chicago, “It’s not like our clients are saying, ‘I’m not going to build in Michigan because the roads are too rough.’ It’s more a question of what is available in that last mile to the facility.”

Still, NAM says the federal and state governments could get great results from reversing the trend in spending on roads and other transportation platforms. Its report noted that “a targeted and long-term increase in public infrastructure investments” over the next 15 years would grow real GDP by 1.3 percent by 2020 and 2.9 percent by 2030.

And there are growing reasons for optimism that the nation will see more initiatives to do just that. The Obama administration in 2014 introduced the GROW AMERICA Act, a four-year, $302 billion proposal to invest in the nation’s transportation system. It got waylaid in mid-termelection politics, and the future of that specific legislation was uncertain as Republicans took over the U.S. Senate as well as extended their control of the House in January.

“But I do sense, whether it’s local chambers of commerce or [metropolitan planning organizations], that there’s a growing recognition that the accumulation of short-term measures are doing damage to our system,” Transportation Secretary Anthony Foxx said in late 2014.

And with a building U.S. economic recovery and improving fiscal situations in many states, more areas of the country finally are beginning to gain ground on the problem.

Beginning with the Great Recession in 2008, of course, many states faced yawning budget deficits, and highway projects were among the first casualties of efforts to close budget gaps.

States cut their budgets for spending on infrastructure by an overall total of 3.8 percent in 2009 and by an accelerated 5.7 percent in 2010.

Another, new reason for optimism about America’s road infrastructure is the rising likelihood of increases in gasoline taxes on the state and federal levels that could help fund infrastructure improvements. The roughly 50 percent decline in U.S. gasoline prices between last summer and the end of 2014 may be helping soften public opinion toward some fueltax increases. It also might boost the chances for creation or expansion of more toll roads in various states.

“Fuel taxes at the federal level haven’t been increased, basically, for a couple of decades now,” Gigerich says. “That has created a real deficit in road infrastructure funding as you look at the country as a whole, and there is a growing appetite among taxpayers and the business community to see some increases in gas taxes that would provide more funding for more of these projects.” ■

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The 29th Annual

CORPORATE

&

The 11th Annual

CONSULTANTS

SURVEY

The 29th Annual

CORPORATE SURVEY

THE LOCATION AND EXPANSION PLANS of our Corporate Survey respondents are not as robust as we had hoped, and their site selection priorities have been realigned, with facilities costs supplanting labor considerations.

By Geraldine Gambale, Editor

A

s 2014 drew to a close, the U.S. economy continued to expand. According to the

Current operations of respondents:

Bureau of Labor Statistics, 2.9 million new payroll jobs were added for the

Manufacturing — Non-Durable Goods

7%

Manufacturing — Other

6%

Distribution/Logistics/ Warehousing

8%

period, and unemployment fell to 5.7 percent. Fourth quarter GDP growth registered a revised 2.2 percent (down from the third quarter’s 5 percent

production back from China to the U.S. — up from 13 percent the

Manufacturing — Durable Goods

December 2013 to December 2014

BCG said they are already bringing

22%

Financial Services/Insurance/ Real Estate

13%

previous year. In fact, respondents to BCG’s survey said that the U.S. would account for an average of 47 percent of their total production within five years.

How do the aforementioned findings stack up against the plans

growth rate). GDP growth for 2014

Data Processing, Software & Other Computer-Related Services

4%

of those corporate executives who

overall was reported at 2.4 percent,

Energy Industry

1%

utilize Area Development for their

and the Bureau of Economic Analysis

Healthcare/Life Sciences

4%

site and new facility planning and

expects it to average more than 3 percent in 2015 — about 50 percent

Construction & Trades

11%

Other

23%

figure 1

faster than the 2.2 average growth since the economic recovery began

informational needs? In order to find out, we surveyed them in late fall 2014. Their responses are illustrated

The Boston Consulting

in the accompanying charts.

in 2009. Manufacturing also remains

Group’s latest research confirms

strong as evidenced by the sector’s

manufacturing executives’ confidence

expansion in December 2014 for the

in the U.S. economy. Some 16

19th consecutive month, as reported

percent of the 252 decision-makers

by the Institute for Supply Management

at companies with sales of $1 billion

to our 29th Annual Corporate

(ISM).

or more who were surveyed by

Survey. Of those, 35 percent are

S2

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Number of facilities currently operating: Domestic:

Five or more 38%

companies (figure 2), and more than 50 percent of the Corporate

insurance/real estate sector; and

Survey respondents are responsible

just 8 percent are with distribution/

for their firms’ final location decision,

logistics providers (figure 1). More

with another 37 percent making

than two fifths (42 percent) are the

preliminary recommendations

chief executives or owners of their

(figure 3). In addition to executive

•

Four 9%

Three 15%

Foreign:

•

departments involved in the

Three 12%

Four 2%

figure 5

•

•

Chairman, President, Partner, CEO, or Owner 42%

Number of people employed worldwide:

•

CFO, Controller, Financial Officer 10%

500-999 8%

•

100-499 31%

operate three or more domestic facilities, and half operate five

Change in the number of facilities during the past year:

5). More than 30 percent of the

Decreased number of facilities by 4 or more 3%

•

•

respondents also say their firms •

Final decision 51%

employ 100–499 people, while

Decreased number of facilities by 3 or fewer 3%

another 30 percent claim to employ

•

1,000 or more individuals (figure 6).

•

Not involved 5%

Preliminary recommendation 37%

figure 6

or more foreign facilities (figure

•

Information gathering 7%

50-99 9%

•

•

Survey respondents say their firms

Primary role in company’s location decisions:

20-49 11%

• •

Nearly two thirds of our Corporate

figure 2

Fewer than 20 12%

1,000 or more 30%

finance (32 percent), among others (figure 4).

•

V.P., Secretary, or Other Corporate Officer 11%

estate (35 percent), and tax and

•

•

management (61 percent), real

•

Real Estate Mgr./Dir.; Facility Mgr./Dir.; Development Mgr./Dir.; V.P. Real Estate 10%

location decision include operations

Other 14%

Two 5%

•

•

Business Unit Manager or Director 13%

One 30%

• •

Five or more 51%

management (85 percent), other Respondents’ titles:

Two 9%

• •

percent are in the financial services/

One 28%

• •

with manufacturing firms; 13

Increased number of facilities by 4 or more 6%

•

•

•

Increased number of facilities by 3 or fewer 22%

figure 3

Departments significantly involved in the location decision process:

0

Number of facilities not changed 67%

The number of their facilities has

Executive management

85%

Tax and finance

32%

not changed over the last year for two thirds of the Corporate Survey respondents. Interestingly, though,

Real estate

35%

28 percent say they did increase their

Information technology

18%

number of facilities (figure 7) for

Supply chain or logistics

24%

Operations or business unit management

61%

Human resources

16%

20

figure 4

40

60

80

100

figure 7

Reasons for those increasing number of facilities: Increased sales/production/services

43%

New product line(s)/service(s)

19%

reasons ranging from increased sales/

Better access to new or existing markets

38%

production (43 percent) to better

Result of merger/acquisition

23%

access to new or existing markets

Other

11%

(38 percent) (figure 8).

0

10

20

30

40

50

figure 8

AREA DEVELOPMENT | Q1/2015

S3

A N A LY S I S

With these considerations in mind, the sluggish economy provides an opportunity for companies to begin planning their next moves. As the economy gains strength, a company will face increasing competition for key sites — and having a strategy in place will allow it to move quickly. It is never too early to start the process.

It is not unusual for companies to begin gathering information far in advance, but then delay making any actual decisions until compelled by circumstances, such as a major new customer, influx of new orders, or the quest for skilled labor. At that point, site selection becomes an urgent priority, with added costs stemming from inadequate planning. Anticipating growth in 2016 or 2017? Start working on your strategy now.

S4

AREADEVELOPMENT

Corporate Survey respondents who

say they will open new facilities

decreased their number of facilities

within the next two years (figure 12).

year-over-year, a quarter cited a

This is down from 45 percent who

decrease in sales/services or an outdated facility, with 41 percent Reasons for those decreasing number of facilities:

saying they also needed to lower operating and/or labor costs, as the

Decrease in product sales/services

24%

reasons for shuttering a plant (figure 9).

Need to lower operating/labor costs

41%

Outdated facility

24%

Result of merger/acquisition

12%

Other

29%

More than a third of the respondents to our 29th Annual Corporate Survey say the economic

0

recovery has had a positive effect

figure 9

10

20

30

40

50

on their operations; i.e., they plan Effect of the economic recovery on facility plans:

to open facilities, increase hiring, and/or increase capital spending.

Another 35 percent, on the other hand, say they have no new facility plans resulting from the economic

Plan to open new facilities/expand

34%

Plan to increase hiring

38%

Plan to increase capital spending

35%

Have no new facility/expansion plans

35%

Do not plan to increase hiring

9%

Do not plan to increase capital spending

5%

recovery (figure 10). In fact, 61

0

percent of the respondents believe

figure 10

the economy has not yet achieved a continuous growth track, with more

5

10

15

20

25

30

40

Yes 39%

than 70 percent saying it won’t do so until 2016 or 2017 (figure 11)

35

Believe the economy has achieved a continuous growth track:

•

No 61%

— up from 59 percent of the prior year’s Corporate Survey respondents who expected continuous economic

If not, expect the economic recovery to achieve a continuous growth track:

growth two years out.

Not until 2017 34%

Corporate Respondents’ Facilities Plans

•

By 2016 38%

When asked about their plans for new facilities, only 36 percent of this

FOR FREE SITE INFORMATION, CALL

By Q3 2015 20%

•

•

By SCOTT REDABAUGH, Managing Director, Business Consulting Group, JLL

year’s Corporate Survey respondents

•

However, time equals opportunity. Forty-six percent of survey participants begin the information-gathering process for site selection as much as two years in advance, and 20 percent begin even earlier. Six of the top 10 site selection factors in this year’s survey are directly related to real estate, providing further evidence that timing is a strategic consideration.

Of the scant 6 percent of the

•

One noteworthy finding of this year’s Corporate Survey is that only 39 percent of respondents say that the economic recovery has achieved a continuous growth track, and the majority do not expect continuous economic growth to occur until 2016 or even 2017. Real estate activities reflect this bearish outlook, with nearly 70 percent reporting that the number of their company facilities had not changed during the past year and less than 20 percent planning to open new facilities or otherwise expand in the next year.

figure 11

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AREA0377.indd 1

11/12/14 10:46 PM

The 29th Annual

CORPORATE SURVEY

surprising considering the fact that only 28 percent tell us they expect

17%

5% 3%

9% 4%

the economic recovery to achieve a continuous growth track by the end

40 54%

20

Of those survey respondents 2015

2013

2 years

3 years 4 years or more

2012

No plans

with plans for new facilities, 39 percent expect to open just one

500-999 3%

Domestic:

13). The Midwest (Illinois, Indiana,

50-99 16%

Michigan, Ohio, Wisconsin) will

20-49 18%

figure 16

percent reported by the prior year’s •

Southwest (Arizona, New Mexico,

New England (CT, MA, ME, NH, RI, VT)

2% 8%

Middle Atlantic (DE, MD, NJ, NY, PA)

Oklahoma, Texas) — up from 11 percent to 14 percent this year — and the Mid-South (Arkansas, Kentucky,

12%

Missouri, Tennessee) — up from 9

Mid-South (AR, KY, MO, TN)

11%

percent to 11 percent of the planned

South (AL, FL, GA, LA, MS)

17%

Midwest (IL, IN, MI, OH, WI)

20%

Plains (IA, KS, MN, NE, ND, SD)

4%

South (Alabama, Florida, Georgia,

Mountain (CO, ID, MT, UT, WY)

5%

Louisiana, Mississippi) with 17

Southwest (AZ, NM, OK, TX)

14%

South Atlantic (NC, SC, VA, WV)

West (CA, NV, OR, WA)

15

domestic projects. Meanwhile, the

7%

percent and the South Atlantic (North

1%

Carolina, South Carolina, Virginia,

20

$10 million– $50 million 25%

figure 17

Of those with plans, number of new foreign facilities to be opened within the next five years: Foreign Four 0%

Three 25%

Five or more 12%

•

Two 12%

West Virginia) with 12 percent of

figure 14

Less than $10 million 54%

•

•

Offshore (AK, HI, PR, VI)

$50 million– $100 million 15%

More than $500 million 1%

•

Location of planned new domestic facilities (as percentage of total number to be opened):

AREADEVELOPMENT

$100 million– $500 million 5%

There’s also increased interest in the

figure 13

10

Amount to be invested in new domestic facilities:

Corporate Survey respondents.

• •

domestic facilities — up from 14

Fewer than 20 36%

•

•

• •

•

Two 30%

5

100-499 24%

garner a fifth of all the planned One 39%

•

Three 11%

percent expect to open two (figure

1,000 or more 3%

•

Four 5%

S6

Total number of new jobs to be created at new domestic facilities:

•

Of those with plans, number of new domestic facilities to be opened within the next five years:

0

figure 15

domestic facility, and another 30

figure 12

Five or more 16%

Headquarters 9%

•

1 year

Warehouse/ Distribution 23%

•

0

Data Center 6%

of this year.

48%

46%

Back Office/ Call Center 4%

• •

17%

•

22%

•

7% 3%

Manufacturing 28%

•

•

60

Shared Services 10%

•

22%

23%

•

19%

80

Other 17%

R&D 4%

•

at the end of 2013. This is not

•

100

Types of new domestic facilities (as percentage of total number to be opened):

•

said they had such expectations

•

Expect to open new facilities worldwide within:

figure 18

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One 50%

A N A LY S I S

the planned new domestic facilities are consistent picks. However, less activity is planned for New England (Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, Vermont) — down from 6 percent to 2 percent of the total — and the Middle Atlantic (Delaware, Maryland, New Jersey, New York, Pennsylvania) — down from 13 percent to 8 percent of the total (figure 14).

The majority of the new domestic facilities planned by the Corporate Survey respondents will be manufacturing operations (28 percent) and warehouse/distribution centers (23 percent) (figure 15). And only 30 percent of the respondents claim their new domestic facilities will create more than 100 jobs (figure 16). Investment figures are on the low end as well: more than half the respondents say less than $10 million will be invested in new domestic facilities (figure 17).

Even fewer foreign facilities are expected to be opened by the respondents to the 29th Annual Corporate Survey. Fifty percent of the respondents say they expect to

Site selection factors and the corresponding weights applied by decision-makers vary tremendously and are driven by the functionality, performance objectives, and strategic/market considerations characterizing the facility investment.

The timing of the investment also can play a critical role.

important dimension, particularly for fast-track projects. In these situations, expedited permitting, available buildings or shovel-ready sites, and general confidence in local economic development stakeholders can be critically important to decision-makers.

Functionality: As examples, knowledge-based activities such as corporate functions or software development will be skewed heavily toward talent-attraction factors, whereas large-scale process manufacturing will be skewed toward factors such as the availability of certified sites, infrastructure, and environmental regulation. Projects that relocate critical personnel are heavily driven by housing availability and costs, school ratings, healthcare, and other quality-of-life factors.

Within the above context, the survey results are generally consistent with what we are observing from our client base.

We see an overall uptake in new plant investment in the U.S., particularly from offshore companies, though the strength of this trend seems inconsistent.

In our projects, primary drivers have included lower energy costs coupled by rising offshore labor costs, underpinned by increased domestic demand. And consistent with the survey, we see the midcontinent to southeast arc of states to be receiving the largest proportion of investment.

Performance objectives: Ongoing costs and the return on upfront investment costs, supply chain, customer service, production valueadd, and other operational factors are additional considerations framing the relative importance of individual location factors. For example, an assembly operation for a “cash cow” product might be driven by the availability of lower skilled and inexpensive labor, often offshored, balanced with an efficient supply chain. In contrast, a technical manufacturing or product development facility will typically be much more driven by a skilled workforce with higher acceptable cost thresholds.

Strategic and market considerations: Broader business and go-to-market strategies are a third set of factors influencing criteria and weights.

Sometimes these are directly related to the specific site selection project and other times more broadly intertwined with the overall corporate location strategy and footprint.

Timing: Timing may not be everything, but it is certainly an

The survey concludes with a few social topics. With respect to healthcare reform mandates influencing site selection decisions, we’ve not seen the cost of healthcare (historically and in the current environment) to be a major site selection factor, at least for mid-size and larger projects.

This insurance cost is generally a relatively small component of overall operating costs and tends to be trumped by other factors in the decision process. For small companies, this may be a much more significant concern. With respect to recent legalization of recreational marijuana in a few states and a growing movement to do so in other states, the survey results are interesting. Regardless of one’s personal views on this topic, it is thought-provoking that nearly half of the survey respondents say legalization would affect the decision to locate a new facility in those states. It will be interesting to see if and how this perception changes in the coming years.

By LAWRENCE MORETTI, LFM CORPORATE LOCATION SOLUTIONS

AREA DEVELOPMENT | Q1/2015

S7

The 29th Annual

CORPORATE SURVEY

open only one new foreign facility

facilities planned by this year’s

Eastern Europe (11 percent to 3

(figure 18). Interestingly, the location

respondents — up from 9 percent

percent), and South America (20

of these new foreign facilities has

and 14 percent, respectively. And

percent to 13 percent), among other

changed dramatically year-over-year.

new facility plans have decreased

regions, according to this group

Canada and Asia will each account

for Western Europe (down from 16

of Corporate Survey respondents

for 25 percent of the total foreign

percent to 9 percent of the total),

(figure 19).

When it comes to Asia, China is a perennial favorite, accounting

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

Caribbean

3%

Central America

6% 13%

Western Europe

9%

Eastern Europe

3%

500-999 11%

Fewer than 20 22%

6% 0%

Australia

0%

Asia

0

5

10

15

20

25

•

China 44%

•

India 33%

$100 million–$500 million 5% $50 million– $100 million 16%

More than $500 million 0%

$10 million– $50 million 37%

•

Less than $10 million 42%

•

Other 8%

•

•

Manufacturing 33%

80

23%

17% 12%

6% 2%

60 40

7% 5%

19%

jobs (figure 22). Nevertheless,

12% 2%

50%

•

Headquarters 6%

figure 21

S8

AREADEVELOPMENT

Warehouse/ Distribution 19%

the total investment in new foreign facilities will be under $10 million for 42 percent of the respondents, with another 37 percent expecting that investment to be between $10

•

•

Data Center 11%

44 percent say their new foreign facilities will create more than 100

61% 52%

facilities than at domestic ones —

16%

20

•

Back Office/ Call Center 8%

•

•

Shared Services 6%

19 percent will be warehouse/

will create more jobs at foreign

figure 23

14%

R&D 8%

manufacturing operations, and

It also seems these respondents

100

Types of new foreign facilities (as percentage of total number to be opened):

Survey respondents will house

distribution centers (figure 21).

Expect to expand existing worldwide facilities within:

figure 20

which jumped from 7 percent to 22

•

Malaysia 22%

percent — as has interest in Malaysia,

facilities planned by the Corporate

Amount to be invested in new foreign facilities:

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

increased — up from 17 percent to 33

A third of the new foreign

•

figure 19

Asian facilities. Interest in India has

Asian facilities (figure 20).

figure 22

25%

for 44 percent of the planned new

percent of the planned total new

$50-99 17%

•

100-499 28%

• •

Middle East Africa

20-49 17%

•

•

South America

1,000 or more 5% •

9%

•

25%

Mexico

•

Canada

Total number of new jobs to be created at new foreign facilities:

0 1 year

2015

2 years

2013

3 years 4 years or more

2012

No plans

million and $50 million (figure 23).

One-year expansion plans are

figure 24

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also down. Just 14 percent of the

consistent with the prior year’s results

Of those few who claim they will

Corporate Survey respondents say

and despite all the media reports of

reshore, two thirds cite rising foreign

they will expand existing facilities

a surge in the reshoring movement.

labor costs as the impetus for doing

within that time frame (down from 23 percent of the prior year’s Expect to relocate a domestic facility to offshore:

respondents who made that

Total number of new jobs to be created by expansion(s):

(up from 12 percent of the prior

•

100-499 24%

year’s respondents) (figure 24).

•

50-99 14%

Expect to relocate a foreign facility back to the U.S. (reshoring):

•

20-49 22%

also say these expansions will create

•

figure 25

No 96%

25).

Expect to relocate a domestic facility within:

Relocation plans are up slightly on a year-over-year basis. Thirty percent

100 14%

of the Corporate Survey respondents

80

9% 7% 2%

plan to relocate a domestic facility

12%

9%

9% 3% 4%

11% 4% 6%

figure 28

If so, reason(s) for doing so:

60

over the next three years (figure

70%

26). Among the reasons cited

40

for relocation are high taxes (44

72%

67%

20

percent) and excessive government 0

regulations (29 percent), as well as

1 year

labor availability (26 percent) and labor costs (24 percent) (figure 27).

Yes 4%

•

fewer than 100 jobs in total (figure

Fewer than 20 35%

•

Unfortunately, more than 70 percent

Yes 2%

• •

expansion plans two years out

•

No 98%

1,000 or more 2%

500-999 3%

•

claim). However, 17 percent have

2015

2 years

2013

3 years 4 years or more

2012

No plans 0

figure 26

Nevertheless, only 2 percent of

Of those planning to relocate facilities, primary reason(s) for moving:

the respondents expect to relocate a

Rising foreign labor costs

67%

Rising foreign energy costs

33%

Problems finding qualified and/or English-speaking labor

33%

Product quality issues

50%

Legal or regulatory problems

17%

Lack of robust utility infrastructure

17%

Difficulties transporting supplies/products

17%

Cost of transporting supplies/products

50%

Social/cultural barriers

17%

10

20

30

40

50

60

70

80

figure 29 Issues preventing company from spending more of its earnings on investment in U.S. facilities:

High taxes

44%

domestic facility to offshore (down

Excessive government regulations

29%

from 7 percent claiming they would

Labor costs

24%

High corporate taxes/tax uncertainty

47%

Labor availability

26%

Excessive government regulation

56%

Healthcare costs

15%

Highly litigious environment

25%

Quality of life concerns

21%

Healthcare costs/regulations under the Affordable Care Act 37%

Poor infrastructure

24%

Economic instability (i.e., Congress’ inability to resolve budgetary issues, etc.)

46%

Other

26%

Shortage of skilled labor

26%

make such a move in the prior year’s survey). And, as for reshoring a facility back to the U.S., only 4 percent claim they would being making that move (figure 28) —

0

10

figure 27

20

30

40

50

0

10

20

30

40

50

60

figure 30

AREA DEVELOPMENT | Q1/2015

S9

CORPORATE SURVEY 2014* Site Selection Factors

Very Important %

Important %

Minor Consideration %

Of No Importance %

50.0 17.1 22.1 40.2 48.8 50.0

32.1 35.4 40.7 41.4 22.1 27.9

13.1 33.0 26.7 13.8 19.8 10.5

4.8 14.6 10.5 4.6 9.3 11.6

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

Transportation/Telecommunications Highway accessibility Railroad service Accessibility to major airport Waterway or oceanport accessibility Availability of advanced ICT services

so, and half say product quality issues and the costs of transporting

56.5 17.3 30.6 15.7

31.8 13.6 31.8 12.1

9.4 26.0 30.6 30.1

2.4 43.2 7.1 42.2

13.8

31.3

33.8

21.2

supplies/products are to blame (figure 29). On the flip side, among the issues preventing our Corporate Survey respondents from spending more of their earnings on investment

Finance

in U.S. facilities are, as in years past,

Availability of long-term

31.0

32.1

16.7

20.2

excessive government regulation (56

Corporate tax rate Tax exemptions State and local incentives

45.1 40.2 35.4

30.5 33.0 37.8

14.6 18.3 15.9

9.8 8.5 11.0

percent), high corporate taxes/tax

28.6 32.1 36.1

53.6 53.6 51.8

14.3 7.1 8.4

3.6 7.1 3.6

34.9

36.1

24.1

4.8

18.3 30.5 33.7 36.1 18.1 31.7

35.4 46.3 34.9 41.0 42.2 37.8

29.3 15.9 20.5 18.1 28.9 14.6

17.1 7.3 10.8 4.8 10.8 15.9

15.7

45.8

24.1

14.5

21.4

22.6

35.7

20.2

Very Important

Important

Minor Consideration

Of No Importance

16.5 20.9 26.7 27.1 27.1 16.7 17.7 27.1 35.0

43.5 48.8 43.0 47.1 48.2 44.1 48.2 41.2 49.4

35.3 27.9 27.9 22.4 20.0 29.8 27.1 21.2 10.8

4.7 2.3 2.3 3.5 4.7 9.5 7.1 10.6 4.8

financing

Other Available buildings Available land Occupancy or construction costs Expedited or “fast-track” permitting Raw materials availability Energy availability and costs Environmental regulations Proximity to major markets Proximity to suppliers Inbound/outbound shipping costs Proximity to college/technical training Water availability Quality-of-life factors

Climate Housing availability Housing costs Healthcare facilities Ratings of public schools Cultural opportunities Recreational opportunities Colleges and universities in area Low crime rate

uncertainty (47 percent), economic instability (46 percent), and healthcare costs under the Affordable Care Act (37 percent) (figure 30).

Corporate Respondents’ Location Priorities Corporate decision-makers take many site selection and quality-oflife factors into consideration when making plans for new facilities, expansions, and relocations. We therefore asked our survey-takers to rate these factors as either “very important,” “important,” “minor consideration,” or “of no importance.”

Their ratings are show in figure 31.

We then added the “very important” and “important” ratings in order to rank the factors in order of overall importance, as shown in figure 32.

The #1 site selection factor in the 29th Annual Corporate Survey

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

is highway accessibility, rated “very

figure 31

S10

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AREA0233.indd 1

21/02/14 5:53 PM

The 29th Annual

CORPORATE SURVEY Combined Ratings

CORPORATE SURVEY 2014* Site Selection Factors

2014

2013

important” or “important” by 88.3 percent of the

Ranking 1. Highway accessibility 2. Occupancy or construction costs 3. Available land 4. Available buildings 5. Availability of skilled labor 6. Labor costs 7. Right-to-work state 8. Proximity to major markets 9. Energy availability and costs 10. Corporate tax rate 11. Tax exemptions 11T. State and local incentives 13. Expedited or “fast-track” permitting 14. Low union profile 15. Inbound/outbound shipping costs 16. Environmental regulations 17. Availability of long-term financing 18. Training programs 19. Accessibility to major airport 20. Proximity to college/technical training 21. Proximity to suppliers 22. Raw materials availability 23. Availability of unskilled labor 24. Availability of advanced ICT services 25. Water availability 26. Railroad service 27. Waterway or oceanport accessibility

88.3 87.9 85.7 82.2 82.1 81.6 77.9 77.1 76.8 75.6 73.2 73.2 71.0 70.9 69.5 68.6 63.1 62.8 62.4 61.5 60.3 53.7 52.5 45.1 44.0 30.9 27.8

Quality-of-life factors

2014

93.5 (2)** 87.4 (4) 80.3 (13) 83.3 (6) 95.1 (1) 90.8 (3) 80.6 (11T) 75.6 (15) 80.8 (10) 82.4 (7) 80.6 (11T) 81.9 (8) 76.3 (14) 81.4 (9) 70.9 (18) 71.7 (17) 74.8 (16) 51.5 (23) 59.4 (21) 54.1 (22) 67.7 (19) 60.5 (20) 48.9 (24) 84.6 (5) N/A 29.4 (25) 20.2 (26)

need to move products and people into and out of a facility. In fact, proximity to major markets is ranked #8 among the site selection factors, with a combined importance rating of 77.1 percent. The poor condition of the nation’s highway infrastructure adds to the concern about highway access. This matter is discussed further in this issue: See “Infrastructure Investment — The Bridge to Economic Growth.”

In the prior year’s Corporate Survey, the respondents had ranked availability of skilled labor as the top location factor. This year, that factor slipped to #5 in the rankings, only considered “very important” or “important” by 82.1 percent of the respondents.

Oddly enough, only 45 percent say availability of skilled labor is having an effect on their new facility/ expansion plans (figure 33). Nonetheless, if we examine figure 31, we can see that availability of skilled labor is actually rated “very important” by

2013

50 percent of the corporate respondents, ranking

Ranking 1. Low crime rate 2. Ratings of public schools 3. Healthcare facilities 4. Housing availability 4T. Housing costs 6. Colleges and universities in area 7. Recreational opportunities 8. Cultural opportunities 9. Climate

respondents. This is no surprise considering the

84.4 75.3 74.2 69.7 69.7 68.3 65.9 60.8 60.0

80.9 (1) 73.0 (4) 79.7 (2) 71.5 (5) 75.3 (3) 59.5 (7T) 66.4 (6) 54.8 (9) 59.5 (7T)

*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. ** 2013 ranking

it second behind highway accessibility in the separate “very important” category. Additionally, two thirds of the respondents note workers are lacking advanced skills such as machine tool programming or bioprocessing (figure 34). And the training programs factor jumped from #23 to #18 in the rankings, increasing 11.3 percentage points (the biggest increase among the factors) and now considered “very important” or “important” by 62.8 percent of the Corporate Survey respondents. And although

figure 32

S12

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Availability of skilled labor having an effect on new facility/expansion plans:

Yes 45% •

•

No 55%

A N A LY S I S figure 33

If yes, workers are lacking: Basic skills (e.g., reading comprehension,mathematical competency, etc.)

37%

Advanced skills (e.g., advanced welding, machine tool programming, bioprocessing, etc.)

67%

STEM skills (science, technology, engineering, mathematics) 44%

0

10

20

30

40

50

60

70

80

figure 34

Healthcare coverage mandated under the Affordable Care Act is affecting location decisions:

•

Yes 29%

•

No 71%

figure 35

Quality of the workforce would be negatively affected in states that are legalizing marijuana use:

•

No 36%

•

Yes 64%

Legalized marijuana laws would affect the decision to locate a new facility in states that have enacted such laws:

•

No 52%

•

Yes 48%

The two most surprising factors with regard to ranking changes are the availability of skilled labor and available land. The availability of skilled labor factor has dropped in importance from #1 to #5 in the latest rankings. For the past few years, the media has been awash in news about the shortage of skilled labor both in the U.S. as well as globally. We have heard this echoed in conversations with many of our corporate manufacturing clients.

This drop in ranking surprises us, especially as available land came in higher at #3. Notwithstanding the fact that available land is important for projects that are looking to build ground up, the number of companies that are in need of available land as compared to the number of companies that are in need of skilled labor is minimal. We therefore think that this change in the rankings may be an anomaly.

Based on what we continue to hear from our clients, especially our international clients who are expanding their U.S. presence, it is not surprising that the right-to-work (RTW) state factor rose in ranking from #11 to #7. This increase could in part be due to the attention RTW has gotten in the past few years with several union-entrenched Midwest States successfully having RTW legislation passed. That said, states that are RTW continue to see

more pipeline activity than those that are not RTW. One confusing aspect of this jump in ranking is that on a related factor — low union profile — we actually saw a decrease in the ranking from #9 to #14. Common sense would suggest that these two factors would have been more closely aligned in their movement.

It should also be noted that availability of advanced ICT services dropped from #5 to #24. We believe that this may have been due to an anomaly in last year’s rankings, and that this factor was incorrectly ranked at #5 last year.

The majority of respondents have had no change in the number of facilities in the past year. While there has been an increase in sales and production in many companies, this has often been achieved through new technology and efficiencies, as opposed to new employees and locations. From an economic outlook standpoint, 61 percent of the executives surveyed believe the economy has not achieved a continuous growth track. In fact, the survey shows that most executives do not expect the economy to recover until 2016 or 2017. This correlates to many companies having taken and continuing to take a cautious, if not wait-and-see, approach.

By KATHY MUSSIO, Managing Partner, ATLAS INSIGHT, LLC figure 36

AREA DEVELOPMENT | Q1/2015

S13

The 29th Annual

CORPORATE SURVEY

•

Very important 27%

•

•

A minor consideration 27%

•

Of no importance 23%

Somewhat important 22%

•

proximity to college/technical

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

Importance of water availability to operations:

Water availability affecting company’s location decisions:

0

training still hovers in the lower half

Cash grants

40%

of the rankings at #20 this year, it did

Tax incentives (tax credits, exemptions, etc.)

72%

increase 7.4 percentage points with a

Other financial incentives (bonds, loans, etc.)

36%

Worker training incentives

50%

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

45%

10

20

30

40

50

60

70

80

figure 40

Importance of incentives to a project moving forward in a particular location:

No 87%

•

Of no importance 8%

•

figure 37

•

• •

Yes 55%

Sustainable facility development more important now than in the past:

•

50% to 75% 16%

75% to 100% 8%

• •

25% to 50% 25%

•

10 to 25% 51%

importance rating of 87.9 percent.

And available land jumped 10 spots to #3 in the rankings, considered “very important” or “important” by is followed by the available buildings factor at #4 with an 82.2 percent importance rating. Additionally, according to Cushman & Wakefield, U.S. industrial vacancy is at its

•

If so, measures undertaken to reduce company’s “carbon footprint”:

concerned with the cost and

85.7 percent of the respondents. This If so, percentage of the incentives initially estimated value secured (or expects to secure):

Yes 59%

•

Annual Corporate Survey are more

are ranked #2, with a combined

No 45%

No 41%

rating of 81.6 percent. It appears

Occupancy and construction costs

Company has received and utilized incentives in the past:

figure 38

#6, with a combined importance

availability of sites and facilities.

•

•

No 76%

•

Somewhat important 33%

Very important 40%

figure 41

Yes 24%

Labor costs also slipped in

that the respondents to the 29th

•

A minor consideration 19%

New unconventional sources of energy (e.g., fracking) having an effect on future location decisions:

percent. the rankings from the #3 spot to

Yes 13%

•

combined importance rating of 61.5

lowest level in 14 years. John Morris, 67%

Installed on-site renewable generation

23%

Change of supply or distribution routes/methods

23%

Recycling or re-use of waste products, etc.

73%

Other

0

leader of Industrial Services for the

Incentives monies were repaid because investment and/or job creation obligations were not met:

No 98%

Yes 2%

3%

10

20

30

40

50

figure 39

S14

figure 42

•

25%

Energy-saving modifications to existing facilities

•

LEED certification for new or existing facilities

AREADEVELOPMENT

60

70

Americas at Cushman & Wakefield, notes, “An improving economy, the expansion of e-commerce, and the growth of domestic manufacturing further fueled the rapid advancement

80

we witnessed during the past year. figure 43

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A N A LY S I S The U.S. economy has improved.

Labor wages have stabilized. Fuel costs and shipping costs have been slashed. These are the highlevel conversations we have been hearing over the past year. We were anxious to see if these thoughts had found their way into the 29th Annual Corporate Survey.

In almost every market, industrial property continues to surpass supply.”

The upward trending of occupancy and construction costs, available land, and available buildings — and downward trending of the labor costs factor — may be attributed to projects that were previously put on hold during the economic downturn being moved off the back burner now, according to Les Cranmer of Savills Studley (see his accompanying analysis).

According to Cranmer, companies are now more focused on revenue growth than cost-cutting, as well as getting projects up and running quickly. In fact, more than 60 percent of the respondents say the existence of a pre-certified or shovelready site is very or somewhat important (figure 46).

The right-to-work (RTW) state factor is also in the top10 this year, up from its 11th place ranking in the prior year’s survey to #7 in the 29th Annual Corporate Survey and rated “very important” or “important” by 77.9 percent of the respondents.

And although low union profile is only ranked #14 in the combined importance ratings, it is ranked #3

We were interested to see if corporate attitudes had changed, since we seem to be moving away from the ultra-conservative thinking we had experienced during the economic downturn. We wanted to see if the survey results would include some of the recent corporate dynamics we have heard as well as witnessed.

With that in mind, we focused on a number of factors throughout the reported results — including the “top site selection factors,” which have always been a hallmark of the Area Development investigation.

It must be noted that over the life span of this survey, the site selection factors have not changed in a material way. However, there are variances in the ranking of importance, which certainly can serve to signal adjustments in current corporate outlook and planning.

Over the past 10 years (a reasonable time span to include both pre- and post-economic downturn time periods), seven of the top-10 site selection factors have remained in the top 10 — and, in most years, have only changed minimally in corporate ranking strength. However, over the past two years, we believe that those reported changes in rankings do quite clearly indicate a re-focusing within corporations. The tide of corporate expansion and project investment can be seen coming back in.

• Upward trending factors: available land, available buildings, occupancy and construction costs • Downward trending factors: availability of skilled labor, corporate tax rate, state and local incentives, labor costs Over the past year (maybe 18 months), we have seen increased corporate activity involving expansion, migration to new/ first-time locations, and a re-

energizing of projects that have been placed on the back burner.

This focus is now more closely associated with corporate revenue growth — rather than cost-saving and downsizing activities that we all became accustomed to over the past half-decade. This strong corporate interest can be classified as fast-moving — and more implementation-oriented — rather than a long-term planning exercise.

Accordingly, those corresponding site selection factors that are strongly trending upward reinforce and confirm our observations on an everyday basis. In most client requirements, communities must understand the importance of time considerations when projects are making both their initial long lists and final short lists. This will, of course, involve the readiness of land sites, existing or proposed buildings, and construction difficulties associated with permitting and approvals.

Long-term corporate costs will always remain important in the site selection process. These costs include labor, energy, taxes, shipping, occupancy, and others as well as administering regulations, etc. However, the survey results are suggesting that those communities that can propose on-time solutions (including shovel-ready sites and quick occupancy) will be preferred over those communities without quick-time product — even if the long-term economics are a bit more favorable elsewhere.

These megatrends are also evident in other sections of the survey — including the corporate outlook involving the relocation of existing facilities (67 percent indicated that they did not change their number of facilities last year, and 67 percent also indicated no plans for existing facility relocation this year). Once again, the focus seems to be on increasing capacity for business growth at the current location.

Over the past 29 years, I always look forward to reviewing the Corporate Survey results in order to see if the overall trend of corporate thinking is what we have been experiencing in our recent project activities. This year’s survey matches our client experiences in a very strong way.

(just behind availability of skilled

By LES J. CRANMER, Senior Managing Director, SAVILLS STUDLEY AREA DEVELOPMENT | Q1/2015

S15

A N A LY S I S Overall Activity An overwhelming number of companies are responding to the improving economy by investing, especially on capital equipment and growing the labor force.

However, a smaller number are expanding or opening new facilities to increase capacity. This approach may be linked to the austere operating environment required during the recession — companies would rather find efficiencies in their existing space rather than launch a large capital outlay in a new facility.

New location decisions continue to be driven by the need for expanded production to meet growing domestic consumer demand. Only a small percentage of activity in 2015 projects will be an outright relocation, which will be driven by low-margin companies seeking slightly lower operating costs.

labor) if one considers just its “very

manufacturing employment from

important” rating of 48.8 percent.

March 2012 to October 2014. And, in

It was previously noted that the

Michigan, which passed RTW a year

Midwest region will garner most

after Indiana, manufacturing jobs

of the respondents’ new domestic

were up by 3.3 percent from March

facilities, and it’s interesting that two

2013 to October 2014, representing

states in that region — Indiana and

the 11th highest nationwide gain.

Michigan — have recently passed

Energy availability and costs

right-to-work legislation. Moreover,

remains among the top factors,

manufacturing employment is up in

ranking #9 this year and considered

Skilled Labor

both of these states. Indiana, which

“very important” or “important”

There is a large ranking gap between the importance of availability of skilled labor and proximity to college/technical training. This underlines the fact that a location should demonstrate an ample, ready workforce in key occupations.

While training programs are an essential tool, there is no substitute for a labor force that already possesses required skills and a high level of experience.

Among the most sought-after skills are advanced welding, machine tool programming, and bioprocessing — skills that can only be developed over many years on the job.

passed RTW legislation in February

by 76.8 percent of the Corporate

2012, saw an 8.9 percent jump in

Survey respondents. However, three

S16

AREADEVELOPMENT

(e.g., shale oil from fracking) are having no effect on their location

Yes 42%

No 58%

decisions (figure 38). But about three fifths believe sustainable facility

•

development is more important “Green performance” requirements have been a stipulation for receiving incentives:

•

No 80%

Yes 20%

now than in the past. In response to this, two thirds of the respondents claim to be making energy-saving modifications to existing facilities, while nearly three quarters are recycling or re-using waste products (figure 39).

figure 44

Importance of the existence of an available building in site searches: Of no importance 8%

•

•

A minor consideration 16%

Somewhat important 43%

•

•

By MICHAEL MCDERMOTT, Consulting Manager, Global Business Consulting, CUSHMAN & WAKEFIELD

Communities are offering specific incentives for “green initiatives”:

•

As the U.S. continues to lead the world in the economic recovery, most manufacturing and distribution expansions are taking place in the domestic market with robust transportation and a manufacturing legacy, especially hotbeds in the Midwest and South regions.

unconventional sources of energy

•

Domestic Growth

quarters of the respondents say new

Very important 33%

Surprisingly, corporate tax rate and state and local incentives moved down in the rankings to the 10th and 11th spots, although each (along with tax exemptions, which tied and held its 11th position) are still considered “very important” or

figure 45

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AREA0382.indd 1

09/02/15 7:27 PM

The 29th Annual

CORPORATE SURVEY

“important” by around three quarters

those responding to the Corporate

important to a project moving forward

of the respondents. Tax incentives are

Survey (figure 40). And nearly three

in a particular location (figure 41).

considered to be the most important

quarters of the respondents say that

type of incentives by 72 percent of

incentives are very or somewhat

The site selection factor showing the biggest change is availability of advanced ICT services — dropping from #5 to #24 in the rankings and only considered “very important” or

A N A LY S I S The 29th Annual Corporate Survey reflects the accelerating economic recovery — and resulting optimism — that has prompted more of our clients to expand their headcounts and footprints. Additionally, much of this growth is happening in regions and sectors that are often afterthoughts in mainstream discussions of the future of the U.S. economy.

More than a quarter of respondents added at least one facility to their portfolio in the past year, while only 6 percent cut facilities. Of those that grew, 43 percent listed “increased sales/production/ services” as their primary reason for expanding. When asked directly about the impact of the economic recovery on future plans, 34 percent of respondents said they plan to open a new facility; 38 percent said they plan to increase hiring; and 35 percent said they plan to increase capital spending. All these responses are in line with the feedback we’ve received from clients, many with projects that have been growing dramatically, both in volume and scope.

Interestingly, 23 percent of the new domestic facilities reported in the survey will serve a

“important” by 45.1 percent of the

warehousing/distribution function, though only 8 percent of respondents identified their current operations as focused on logistics. This seems to suggest that growing domestic markets are prompting businesses to emphasize distribution, even if the company itself identifies as a manufacturer. In fact, 38 percent of respondents who reported an increase in their number of facilities said this was to ensure better access to new or existing markets — another indication that higher consumer confidence and spending is rippling through the broader economy.

Corporate Survey respondents. The

We were also struck by the locations benefiting from the growth mentioned above. A full 20 percent of new domestic facilities are planned for the Upper Midwest, the largest share of any region in the nation. My location in Chicago allows me to see much of this growth firsthand — and despite the Rustbelt reputation, many of our national clients have their sights set on the Great Lakes.

The South also fared well, with 17 percent of planned expansions slated for that region, a trend that has similarly been seen among our clients, especially those seeking competitive labor costs.

factor’s rating is not surprising.

By ERIC STAVRIOTIS, Senior Vice President, CBRE

only explanation I have for this is that these services are now so ubiquitous that they are taken for granted in almost every location.

The factor showing the second largest drop in its importance rating — down 11.7 percent points with a combined rating of 63.1 percent — is availability of long-term financing.

This factor ranked #17 this year. With interest rates remaining low, this A new factor was added to the rankings this year — water availability.

Larry Gigerich, managing director of Ginovus, says, “It’s becoming more important not only to industrial companies that use significant water supplies in their operations, where it would be a key item anyway, but also for other operations such as office and distribution centers and R&D facilities where water isn’t crucial to their operations.” We would have expected, therefore, this factor to

S18

AREADEVELOPMENT

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achieve a high ranking, but it only

two thirds of the respondents believe

when making location decisions, but

ranked #25 among the site selection

the quality of the workforce will be

chief among these are site magazines

factors with a 44 percent combined

negatively affected in states that are

like Area Development at 81 percent.

importance rating.

legalizing marijuana, and almost half

Half also use general business and

of the Corporate Survey respondents

financial publications as sources of

of-life factors are ranked separately

say legalized marijuana laws will

information.

from site selection factors. Not

affect their decision to locate a facility

surprisingly, low crime rate remains

in states with such laws on the books

who utilize the Internet in the site

the #1 quality-of-life concern of

(figure 36).

and facility planning process, nearly

receiving an 84.4 percent combined

at the bottom of the quality-of-life

importance rating.

list (#9), it is still considered “very

The quality-of-life factor showing

important” or “important” by 60

the largest increase in importance

percent of the respondents to our

— 8.8 percent points — is colleges

29th Annual Corporate Survey. In fact,

and universities in area, ranking

nearly half of the respondents say

#6 among the quality-of-life factors

weather-related factors are very

with a 68.3 combined importance

or somewhat important

rating. This increase in importance

considerations in their location

points to the need for an educated

decisions (figure 48).

and trained workforce. Ratings

Finally, it should be noted that none of the site selection or quality-

spots to #2 among the quality-

of-life factors achieved a combined

of-life factors, with a 75.3 percent

“very important” or “important”

combined importance rating.

rating of 90 percent or greater. The

Importance of the existence of a shovel-ready/pre-certified site: Of no importance 13%

Very important 21%

A minor consideration 24%

Somewhat important 42% •

figure 46

Importance of businesses performing similar activities in the area of search: Of no importance 15%

Very important 29%

Corporate Survey seemed to have

71 percent of the respondents say

spread their priorities out among the

healthcare coverage mandates

factors.

under the Affordable Care Act are

location decisions, on the other hand, is legalization of marijuana. Nearly

•

figure 47

Importance of weather-related factors in the location decision: Very important 11%

Our corporate executive readers

•

Corporate Respondents’ Information Sources

•

Of no importance 28%

A minor consideration 23%

Somewhat important 38% • •

(figure 35). What will affect their

Somewhat important 31%

respondents to our 29th Annual

of-life factor is ranked #3. However,

not affecting their location decisions

A minor consideration 25%

•

The healthcare facilities quality-

•

•

of public schools moved up two

80 percent are looking for data on

•

And, although climate is ranked

•

the Corporate Survey respondents,

Of the 69 percent of respondents

•

Finally, as in years past, quality-

use many sources of information figure 48

AREA DEVELOPMENT | Q1/2015

S19

The 29th Annual

CORPORATE SURVEY

specific locations; two thirds are

90 percent, between one and five

estate transaction (61 percent),

seeking contact names; and more

locations make their “short list” and

perform location studies/comparative

than half want to find available

warrant a visit. Eighty-five percent of

analyses (55 percent), and negotiate

buildings and sites.

the respondents make a final location

and manage the incentives process

More than two thirds of the

decision with three months to a year

(47 percent).

respondents to our 29th Annual

of contacting the locations of interest.

Corporate Survey say that when

Fewer than half of the Corporate

Drawing Conclusions

making location decisions, they start

Survey respondents claim to use

the information-gathering process

outside consultants when making

growth to continue in 2015, this

at least one to two years out and

location decisions. Those that do use

year’s Corporate Survey respondents

contact the locations of interest three

the services of consultants employ

are still hesitant — 72 percent of

to six months later. For more than

them primarily to facilitate the real

them do not expect continuous

Although economists project

economic growth until 2016 or 2017.

Consequently, their location and

A N A LY S I S Is the Midwest (IL, IN, MI, OH, WI) surpassing the South (AL, FL, GA, LA, MS)? The results of Area Development’s 2014 Corporate Survey show that 20 percent of all new domestic facilities planned will be located in the Midwest versus 17 percent in the South.

Over the last couple of years, governors of the Midwest States recognized their strength was not just purely locational, but also that they had a longstanding manufacturing heritage. They recognized that a return to being the heart and soul of manufacturing would only come with sweeping changes in the respective state tax codes, modifications of business regulations, improved highway infrastructure, and measures for growing and improving their existing skilled workforce. Over the past couple of years the Midwest

expansion plans are not as robust as we had hoped. Perhaps their

States have come back. The hard work has paid off.

To sustain this growth, the Midwest is going to have to continue to listen to corporate occupiers and respond to their needs. They are going to have to find ways to work with community partners to make more land and buildings available near population centers with skilled workforces.

The hard work has just begun.

The Midwest must continue to trend in a positive direction.

The Midwest must recognize what the South has recognized for a long time, that economic development is not a sprint but rather a marathon. Hopefully another region will join the lead pack next year, so corporations can start to believe in an economic recovery.

By BRADLEY MIGDAL, Executive Managing Director, Location Advisory & Economic Incentives, TRANSWESTERN

S20

AREADEVELOPMENT

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confidence will be bolstered by the fact that consumer spending, which accounts for more than two thirds of U.S. economic activity, advanced at a 4.3 percent pace in the fourth quarter of 2014 — the fastest since the first quarter of 2006, and up from 3.2 percent in 2014’s third quarter.

“The level of consumer sentiment supports our view that consumer spending will kick the year off on a robust foot after the drop in energy prices left consumers’ wallets full,” noted Bricklin Dwyer, an economist at BNP Paribas, New York, in a Reuters news release. But although the drop in oil prices is putting more money in consumers’ pockets and boosting

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AREA0391.indd 1

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iowaeconomicdevelopment

businessiowa

23/02/15 8:55 PM

The 29th Annual

CORPORATE SURVEY CORPORATE INFORMATION SOURCES

their spending on other products, on the flip side, economists warn that

Sources of site location information used during the past 24 months:

Number of locations/economic development organizations making company’s “short list”?

energy-producing regions could suffer

Site magazines (Area Development, etc.) 81%

1-5

93%

job losses.

B2B industry-related magazines

5–10

7%

More than 10

0%

(food, plastics, etc.)

General business magazines (IndustryWeek, etc.)

Financial publications (The Wall Street Journal, etc.)

Economic data aggregators

32% 53% 46%

(incl. online resources)

47%

Consultants’ studies

29%

Have searched the Internet for site and facility planning information:

Nonetheless, business investment in equipment has increased 8.6 percent over 2014 — more than

Number of locations usually visited before finalizing the location decision:

double the 4.2 percent annual

1 or 2

41%

average from mid-2011 to mid-2013.

Up to 5

51%

Inventories have also increased

More than 5

8%

at an annual rate of $75.3 billion,

Length of time after initial contact that a site location decision is generally reached:

as compared to the $46.6 billion average increase for 2012 and 2013.

Yes

69%

3–6 months

38%

And, most importantly, hiring is up.

No

31%

6 months to 1 year

47%

As stated in beginning of this piece,

1–2 years

11%

More than 2 years

4%

2.9 million jobs were added from the

Type of information searched for online:

Data on specific locations Contact information for economic development agencies (e.g., FacilityLocations.com)

78% Use of outside site selection or business consultants in the location decision process:

66%

Contact information for consultants and/or real estate professionals who can assist in the site search

36%

Listings of available sites and buildings (e.g., FastFacility)

57%

Industry-related news on websites (e.g., AreaDevelopment.com)

52%

Length of time prior to the location decision that the information-gathering process is begun:

3–6 months

9%

6 months to 1 year

25%

1–2 years

46%

More than 2 years

20%

Yes

47%

No

53%

18%

About 3 months later

46%

About 6 months later

22%

More than 6 months later

15%

S22

AREADEVELOPMENT

period. The number of job openings in the U.S. is at the highest level since 2001 and this should translate to increases in wages and even more spending on durable goods such as

If yes, services consultants are providing:

Feasibility studies

42%

furniture, appliances, and vehicles.

Global asset positioning

11%

Notably, 16.4 million vehicles were

Location studies/comparative analyses

55%

sold in 2014, the highest volume

Incentives negotiations/ management

47%

Location decision

29%

Real estate transaction

61%

Other

since 2006.

3%

“Over the long term, where the consumer goes, the economy goes,” concludes Michael Gap, chief U.S. economist at Barclays. If this upward economic trajectory continues, we

Length of time after the initial search that contact is made with the locations of interest:

Within a month

December 2013 to December 2014

expect our 30th Annual Corporate Survey to reveal more new facility and expansion activity to fulfill consumer demand. •••

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AREA0338.indd 1

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The 11th Annual

CONSULTANTS SURVEY

A

s 47 percent of the

also ask the consultants to answer

numbers, 90 percent of the

respondents to our 29th

questions about their clients’ plans

companies using the consultants’

Annual Corporate Survey

and site selection priorities. Needless

services are mid-size to very large

say they utilize the services of

to say, the responses do not line up

(100 to 1,000+ workers) (chart C).

consultants when making plans for

entirely with those of our Corporate

Since 32 percent of those responding

new facilities and/or expansions, we

Survey respondents. The consultants’

to our Corporate Survey are with

responses, as well as a comparison to

companies with fewer than 100

those of our corporate readers, follow.

employees, we can see why the

Percentage of respondents who have worked on a location or expansion project in the following industries:

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

64% 49% 33% 58% 33%

AREADEVELOPMENT

and half in the nondurable goods manufacturing sector. Nearly 60 logistics/warehousing firms with their

energy industry (chart A).

More than 80 percent of the responding consultants say they have helped their clients with

Executive management Tax and finance Real estate Information technology Supply chain or logistics Operations or business unit management

95% 53% 54% 11% 44%

Human resources

48%

68%

chart D

Most of the clients who ask consultants to perform a location search have:

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

33% 63% 63% 30% 30%

chart E

location studies/comparative analyses, and nearly three quarters

9% 36% 23% 31%

Departments of clients’ organizations significantly involved in the site selection process/project:

percent have assisted distribution/

insurance/real estate as well as the 45% 12% 83% 73% 68% 41% 10%

In terms of their employment numbers, client companies utilizing their services are generally:

S24

durable goods manufacturing sector

with firms in financial services/

chart B

chart C

location or expansion projects in the

plans, and fully a third have worked

Percentage of respondents providing the following services to their clients:

Small (20-99 EMPLOYEES) Mid-size (100-499 EMPLOYEES) Large (500-999 EMPLOYEES) Very large (1,000 OR MORE EMPLOYEES)

Nearly two thirds of those responding to our 11th Annual Consultants Survey have worked on

30% 27% 33% 7% 23% 8% 1% 12%

chart A

Feasibility Studies Global Asset Positioning Location Studies/Comparative Analyses Incentives Negotiations/Management Location Decision Real Estate Transaction Other

Profile of the Responding Consultants

handle incentives negotiation and management for their clients.

Interestingly, 68 percent claim to assistant in their clients’ location decisions (chart B).

In terms of their employment FOR FREE SITE INFORMATION, CALL

Effect of the economic recovery on clients’ facility plans:

Plan to open new facilities/expand

82%

Plan to increase hiring Plan to increase capital spending Have no new facility/expansion plans Do not plan to increase hiring Do not plan to increase capital spending

60% 71% 1% 3% 1%

chart F

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responses to our Corporate and

clients who ask them to perform a

thirds say their clients will open just

Consultants surveys would differ.

location search have already gathered

one domestic facility, and a quarter

preliminary data and narrowed down

of the respondents claim these

consultants (95 percent) say

the geographic area in which they wish

organizations will open two (chart I).

executive management at their client

to locate (chart E).

Nearly all the responding

organizations is involved in the location

Since consultants are utilized

decision process. Two thirds also

by their clients once they’ve

interact with operations or business

already initiated the location

unit management at client firms, and

process, it follows that nearly all

half say tax/finance and real estate

of the responding consultants say

departments are involved (chart D).

the economic recovery has had

More than 60 percent also say that

a positive effect on their clients’

hiring (chart F). In fact, more than

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)

16% 12% 5% 5% 14% 7% 2%

three quarters of those responding

chart J

71 percent say they plan to increase capital spending; and 60 percent 78% 21%

If not, expect this to occur:

By Q3 2015

By Q4 2015 By 2016

24% 24% 24%

Not until 2017

28%

chart G

say their clients will also increase

to our Annual Consultants Survey believe the economy has achieved a continuous growth track — twice the percentage of Corporate Survey

Most of the client companies that expect to open new facilities plan to do so within:

1 year 2 years 3 years 4 years or more

respondents who hold that belief — 30% 64% 5% 1%

and of those consultants who feel it has not, nearly half expect this to occur by year’s end (chart G).

Number of new domestic facilities average client plans to open:

chart I

Types of new domestic facilities clients are opening (as a percentage of total new domestic projects):

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

27% 22% 12% 8% 9% 9% 7% 5%

chart K

chart H

One Two Three Four Five or more

Clients’ domestic location projects are slated for the following regions (as a percentage of total new domestic projects):

2% 10% 15% 11%

clients plan to open new facilities;

Yes No

projects differs somewhat from

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)

facility plans: 82 percent claim their

Believe the economic recovery has achieved a continuous growth track:

The location of clients’ domestic

64% 27% 5% 1% 3%

Consultants’ Clients’ Facilities Plans It also follows that most (94 percent) of the consultants say their client companies expect to open new facilities within one to two years (chart H). Of those, nearly two

Number of new foreign facilities average client plans to open:

One Two Three Four Five or more

60% 30% 5% 2% 2%

chart L

AREA DEVELOPMENT | Q1/2015

S25

The 11th Annual

CONSULTANTS SURVEY

that reported by the respondents to

Mississippi) and the South Atlantic

are also working on many more

our Annual Corporate Survey. The

(North Carolina, South Carolina,

projects for Eastern and Western

largest share of projects (16 percent)

Virginia, West Virginia) (15 percent).

Europe — 13 percent for each region

that the responding consultants are

Only 12 percent of their clients’

— and fewer for Asia — just 14

working on is slated for the South

projects are to be located in the

percent as compared with 25 percent

(Alabama, Florida, Georgia, Louisiana,

Midwest (Illinois, Indiana, Michigan,

of those planned by the Corporate

Ohio, Wisconsin), whereas our

Survey respondents (chart M).

When it comes to new Asian

Clients’ foreign location projects are slated for the following regions (as a percentage of total new foreign projects):

Corporate Survey respondents have slated 20 percent — the largest share

facilities, the consultants’ clients plan

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

— of their projects for that region

a third for China, 19 percent for India,

(chart J). Roughly a quarter of the

and 17 percent for Malaysia, with the

consultants’ client organizations’

rest going to Vietnam, Singapore, or

projects are destined to house

other Asian nations (chart N). The

11% 27% 3% 8% 7% 13% 13% 2% 1% 2% 14%

Clients’ new facilities slated for Asia, will be located in the following nations (as a percentage of total planned Asian projects):

33% 19% 10% 12% 17% 10%

chart N

distribution centers (chart K).

Sixty percent of those responding Survey say that, on average, their clients will open just one new foreign facility, while 30 percent claim they will open two (chart L). By comparison, nearly 40 percent of our Corporate Survey respondents claim they will open three or more foreign

42% 18% 4% 4% 11% 10% 8% 3%

And while our Corporate Survey respondents say a quarter of their new foreign facilities are slated for Canada and 9 percent for Mexico, those responding to our Consultants Survey say only 11 percent of their clients’ projects will go to Canada and 27 percent to Mexico. The consultants

chart O

S26

AREADEVELOPMENT

Most clients that expect to expand facilities plan to do so within:

1 year 2 years 3 years 4 years or more chart P

Most clients that expect to relocate facilities plan to do so within:

1 year 2 years 3 years 4 years or more

27% 63% 10% 0%

Of those clients planning to relocate facilities, the primary reasons for moving:

High taxes Excessive government regulations Healthcare costs Proximity to suppliers/markets served Poor infrastructure Labor availability Labor costs Quality of life concerns chart R

FOR FREE SITE INFORMATION, CALL

42% 51% 5% 2%

chart Q

facilities.

Types of new foreign facilities clients are opening (as a percentage of total new foreign projects):

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

than 20 percent will be warehouse/

to the 11th Annual Consultants

chart M

China India Vietnam Singapore Malaysia Other Asian Nation

manufacturing operations, and more

800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

52% 44% 4% 74% 9% 61% 48% 9%

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AREA0392.indd 1

24/02/15 3:53 PM

The 11th Annual

CONSULTANTS SURVEY

corporate respondents more heavily

to serve as distribution/warehouse

instability (i.e., congressional budget

favored China and India.

centers (chart O).

woes) as the reasons preventing

Again pointing to the fact that

their client companies from spending

that more than 40 percent of the new

consultants are called upon once

more of their earnings on investment

foreign facilities will be manufacturing

the location decision process has

in U.S. facilities (chart T).

plants and nearly a fifth are slated

commenced, 93 percent of the

The responding consultants say

Have seen an increase in the number of companies establishing foreign facilities as opposed to domestic ones over the last year:

Yes No

28% 72%

chart S

Issues preventing client companies from spending more of their earnings on investment in U.S. facilities:

And although 96 percent of the

respondents say their clients expect

corporate respondents say they have

to expand facilities within the next

no plans to relocate a foreign facility

year or two, and 90 percent say their

back to the U.S., nearly half of the

clients expect to relocate facilities

responding consultants say their

within that time frame as well

clients have reshored a facility. Half

(charts P and Q). Three quarters

cite rising foreign labor costs and

of the responding consultants claim

the cost of transporting supplies/

their clients’ relocations plans are

products as the reasons for their

High corporate taxes/tax uncertainty Excessive government regulation Highly litigious environment Healthcare costs/regulations under the Affordable Care Act Economic instability (I.E., CONGRESS’ INABILITY

57% 53% 14%

a result of the need to be in closer

clients’ reshoring moves, and more

proximity to suppliers and/or markets

than a third also say there have been

served; about 60 percent say their

product quality issues with their

33%

clients need to relocate to satisfy

clients’ foreign operations (chart U).

TO RESOLVE BUDGETARY ISSUES, ETC.)

53% 41%

labor force needs; and nearly half say

Shortage of skilled labor chart T

need to cut labor costs (chart R).

Clients have relocated a facility back to the U.S. from a foreign location (reshored):

Yes No

clients’ relocations are a result of the

44% 56%

If so, reasons for doing so:

Rising foreign labor costs

53%

Rising foreign energy costs Problems finding qualified and/ or English-speaking labor Product quality issues Legal or regulatory problems Lack of robust utility infrastructure Difficulties transporting supplies/products Cost of transporting supplies/products Social/cultural barriers Other

20% 17% 37% 10% 10% 40% 50% 10% 23%

Although nearly all of the

Consultants’ Clients’ Location Priorities Similar to our request to the

respondents to our Corporate Survey

Corporate Survey takers, we asked

say they have no plans to relocate

the consultants to rate the site

a domestic facility to offshore, a

selection and quality-of-life factors

quarter of those responding to our

on which their clients base their

Consultants Survey say they have

location and expansion decisions as

seen an increase in the number

“very important,” “important,” “minor

of companies establishing foreign

consideration,” or “of no importance”

facilities as opposed to domestic

(chart V). We then added the “very

ones in the last year (chart S).

important” and “important” ratings

More than half of the consultants

together to rank the factors (chart W).

cite high corporate taxes, excessive government regulation, and economic

Unlike our corporate respondents, the respondents to our 11th Annual

chart U

S28

AREADEVELOPMENT

FOR FREE SITE INFORMATION, CALL

800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

CONSULTANTS SURVEY 2014* Site Selection Factors

Very Important %

Important %

Minor Consideration %

Of No Importance %

90.4 18.1 34.7 65.8 49.3 38.4

6.9 47.2 48.6 31.5 32.9 35.6

1.4 30.6 15.3 2.7 16.4 17.8

1.4 4.2 1.4 0.0 1.4 8.2

Labor

Consultants Survey put much more

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

stress on the importance of the top-

Transportation/Telecommunications

10 factors — all are considered “very

the #1 factor — highway accessibility,

Highway accessibility Railroad service Accessibility to major airport Waterway or oceanport accessibility Availability of advanced ICT services

which has a 98.6 percent combined

Finance

importance rating in the Consultants Survey. It follows that proximity to

important” or “important” by more than 90 percent of the responding consultants. Both groups do agree on

major markets ranks as #8 with a combined 91.5 percent importance rating. And another transportation-

76.1 15.5 37.5 11.4

22.5 53.5 48.6 35.7

1.4 23.9 13.9 34.3

0.0 7.0 0.0 18.6

18.3

43.7

33.8

4.2

Availability of long-term

12.5

26.4

54.2

6.9

Corporate tax rate Tax exemptions State and local incentives

29.2 44.4 63.9

56.9 45.8 31.9

13.9 9.7 4.2

0.0 0.0 0.0

57.8 60.6 32.4

31.0 35.2 57.8

9.9 4.2 9.9

1.4 0.0 0.0

43.7

53.5

2.8

0.0

16.9 42.3 28.2 52.1 38.0

45.1 49.3 50.7 39.4 47.9

26.8 8.5 19.7 8.5 11.3

11.3 0.0 1.4 0.0 2.8

38.0

39.4

16.9

5.6

18.1

48.6

29.2

4.2

22.2

45.8

26.4

5.6

Very Important

Important

Minor Consideration

Of No Importance

4.2 8.3 8.3 16.7 23.6 5.6 4.2 19.4 16.7

50.0 48.6 45.8 45.8 48.6 38.9 43.1 59.7 58.3

43.1 37.5 40.3 34.7 20.8 48.6 43.1 20.8 23.6

2.8 5.6 5.6 2.8 6.9 6.9 9.7 0.0 1.4

financing

Other

97.3 percent. It should be noted that

Available buildings Available land Occupancy or construction costs Expedited or “fast-track” permitting Raw materials availability Energy availability and costs Environmental regulations Proximity to major markets Proximity to suppliers Inbound/outbound shipping costs Proximity to college/technical training Water availability

availability of skilled labor holds the

Quality-of-life factors

related factor, railroad service, had the largest percentage increase (19 points).

It jumped five spots in the consultants’ rankings to #20 with a combined importance rating of 69 percent.

As expected, the consultants give much more importance to availability of skilled labor and labor costs, which are tied for the #2 spot with a combined importance rating of

top spot, however, in the separate “very important” category — more than 90 percent of the consultants rated it as such.

Asked separately if the availability of skilled labor is having an effect on their clients’ facility plans, 83 percent say, “yes,” with the majority (87 percent) saying workers are primarily

Climate Housing availability Housing costs Healthcare facilities Ratings of public schools Cultural opportunities Recreational opportunities Colleges and universities in area Low crime rate

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

AREA DEVELOPMENT | Q1/2015

S29

The 11th Annual

CONSULTANTS SURVEY Combined Ratings

CONSULTANTS SURVEY 2014* Site Selection Factors

2014

the factor showing the second-biggest percentage

2013

increase (12.2 points) is availability of unskilled labor,

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

98.6 97.3 97.3 97.2 95.8 95.8 91.6 91.5 90.2 90.2 88.8 86.1 86.1 85.9 83.3 82.2 78.9 77.4 74.0 69.0 68.0 66.7 65.3 62.0 62.0 47.1 38.9

Quality-of-life factors

2014

97.4 (2) ** 98.3 (1) 92.9 (5T) 87.7 (10) 93.0 (4) 93.8 (3) 88.6 (8T) 92.9 (5T) 84.2 (16) 91.9 (7) 83.1 (18) 86.8 (11) 88.6 (8T) 86.7 (12) 79.0 (20) 85.9 (14) 84.1 (17) 81.8 (19) 86.0 (13) 50.0 (25) N/A 78.1 (21) 53.1 (24) 85.0 (15) 69.9 (22) 39.3 (26) 59.4 (23)

with a 65.3 percent combined importance rating, although still ranked by the consultants among the bottom half of the site selection factors.

On a workforce related note, the respondents to our Annual Consultants Survey do not believe (71 percent) the quality of the workforce will be negatively affected in states that are legalizing marijuana, and roughly the same percentage say such laws will have no effect on clients’ location decisions (chart Z). This is in contrast to what our Corporate Survey respondents noted: more than 60 percent say it will affect the quality of the workforce, and nearly half the corporate respondents say legalization of marijuana will affect their decisions to locate in states that have such laws on the books.

The responding consultants realize that speed to market is of great importance. Expedited or “fasttrack” permitting jumped six spots and 9.5 percent points in their rankings to #4, considered “very important” or “important” by 97.2 percent of those

2013

responding to the 11th Annual Consultants Survey.

Ranking 1. Colleges and universities in area 2. Low crime rate 3. Ratings of public schools 4. Healthcare facilities 5. Housing availability 6. Climate 7. Housing costs 8. Recreational opportunities 9. Cultural opportunities

lacking advanced skills (chart X). Interestingly,

79.1 75.0 72.2 62.5 56.9 54.2 54.1 47.3 44.5

Available land follows at #5 with a 95.8 percent

82.5 (1) 78.0 (2) 77.0 (3) 70.2 (5) 68.4 (6) 61.4 (7) 74.3 (4) 49.5 (9) 51.7 (8)

combined importance rating. It was noted earlier that the consultants are working on projects that will house a large number of employees so suitable parcels of land for large facilities may be reflected in the high rating of available land.

Tied for #5 with the same importance rating of 95.8

*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. ** 2013 ranking

percent is the state and local incentives factor. This is logical considering the fact that three quarters of the responding consultants say they handle incentives

chart W

S30

AREADEVELOPMENT

FOR FREE SITE INFORMATION, CALL

800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

Who we are. What we do.

Print media Area Development Magazine Since 1965 the industry’s most respected magazine

Online media Area Development.com FacilityLocations.com E-Newsletters The leading online resource for site and facility planning

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Online database marketing FastFacility.com The world’s most viewed building and site database

Custom GIS applications FastGIS & FastMap Affordable cutting - edge GIS Technology for your website

Let us work with you.

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www.areadevelopment.com

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www.fastfacility.com

The 11th Annual

CONSULTANTS SURVEY

negotiation and management for their clients. And a related factor, tax exemptions, ties for the #9 spot.

Availability of skilled labor is having an effect on clients’ facility plans:

Yes No

83% 17%

Basic skills

Advanced skills

(E.G., ADVANCED WELDING, MACHINE TOOL PROGRAMMING, BIOPROCESSING, ETC.)

STEM skills (SCIENCE, TECHNOLOGY, ENGINEERING, MATHEMATICS)

consultants say incentives are more important to their clients now than in the past (chart FF). Furthermore,

If yes, workers are lacking: (E.G., READING COMPREHENSION, MATHEMATICAL COMPETENCY, ETC.)

Nearly two fifths of the responding

42% 87% 57%

chart X

the majority of those responding to our Annual Consultants Survey (86

Yes No

28% 72%

chart Y

cash grants the most important decisions, followed by incentives such as free land, utility rate subsidies, and infrastructure support (75 percent) (chart GG).

The responding consultants

Quality of the workforce would be negatively affected in states that are legalizing marijuana use:

Yes No

29% 71%

Legalized marijuana laws would affect clients’ decisions to locate a new facility in states that have enacted such laws:

Yes No

28% 72%

are also concerned with energy availability and costs, which was ranked #7 among the site selection factors, considered “very important” or “important” by 91.6 percent,

e.g., fracking, will have no effect Importance of water availability to clients’ operations:

Very important Somewhat important A minor consideration Of no importance

on their clients’ location decisions 35% 47% 15% 3%

(chart CC). Nonetheless, roughly development is more important to (chart DD). Nearly 90 percent say

Water availability is affecting clients’ location decisions:

their clients are making energy-saving

Yes

61%

modifications to their facilities; close

No

39%

to 70 percent say their clients are

chart BB

S32

AREADEVELOPMENT

chart CC

Sustainable development is more important to clients now than in the past:

Yes No

63% 37%

chart DD

If so, measures undertaken to reduce their companies’ “carbon footprint”:

LEED certification for new or existing facilities Energy-saving modifications to existing facilities Installed on-site renewable generation Change of supply or distribution routes/ methods Recycling or re-use of waste products, etc.

69% 87% 31% 35% 64%

chart EE

Relative importance of incentives to clients when making location decisions:

Have always been of great importance Are more important now than in the past Are less important now than in the past

54% 38% 8%

chart FF

the same percentage feel sustainable their clients now than in the past

chart AA

38% 62%

although 62 percent of them say new unconventional sources of energy,

chart Z

Yes No

percent) believe their clients consider incentive when making location

Healthcare coverage mandated under the Affordable Care Act is affecting clients’ location decisions:

New unconventional sources of energy (e.g., fracking) having an effect on client companies’ future location decisions:

Types 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.)

chart GG

FOR FREE SITE INFORMATION, CALL

800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

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AREA0393.indd 1

24/02/15 3:52 PM

The 11th Annual

CONSULTANTS SURVEY

seeking LEED certification for new

say it is very or somewhat important,

respondents to our Annual Consultants

or existing facilities; and nearly two

and more than 60 percent say it

Survey say they have used magazines

thirds claim their clients are recycling

is affecting their clients’ location

like Area Development as sources

or re-using waste products (chart EE).

decisions (charts AA and BB).

of site selection information over

Meanwhile, only 49 percent of

the past two years. More than three

costs, which was ranked #2 by the

those responding to our Corporate

quarters also say they use websites

Corporate Survey respondents, is

Survey say water availability is very or

like AreaDevelopment.com as well as

ranked #9 by the respondents to our

somewhat important.

economic data aggregators. Three fifths

Occupancy and construction

Annual Consultants Survey — 90.2

The quality-of-life factors

percent consider this factor as “very

are ranked separately, and the

important” or “important.”

consultants’ ranking of these factors

of the respondents actually maintain their own site selection databases.

It’s to be expected that nearly

We also asked the consultants

has not changed significantly over the

all the responding consultants

about water availability’s importance

prior year’s survey. Similar to last year,

(93 percent) search the Internet

to their clients’ operations; 82 percent

the consultants rank colleges and

for site and facility planning

universities in area as the #1 quality-

information. Nearly all are seeking

of-life factor, followed by low crime

data on specific locations as well as

Clients have had to repay incentives monies because investment and/or job creation obligations were not met:

Yes No

rate in the #2 spot.

31%

Although all the quality-of-life

69%

factors are rated as “very important”

chart HH

or “important” by fewer than 80

Communities you have worked with offering specific incentives for “green” initiatives:

Yes

44%

No

56%

chart II

percent of the respondents to our Consultants Survey, the factors showing the biggest drop in the combined importance ratings are housing costs (down 20.2 percentage points)

Clients have encountered “green performance” requirements as a stipulation for receiving incentives:

and housing availability (down 11.5

Yes

31%

percentage points). This reflects the

No

69%

abundant supply of affordable homes

chart JJ

(or depressed prices) still available in many parts of the country.

Importance of the existence of an available building in clients’ site searches:

Very important Somewhat important A minor consideration Of no importance

51% 31% 14% 4%

Consultants’ Information Sources Fully three quarters of the

AREADEVELOPMENT

Very important Somewhat important A minor consideration Of no importance

FOR FREE SITE INFORMATION, CALL

44% 43% 10% 3%

chart LL Importance of businesses performing similar activities to clients in the area of search:

Very important Somewhat important A minor consideration Of no importance

33% 57% 7% 3%

chart MM Importance of weather-related factors in clients’ location decisions:

Very important Somewhat important A minor consideration Of no importance chart NN

chart KK

S34

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

800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

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23/02/15 8:54 PM

Sponsors

The 11th Annual

CONSULTANTS SURVEY

Debi V. Durham, Director Iowa Economic Development Authority 200 E. Grand Ave. Des Moines, IA 50309 515-725-3000 or 515-725-3010 business@iowa.gov www.iowaeconomicdevelopment.com

CONSULTANTS’ SOURCES OF INFORMATION Sources of site selection information used during the past 24 months:

Site magazines (AREA DEVELOPMENT, ETC.) Site location websites (WWW.AREADEVELOPMENTCOM, ETC.)

75% 78%

B2B industry-related magazines (FOOD, PLASTICS, ETC.)

33%

General business magazines (INDUSTRYWEEK, ETC.)

49%

Financial publications (THE WALL STREET JOURNAL, ETC.)

45%

Information searched for online:

Data on specific locations 97% Contact information for economic development agencies 93% Contact information for other consultants and/or real estate professionals who can assist in the site search 43% Listings of available sites and buildings (E.G., FASTFACILITY) 73% Industry-related news on websites (E.G., AREADEVELOPMENT.COM) 71%

Economic data aggregators (INCL. ONLINE RESOURCES)

78%

Consulting firm maintains its own site selection database:

Yes No

61% 39%

Have searched the Internet for site and facility planning information:

Yes No

93% 7%

Use of social media (e.g., Twitter, LinkedIn, etc.) for site and facility planning:

Yes No

27% 73%

Number of locations/economic development organizations that usually make a client’s “short list”:

1-5

80%

5–10

16%

More than 10

4%

Number of locations client usually visits before finalizing the location decision:

1 or 2

30%

Up to 5

59%

More than 5

11%

Length of time after a client engagement that a location decision is reached:

3–6 months 6 months to 1 year 1–2 years

32% 52% 15%

More than 2 years

0%

contact information for economic

making a final location decision. More

development agencies online. Three

than 80 percent also say that once

quarters are also looking for listings of

their services have been engaged,

available sites and buildings.

turnaround time on a location decision

Eighty percent of the responding

is fairly quick — from three months

consultants say between one and five

to a year. It seems our corporate

locations make their clients’ “short list,”

respondents follow the same time

with nearly 90 percent saying their

frame, whether they engage the

clients visit the same number before

services of consultants or not. •••

S36

AREADEVELOPMENT

FOR FREE SITE INFORMATION, CALL

Crystal Sircy, Senior VP, Business Development Enterprise Florida 800 N. Magnolia Ave., Ste. 1100 Orlando, FL 32803 1-877-YES-Florida Fax: 407-956-5599 c s i rc y @ e n t e r p r i s e f l o r i d a . c o m w w w. p e r f e c t b u s i n e s s c l i m a t e . c o m

Mandy Lambert, Commissioner, Department for Business Development Kentucky Cabinet for Economic Development Old Capital Annex 300 W. Broadway Frankfort, KY 40601 800-626-2930 M a n d y. L a m b e r t @ k y. g o v w w w. T h i n k K e n t u c k y. c o m David Ramsey, Global Business Division Director Mississippi Development Authority P.O. Box 849, Jackson, MS 39205 601-359-3155 Fax: 601-359-4339 dramsey@mississippi.org w w w. m i s s i s s i p p i . o r g Michael S. Kearney Director, Economic Development Ameren P.O. Box 66149 MC 350 St. Louis, MO 63166-6149 800-981-9409 Fax: 314-206-0182 m k e a r n e y @ a m e re n . c o m w w w. A m e re n . c o m / E c D e v Ted Allison, CEcD Director of Economic Development MidAmerica Industrial Park P.O. Box 945 Pryor Creek, OK 74362-0945 918-825-3500 or 888-627-3500 tedallison@maip.com w w w. m a i p . c o m Allen Borden Assistant Commissioner, Business Development Tennessee Department of Economic and Community Development 312 Rosa L. Parks Avenue, 27th Floor Nashville, TN 37243-0405 615-532-1294 a l l e n . b o rd e n @ t n . g o v TNECD.com Doug Lawyer, CEcD Vice President of Economic Development Knoxville-Oak Ridge Innovation Valley 17 Market Square #201 Knoxville, TN 37902 865-637-4550 d l a w y e r @ k n o x v i l l e c h a m b e r. c o m w w w. k n o x v i l l e o a k r i d g e . c o m

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INCENTIVES

Well-Designed Incentives: Not a Zero-Sum Game When the goals of both the company and the community in which it is locating are clear, incentives can be mutually beneficial.

By Christopher Steele, Global COO & North American President; and Laurens van der Schoor, Incentives & FDI Analyst; Investment Consulting Associates (ICA)

W

hether it be the book The Great American Jobs Scam, the DaimlerChrysler Corp. v. Cuno case in 1998, or the series of New York Times articles

by Louise Story, the practice of using tax credits, grants, and other breaks to lure corporate investment has received a great deal of external scrutiny.

The press and public alike have engaged in a legitimate debate over whether incentives are in fact good public policy.

A New Push For Transparency And Accountability Ironically, government agencies themselves have traditionally not been the parties pushing for quantitative and qualitative analysis of incentive performance.

While many incentive programs have their roots in well-constructed economic development policy, few have explicit measurement and adjustment provisions written into the programs. Still others that have been in place for long periods of time may have seen their oversight and evaluation processes dismantled by other subsequent legislation or organizational reshuffling.

Governing — a magazine that covers politics, policy, and management for state and local government leaders — ran a story entitled “How Local Governments Are (or Aren’t) Examining Economic Development Dollars.”1 The author made the point that while there is considerable debate over the effectiveness of tax breaks and other incentives, few governments have actually put effective measurement regimes in place. This observation was confirmed by an article published in The Economist2, in which the reporter demonstrated how good individual states

COMPANY

COMMUNITY Overlapping Interests

WIN\ To Provide WIN

NEW JOBS CAPITAL INVESTMENT

To Provide TAX CREDITS CASH GRANTS

are at evaluating their tax incentive programs, based on a 2012 Pew Research Center study. The key takeaway is that each state has implemented tax incentive programs, although none is thoroughly monitoring and evaluating the performance of the incentives awarded under these programs.

Are Incentives Good Corporate Practice?

What are the implications for corporate investors if governments re-design their incentive programs to provide for better transparency?

Investors need to understand that strict audit reviews and standards imply the frequent submission (e.g., annually or quarterly) of detailed company data on the investment project and its socioeconomic performance as to economic development.

While these imposed reporting and monitoring conditions could considerably increase the administrative burden of businesses receiving incentives, they do ensure the ongoing compliance to pre-defined eligibility criteria, while simultaneously enhancing transparency among all stakeholders.

This is not without risk, however.

Information that is required to be publically announced might be of a sensitive or confidential nature to the companies that have received the incentives. The challenge for businesses here will be to leverage between corporate confidentiality on AREA DEVELOPMENT | Q1/2015

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the one hand and the optimization of incentive benefits on the other hand.

At this point, it’s also important to reinforce a key location strategy truism: No incentive ever turned a bad location into a good one.

Proper location due diligence must precede and dictate good location investment decision-making. The ability to address core business drivers such as access to markets, skilled workforce, long-term economic advantages, proper infrastructure, efficient and flexible facilities, and regulatory and permitting environment are all essential to a proper location decision. Incentives are not essential. They can help to strengthen the bond between the public and private sector, but they are not indispensable.

program reflects certain policy objectives, including: • To overcome a competitive weakness; • To promote investment in deprived areas; • To attract particular industries; and •To change the image and perception of a location.

“

Using Government Evaluations To Determine Corporate Risk/ Benefit

WHEN BOTH A COMPANY’S AND COMMUNITY’S GOALS ARE CLEAR, THE DESIRED OUTCOMES ARE REALISTIC, AND THE RESPONSIBILITY OF ALL PARTIES EXPRESSLY LAID FORTH, BENEFITS CAN BE ACHIEVED FOR BOTH THE PUBLIC AND PRIVATE SECTOR.

From a corporate point of view, it is essential to understand the rationales of authorities behind the allocation of incentives to investors. This enables businesses to better comprehend and comply with the requirements of incentive programs to ensure qualification for these programs and optimization of the potential benefits. Companies can anticipate specific eligibility criteria by emphasizing their strengths and opportunities for economic development, with the perquisite that they have a sound understanding of the principles on which the incentive program is founded. This requires the corporate investor to carefully examine the incentive program before applying in order to truly capture its benefits.

Clearly, the legitimacy for granting investment incentives is directly associated with their function to attract and retain (foreign and domestic) investments, which act as an important conduit for economic development. As a policy instrument, officials design tailor-made incentive programs to attract investments that complement their economic development policies and strategies. Incentives are perceived to alter the decision-making process of the corporate investor in favor of a certain location and the exact specifications of the investment (e.g., new jobs, capital expenditures) by compensating for possible operational difficulties or cost disadvantages related to the considered location. However, when a solid and stable investment climate is absent, incentives simply can’t turn this bad location into a good one, nor do they address major disconnections between investors’ requirements and a location. Nevertheless, awarding incentives as part of an economic development

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Incentive programs vary significantly in terms of policy framework (loose vs. restricted), target industries and activities (broad vs. narrow), disclosure (opaque vs. transparent), and type (e.g., tax holidays, tax credits, and cash grants). What they have in common is that authorities design incentive programs to generate the largest economic impact possible. This implies a trade-off between investment projects that create the greatest socio-economic benefits vis-à-vis lower incentive rates.

To be legitimized, the relative return on the investment and the incentive(s) the investor is “rewarded” with should be in proportion. In other words, employment creation is essential, but a threshold exists as to the amount of incentives that can be granted per newly created job.

Corporate investors should take notice of the fact that larger investment projects are no guarantee for higher incentive values: more isn’t always better.

Traditionally, incentive programs preassessed potential beneficiaries on purely quantitative eligibility criteria such as newly created jobs, investment capital expenditures, and increased exports.

More recently, as authorities have come under increased public scrutiny due to budget cuts and financial pressure, incentive programs need to prove their value of allocating taxpayers’ money to investments in the context of contributing to regional economic development. This implies measuring the economic outcome and social impacts realized by incentive programs to gauge the relative return on investment projects.

This line of reasoning has impacted the design of incentive programs in two ways. First, potential beneficiaries are more strictly examined on a range of qualitative eligibility criteria. Such indicators range from certain highquality requirements as to employment creation (e.g., level of education, fixed wage minimum), employees (e.g., hiring personnel from certain target groups, staff training) to the direct environment of the investment (e.g., sustainability measures, transfer of R&D, and technologies).

Secondly, sound and comprehensive “monitoring and evaluation” (M&E) frameworks have been implemented, tracing businesses which have been granted incentives to ensure a durable compliance with the agreed-on criteria on which the incentives have been awarded. This requires the

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formulation of “key performance indicators” (KPIs) and — when the investor does not comply with the KPIs — the enforcement of so-called “clawback mechanisms.” Clawback provisions can be enforced upon incentive beneficiaries in cases of noncompliance to (partly) refund or adjust the amount of awarded incentives.

Once Again, Are Incentives Good Corporate Practice?

Of course, going to the public sector for help usually means taking advantage of incentive or credit programs.

Incentives and credits have had something of a mottled reputation for some time. For some, they are an effective way of building new clusters, bringing new investment or more commitment to an area that needs it. They can be characterized as tools to build upon a region’s existing strengths. Or, conversely, they can be described as corporate welfare — readily and commonly misused by corporations and the consultants who advise them. Such perceptions — if not properly addressed or managed — can cause significant near-term public relations problems as well as difficulties with government relations in the longer term.

However, well-designed and negotiated incentives are not a zero-sum game and should be included in some way in framing the relationship between the public and private sector. It is also important to understand that incentives need not be purely financial, but may — as has been implied

elsewhere in this article — affect other risks that carry a financial implication.

When both a company’s and community’s goals are clear, the desired outcomes are realistic, and the responsibility of all parties expressly laid forth, benefits can be achieved for both the public and private sector. These incentives must be evaluated in the context of the community’s other business fundamentals, the company’s obligations under the program(s), and the potential risk of clawbacks so that the program complements the other reasons for considering the community. It is critically important that any knowledge gained in this negotiation be passed along to the team who will be responsible for the project execution and future operation for the new location. ■ 1

Mike Maciag, November 5, 2014. Accessed at http://www.governing.com/topics/finance/ gov-economic-development-tax-incentive-survey-of-local-governments.html

2

The Economist, February 22, 2015. Accessed at http://www.economist.com/news/ special-report/21596671-governments-have-do-what-they-can-attract-business-plumb-centre

CHRISTOPHER STEELE is global COO and the North American President of Investment Consulting Associates, a business consulting firm specializing in location strategy, site selection, and business attraction. He may be reached at chris@ic-associates.com or you may follow his tweets at @icanortham.

LAURENS VAN DER SCHOOR is incentives and foreign direct investment (FDI) analyst and consultant with Investment Consulting Associates. He may be reached at laurens@ic-associates.com.

NAMED TOP STATE FOR BUSINESS BY AREA DEVELOPMENT, CNBC AND SITE SELECTION These latest honors only confirm what everyone at Georgia Power already knew: Our state is a great place for business. If you’re considering relocating or expanding here, our economic development team will work closely with the Georgia Department of Economic Development to help you with labor analysis, market data, available properties – whatever you need – a t n o c h a r g e . To g e t t h e s c o o p o n all Georgia has to offer, visit SelectGeorgia.com.

©2015 Georgia Power Company. All rights reserved.

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SITE SELECTION

The U.S. — A Growing Competitor for New Manufacturing Plants As companies continue to review their global site selection options, they are realizing the strong, measurable advantages a U.S. location offers.

By Alexandra Segers, International Senior Account Executive/Program Manager, SSOE Group

I

t has been common for many original equipment manufacturers (OEMs) to establish themselves in Central and South America as well as China and to take their suppliers with them. However, a significant number of foreign companies are now considering locations in North America, and specifically the United States, indicating a shift in that trend with suppliers following.

For example, SSOE was recently employed by a paper manufacturer who had decided to locate its new mill in Brazil. The company believed since their process involved the use of Brazilian pulp, Brazil would be the most economical choice.

Nevertheless, after comparing Brazil, Mexico, and the U.S., the client decided to consider sites in the U.S.

Site • Space: 300 acres • Format: rectangular • Slope: max. 2% • No FEMA flood plain • No wetland, streams • Height restrictions: >80 ft.

• Site owners: 1 • No buildings on site • No archaeological findings • Phase 1 report in place

Other • Shift work allowed • Approx. 2,000 jobs • Investment: $148 million • IBC 2009 or earlier

Figure 1

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Site area • No endangered species • Air pollution: attainment • Seismic A, B, C or D: ok • Wind load: 90–110 mph • Residents: >1,500 ft.

• Zoning: heavy industry

?

Logistics • Interstate: close proximity • Int’l. airport: max.

100 miles • Rail access: preferable • Barge access: not required

Soil • Soil bearing: >3,500 psf • Groundwater level: > 15 ft.

• No expanding clay

Market

Utilities • Gas consumption (dual feed) • Water consumption • Wastewater • Electricity consumption (dual feed) • 2nd water source • Fiberoptics

• States: MN, IA, OH, NE, KS, MO, WI, TX, IN, TN, GA, AL, SC, NC

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In the initial stage of the site selection process, SSOE gathered information from the client on a wide range of relevant issues. These included: • Customer proximity • Supplier proximity • Logistics (raw material and finished product) • Competitor proximity • Legal, financial, and marketing aspects • Land requirements for initial project and all future master plan phases • Utility requirements (water, sewer, gas, electricity, fiberoptics), based on both current use and future expansions • Workforce availability in a 45-mile radius of the site • Technical labor skills required • State/local training programs • Recurring costs (state and local taxes, wages, payroll taxes, utility costs, etc.)

• Proximity to an international airport • Rail access and proximity to an intermodal hub • Incentives and cost offsets • Quality of life • Cost of living • Cost of construction An example of the criteria defined in the beginning of the site selection process is shown in Figure 1.

The Process After defining the project specifications and criteria that would impact the client’s decisions, SSOE 800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

sent out request for proposals (RFPs) to the qualified states and communities. Having a port was essential for the paper mill project and was a key factor in receiving 20 suitable site proposals from six states in the Southeast U.S. The entire project team visited the short-listed sites, and requested incentive proposals for the final three sites.

By way of explanation, local, state, and federal governments provide a wide variety of incentives (statutory and discretionary). It is important to determine the true value of the incentives being offered. Many communities provide large dollar value incentives that, in reality, no company can capture. One common example is state income tax credits, in which the available credits far exceed the potential tax liability of any site selection project.

SSOE developed a cost model — including all incentives, utility costs, freight costs, and wages — to determine a bottom line value for the paper mill project for all three mentioned countries: the U.S., Mexico, and Brazil. A comparison of factors that impact the site selection in Mexico and Brazil is shown in Figure 2.

After all comparisons had been done and the incentive proposals were evaluated, the company decided to locate its new greenfield plant in the Southeast U.S. It is no longer

A Comparison The low cost of wages for workers is typically the most significant benefit to having a manufacturing plant in Mexico. One key challenge is finding a suitable site that provides sufficient water capacity (mainly through wells) and power reliability.

Additionally, many European and Asian companies fear the high crime rate currently existing in certain areas of Mexico and do not want to expose their expats to the potential dangers of working there.

Brazil is currently the seventhlargest world economy. Due to the recent World Cup and the upcoming Olympics, the design companies and contractors are at capacity. The economic development department is currently not very interested in or supportive of new projects.

AREA DEVELOPMENT | Q1/2015 Area_Template.indd 1

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19/08/14 4:08 PM

MEXIICO CO MEX XICO MEXICO MEXICO O MEXICO

Land Price (per acre)

Construction Cost

Utilities

Wages for Workers

Up to US$260,000

Building costs from developer (warehouse standard) = US$32.52 – US$37.16/sq. ft.

Power = US$0.13 /kWh

At US$3.15 (hourly compensation), wages are much lower than in the U.S., Brazil, or Europe

Rent = US$3.50 – US$4.50/sq. ft.

BRAZIL BRAZIL BRAZ BRAZIL ZIL BRAZIL BRAZIL

Up to US$129,000

Structural building steel in place incl. erection amounts to US$6,520/ton (in comparison: U.S. approx.

US$2,850/ton)

Figure 2

uncommon for companies to decide to build plants in the U.S. instead of in other countries. Currently, several European companies — BASF, Daimler, BMW, SGL, Wacker, and Airbus — are investing in the Southeast U.S. Compared to Europe, energy costs are less than half the price, and abundant gas is available, due to fracking. The recent strikes in Germany by the German railway and the German airline Lufthansa, as well as the blocking of freight traffic, will strengthen companies’ decisions to invest in the U.S.

Advantages of a U.S. Location Many states in the Southeast and Southwest offer tax incentive programs that are attractive for new and expanding industries, in addition to taxes that are among the lowest in the nation. The rapidly growing southeastern region, with its many current automotive and aerospace projects, also offers an attractive transportation system of interstates, airports, railways, and several large seaports for national and international commerce, including Mobile, Savannah, and Charleston. These right-to-work states, with their diverse pools of skilled and productive workers, have been attracting much foreign investment.

According to the Manhattan Institute for Policy Research, Inc., the “Southeast Manufacturing Belt” consists of counties in eastern Arkansas, all of Tennessee, and large swaths of Kentucky, the Carolinas, Georgia, Alabama, Mississippi,

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FOR FREE SITE INFORMATION, CALL

Natural Gas = US$6.85/MMBTU Water = US$300/200 m3

Utility costs are comparable to Europe and do not bring any advantage for European and Asian projects; the power rate is for an industrial standard client at US$0.16 US cents /kWh.

At approximately US$11.20 (hourly compensation) for a manufacturing worker, wages are comparable to the U.S.

and southwestern Virginia.* This area is about 222,000 square miles and has a population of 40 million people. The region’s low utility costs, non-union environment, and low cost of living are continuing to attract investment from an increasing number of European and Asian manufacturing companies, especially since China is facing rising costs for wages and utilities.

Within the U.S., the southeastern region poses strong competition to the other regions of the nation. Not only does the Southeast have lower power rates, but the region also has the advantage of the presence of key industries. Honda, Mercedes, and Hyundai’s automotive OEM plants are located in the Southeast. And the Boeing plant in Charleston, South Carolina, and Airbus jetliner assembly plant under construction in Mobile, Alabama, are part of the region’s strong aerospace corridor that includes Mississippi, Georgia, and Florida.

In sum, as companies continue to review their global site selection options, they are realizing the strong, measurable advantages a U.S. location offers. These advantages can easily be overlooked if the location decision is based on limited information or preconceived notions. ■

*http://www.manhattan-institute.org/html/cr_75.htm#.

VH9EzIdHHwA 800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

ENERGY/INFRASTRUCTURE

Shale Oil & Gas Development Changing the Way the Nation Does Business The development of oil and gas resources is driving infrastructure and manufacturing location decisions, while boosting U.S. competitiveness.

By Charlotte Batson, Owner/Principal, Batson & Company

I

n 2014 several states were considering rolling back or banning hydraulic fracturing (“fracking”). Since that time, several states have taken action. Maryland completed their study of health and environmental impacts and determined that they can be managed satisfactorily, and the moratorium on hydraulic fracturing is expected to be lifted soon. North Carolina, Illinois, and California have all found a path forward; their respective legislative and judicial processes having defeated measures intended to place a moratorium or ban on hydraulic fracturing.

Production from “unconventional” reservoirs, called shale oil and gas, is transforming U.S. competitiveness for locations and the business climate for U.S. companies. Existing technologies have been adapted over the past 25 years or so to enable the production of oil and natural gas from geologic formations that wouldn’t have been possible in the past. These operations and the resulting flood of hydrocarbons are driving an enormous variety of infrastructure and manufacturing location decisions, many of which are independent on or accelerated by the recent drop in the crude oil price.

And what a flood it is! U.S. production of natural gas is at an alltime high, approximately 70 Bcf/d (billion cubic feet per day), and reserves have increased similarly.

The United States surpassed Russia

Source: U.S. Energy Information Administration (based on data from various published studies; Canada and Mexico plays from ARI)

as the world’s number-one natural gas producer in 2009, and today has at least a 200-year supply at present demand levels. U.S. production of crude oil reached 9.5 million bbl/d (barrels per day) in 2014 and will soon pass the peak of the early 1970s. And, the United States will surpass Saudi Arabia as the world’s number-one producer of crude oil in the next few years. Exports of refined products have been setting new records every year since 2009, and recent BIS rules from the Department of Commerce have added condensates to the list of products that can be exported.

Liquefied natural gas (LNG) will join

these products from certain approved facilities in a few years.

All of this leaves the U.S. well positioned to be the “new OPEC.” Already imports of foreign oil have been cut in half, from more than 60 percent as recently as 2006 to the 30–35 percent range. According to IHS, this shift contributed $283 billion to U.S. GDP in 2012 with 2.1 million jobs created, and added approximately $1,200 to the income of every U.S. household, mostly in lower utility costs. The impact is broad-based, and energy independence — a national priority for at least 40 years — is finally in sight.

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65

Originated Carloads of Crude Oil vs. Terminated Carloads of Crude Oil On U.S. Class I Railroads 525K 450K

Originated Carloads

375K

Terminated Carloads

300K 225K 150K 75K 0 ’05

’06

’07

’08

’09

’10

’11

ESTIMATE BASED ON PRELIMINARY DATA

Source: American Association of Railroads, Federal Railroad Administration

Courtesy: Ken Becker

Chart 1

BNSF Sweetwater, Texas, Logistics Center

All of these trends, in combination, are driving hundreds of expansions and location decisions, and are continuing in spite of the recent drop in the price of oil. The specific factors at work are: • Innovation and regionalism; • Resource-intensive nature of the operations; • Low natural gas price; and • Sheer abundance of the resources leveraging infrastructure.

Innovation and Regionalism Risk in developing these oil and gas resources has shifted from the old-time wildcatter’s 10 percent probability of success to a process of continuous improvement, driving down costs in an area of known hydrocarbons and rendering each well and shale play profitable.

Each shale play has its own unique set of geologic characteristics: depth, thickness, temperature, pressure, chemistry, compaction, consolidation, and so on. There are also opportunities or challenges presented based on availability of other resources, particularly water and sand.

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As a result, developing each play requires a unique solution that includes drilling techniques, mud and cement chemistry, equipment, well design, components of hydraulic fracturing, and so on that will produce successful results.

This trial-and-error process of innovation, in which the drilling contractor or service provider works in partnership with the operator to find new solutions to the most challenging and costly problems, thereby reduces cost. The objective is always to extract the largest amount oil and gas in the most economical and environmentally ’12 ’13 friendly manner possible. When the optimum combination of factors has been determined, the specifics of future development wells can be planned and executed, and development drilling begins.

The companies taking the lead in this innovation — Schlumberger, Halliburton, and Baker Hughes — have all benefited from their partnerships and, as a result, have opened multiple large facilities in shale play regions, even to serve the Eagle Ford formation from San Antonio, only a short drive from their headquarters (and multiple other large facilities) in Houston. The functions performed at these regional locations include supply chain management, logistical support, and highly specialized R&D, and they can also serve as a staging ground for field operations, if needed.

Manufacturers have a need to be close to field operations as well. In December 2014, Buzzi Unicem announced a $40 million expansion and $260 million plant rebuild of its Maryneal, Texas, cement production plant — near the Cline Shale and the Permian Basin. This expansion project will increase production capacity from 550,000 short tons to 1.2 million short tons of cement per year and will be completed in early 2016. In addition to increasing capacity, this project will reduce plant fuel and emissions.

According to Project Manager Herbert Reckziegel, “This project offers a great opportunity to both the plant and the community. The intent is to construct a new cement plant doubling the capacity of the existing one, install state-ofthe-art technology, save water and fuel, and reduce our environmental footprint.”

“The expansion of the Buzzi Unicem USA plant in Maryneal will not only help the company meet the needs of their current customers and expanding oil and gas industry in the Permian Basin/Cline Shale region, it adds stability to one of the foundation pieces in our community,” added Ken Becker, executive director of Sweetwater Enterprise for Economic Development (SEED).

In another recent example, Newpark Drilling Fluids announced in October 2014 that it would locate its drilling fluid production operation in Summit, Mississippi, to serve the emerging Tuscaloosa Marine Shale. This project will

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create 40 jobs in an area of tremendous potential due to its proximity to processing facilities and infrastructure.

U.S. Chemical Industry Global Cost Advantage Relative Position of U.S. (2005–2013) (Petrochemical Production Costs)

Resource-Intensive Nature of Operations Other Northeast Asia

Relative Position of United States in 2005

Western Europe

Middle East

United States in 2013

China

GLOBAL SUPPLY (BILLION LBS.) Source: American Chemistry Council

* Based on estimates from best available data

Courtesy: Ken Becker

(ESTIMATED * ($/LB.)

2012 PRODUCTION COSTS

HIGH The next factor driving shale-related locations is the resource-intensive nature of the industry operations, both for supplying inputs and transporting production.

Drilling, completing, and fracturing each well requires millions of pounds of sand, millions of gallons of water, equipment, chemicals, and many other resources. Even with more than 8,000 wells drilled so far in each of the LOW Bakken and Eagle Ford shale plays, for example, the overall development effort is no more than 20 percent complete.

Chart 2 The tens of thousands of forecasted wells will require decades to complete, and can therefore justify permanent facilities.

Texas and North Dakota are particularly well positioned for these operations to move forward despite significantly lower oil prices. And over the life of each well, multiple “frac jobs” and other operations will sustain demand for many of these products and support over the long term, mitigating the “boom and bust” phenomenon of more traditional oil and gas development.

Buzzi Unicem plant, Maryneal, Texas

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 news.

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

Providing What Others Don’t

Visit www.areadevelopment.com AREA DEVELOPMENT | Q1/2015

67

Class I and short-line rail, trucks, barges, and intermodal make up the new “flexible pipeline” for inbound supplies (primarily sand) and outbound production (primarily crude oil) to terminals or processing facilities. Although more costly for transporting crude oil than pipelines, this mode of transportation is proving attractive to companies because it gives them the ability to make real-time market decisions, thereby maximizing profitability (see Chart 1).

As a result, manufacturing of rail equipment (especially tanker cars and hopper cars) is booming, and numerous intermodal facilities are springing up.

There are at least 19 of these types of facilities in North Dakota alone, with more in Texas and elsewhere. BNSF is leading the way with 15 million tons of sand shipped per year. Their just-completed Sweetwater Logistics Center in Sweetwater, Texas, will serve the emerging Cline Shale region and the Permian Basin operations of West Texas. The rail expansion on this 75-acre site included adding 7.5 miles of new track and three silos to hold 13,000 tons of sand. Future expansions of tracks are already under way.

And inland waterways are playing an important part in the “flexible pipeline” as well. And because the volumes of new crude oil production that must reach refineries in the Gulf Coast region are already large and rapidly increasing, time is of the essence.

The award-winning Gulf Gateway Terminal project created, in only nine months, an efficient and environmentally sound hub to initially move 70,000 barrels of oil per day from one unit train (eventually expanding to two) to river- or ocean-going barges from a former bulk terminal and rail ferry at the Port of New Orleans. This adaptive re-use project leverages an important location on the Intracoastal Canal with access to the Mississippi River with significant rail access, and includes a sophisticated flood protection system developed post-Katrina. This additional transloading capacity improves the efficiency of local refineries, and will, at full capacity, be able to move more than four million tons of additional cargo.

THE TENS OF THOUSANDS

2014, approximately 64 percent of which is FDI. And this cost advantage is paying off in re-shoring: Methanex, the world’s largest producer of methanol, for example, moved first one plant and then a second within a 12-month period from Chile to Louisiana.

Their new locations represent a total investment of $1.1 billion.

Sheer Abundance of Resources Leveraging Infrastructure

OF

This new competitiveness is particularly manifest in areas with strong energy infrastructure for manufacturers that need large quantities of the resource for feedstock or as a fuel. Many of the largest of these project announcements have leveraged inland waterways, pipelines, and other infrastructure to manufacture products, many of which will be targeting the export market.

Easily the most significant announcement is from Sasol, the South African refining and chemicals manufacturer. Sasol has announced a $16 billion–$21 billion complex in Southwest Louisiana. This project, if fully implemented, would comprise the largest single FDI in U.S. history, creating approximately 1,200 permanent jobs, and would start production in 2018. The company has given final approval on an $8.1 billion ethane cracker, and other products include diesel fuel and LNG. But that is just one announcement among many. In 2010, Cheniere Energy was the first company in 35 years to receive export approval for LNG from its Sabine Pass liquefaction facility, and has already tripled its original capacity to six trains totaling 21 million tons/year of LNG over 20 years. In addition, Dow Chemical plans to invest $4 billion on projects and has started construction on a world-scale ethylene plant in Freeport, Texas; and Chevron Phillips has started construction on a $6 billion cracker in Baytown, Texas.

And other energy-intensive manufacturers are benefitting as well. Nucor, one of the largest steel manufacturers in the U.S., negotiated a 20-year agreement with a gas producer, guaranteeing a long-term supply at a low cost for their $3 billion Louisiana direct-reduction-iron (DRI) facility in St. James, Louisiana, that today produces 5.5 million tons/year of sponge iron. At the time of the announcement, Nucor cited a stable, long-term supply of low-cost natural gas as a critical factor in its location choice. ■

FORECASTED WELLS WILL REQUIRE

DECADES TO COMPLETE, AND CAN

THEREFORE JUSTIFY

PERMANENT FACILITIES.

Low Natural Gas Price The abundance of natural gas (and the low price that resulted from the gas “bubble”) is a powerful stimulant for the U.S. chemical industry and is driving demand for new capacity. Since 2005, the United States has overtaken and passed Europe, China, and Asia and is overtaking the Middle East as the global low-cost leader of petrochemical manufacturing (see Chart 2). The American Chemistry Council (ACC) estimates that 197 projects, representing $125 billion in investment, have been announced as of the fall of

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CHARLOTTE BATSON is a petroleum engineer and shale oil/ gas consultant. She is owner and principal of Batson & Company, a consultancy that helps businesses and communities benefit economically from shale oil and gas development — while managing the impacts — to improve overall quality of life.

Comments and feedback may be directed to charlotte@batson-co.com.

800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

LOCATION ANALYSIS

Seeking Data Nirvana: New Analytics That Enlighten Location Strategy Data and analytics that tie real estate to corporate strategy are more achievable today than ever before.

By David Kollmorgen, International Director and Lead of Business Intelligence, JLL

D

ata can either muddy or enlighten corporate location strategy. In today’s marketplace, for most, “data nirvana” may seem unattainable, as new research shows a significant gap between aspiration and reality when it comes to facilities data and the analysis of what it means. The good news is new data inputs and analytics methods are advancing quickly, so with the right platform, you can easily start to become a data and analytics master.

The first step is to understand that you’re not alone on the road to digital enlightenment — and senior executives are developing a new appreciation for facilities data. New research shows that 75 percent of corporate real estate (CRE) leaders view facilities and real estate data as an integral part of an enterprise

data analytics strategy, according to Mind the Gap: Aspiration Vs. Reality in Corporate Real Estate, a Forrester Consulting survey commissioned by JLL. More than half of CRE executives say they aim to become “data-centric” by 2017. In this context, “data-centric” means that they plan to use CRE data not just to support opinions or

67% Data and analytics use, Now and in three years, %* 2014

2017

56% 42% 28%

1%

4%

2%

Data denial

Data indifferent

Data informed

Data-centric

Firm has a distrust of CRE data and avoids using it

Firm does not care about CRE data and/ or has no need for it

Firm uses CRE data only when it supports opinions or decisions

Firm uses CRE data to shape all of its opinions and decisions

*Figures are rounded for ease The proportion of corporate real estate executives who expect to be “data-centric” in three years is expected to double to 56 percent, according to Mind the Gap: Aspirations vs. Reality in Corporate Real Estate, a study conducted in 2014 by Forrester Consulting and commissioned by JLL. AREA DEVELOPMENT | Q1/2015

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Technology • Prescriptive • Predictive

• Advanced data visualization • Scenario planning

• Descriptive (historical) • Interactive dashboards • Forecasting

• Tabular reports • Capturing, analyzing, interpreting

Time Source: JLL

decisions, but also to actually shape opinions and corporate strategy.

Many CRE departments are already using data and analytics at the tactical level to a significant extent. Forty-one percent have invested in data storage systems, for instance, while 37 percent have created a standardized process for data generation, and another 37 percent engage in data gathering.

Want the Facts? Analyze the Data.

Connecting the dots between IT, HR, financial, and real estate data can yield impressive business insights that will make you a data-driven CRE guru: • Sophisticated site selection: Rich location data is a gamechanger in strategic site selection. By overlaying real-time maps on diverse CRE data — from demographics to access roads to leasing costs — you can better identify specificuse cases for any given site or compare multiple locations on the basis of multiple criteria, such as tax burdens and expense projections. These insights can play a critical role in corporate strategy by pinpointing where competitive advantage can be gained in terms of lower operating costs, access to talent, and other factors.

For example, retailers rely on the analysis of multiple data sets, including such demographics data as per-capita income, to determine the potential sales opportunity in a particular trade area when making location decisions. Companies can use similar algorithms to assess how factors such as the quality of amenities (restaurants, childcare, gyms, etc.) and proximity to transport options make a location attractive to potential employees. Analytics can generate a detailed

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statistical picture of the surrounding environment that can be compared with other locations and benchmarked against indicators such as employee satisfaction scores, creating a model that reveals the success or potential of different location choices.

With dynamic geo-spatial intelligence, you can look beyond square footage and real estate costs. You can use a host of data input possibilities encompassing census data, population income, and even psychographics — data concerning how consumers make life decisions, whether buying furniture or voting in elections — for real-time and futuristic insights on any site in question.

Want a comprehensive look at the best sites in any given region? Turn a time-sucking, two-day trip into a targeted half-hour virtual tour, with tools that “fly-around” and zoom, providing more depth of knowledge than you’d get physically leaving the office.

• High-performing workplaces: Today’s data and analytics technologies allow CRE teams to work much more closely with HR than in the past to identify the emotional drivers affecting productivity and employee engagement. You might invest in high-tech on-site meeting rooms, for example, only to learn that employees prefer to meet in the cafeteria or at the coffee shop across the street.

Many companies are adopting innovative workplace strategies to improve employee and business productivity.

However, these companies often lack the data and analysis required to support these strategies and, instead, rely on

Continued on page 79 800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

Public Power Communities:

Shining the Light on Innovation Public power utilities, which are owned by the communities they serve, have an inherent interest in helping those communities to innovate and prosper.

By Steve Stackhouse

Public power systems are integral to the economic development of the communities we serve. Because we are owned by our communities and customers, we understand that their success is our success.

Public power utilities know that a strong, vibrant business environment is critical to a good quality of life in our communities. Our business customers are important to us and we work closely with them to meet their needs through low-cost, reliable power supply; high-level customer service; and support for economic development.

We are committed to providing the infrastructure and technologies that businesses need to grow and thrive.

We offer one-on-one customer service to small and large businesses — through key contacts staff — to ensure that their unique needs are addressed.

New and longstanding businesses have varied needs and public power gives them equal attention. We recognize that our business customers continuously encounter new opportunities and challenges that we help them take on by tailoring electricity services to their changing needs.

Public power is not beholden to shareholders, but only to our customer-owners, whose needs come first. When we set rates and policies, customer impact is the key influencing factor. The revenues we generate go right back to the community, to support services for all citizens and foster economic growth and development.

The fact that public power utilities are locally owned, and staffed by locals who know and care about the community, means we can be nimble and respond right away when weather or other events cause outages and when system and service improvements are required.

Our flexibility has proved invaluable to our business customers for many decades.

Public power takes pride in being a great business partner and in building a strong future for our communities by attracting and retaining viable businesses.

PAULA J. DIFONZO Chair, APPA Board of Directors CEO New Braunfels Utilities, Texas

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M

MOST PEOPLE TAKE electric

power for granted — with only rare exception, it’s always there when you flip the light switch, and it’s been that way as long as anyone alive today can

remember.

Behind that dependable light switch, though, it’s a time of great change in the power industry, particularly with regard to how the power flowing to that switch is generated and distributed. America’s more than 2,000 community-owned power utilities are at the forefront of this change, one prominent example of the numerous ways public power is trying to meet the evolving needs of the customer base.

Generating Power On-Location Distributed generation is an ever-hotter topic across the country. It’s essentially the antithesis of the traditional way of doing things in the power business, which for many years has meant electricity being generated at a big power plant, then transmitted across the power grid to businesses, homes, and — ultimately — that light switch.

With distributed generation, power is generated onsite, at a home or business, with the power grid serving more as a supplement or backup. Solar or photovoltaic power is driving an explosion of interest in distributed generation.

There are other technologies in the mix, too, such as fuel cells, small wind turbines, and combined heat and power, but solar is the technology of choice at the moment in 95 percent of distributed generation, according to the American Public Power Association (APPA).

Consider the statistics: In 2011, distributed generation produced four gigawatts of power across the U.S. That’s expected to more than double by next year, and reach 20 gigawatts by 2020. That’s largely solar generation, driven by a 70 percent drop in the cost of photovoltaic installations since 2008, along with government incentives and support from forward-thinking utilities.

“We’ve seen explosive growth in photovoltaic, driven by what’s happening with the cost,” says Mark Rawson, senior project manager at the Sacramento Municipal Utility District (SMUD). The utility, he says, is interconnected with some 7,000 distributed generation systems. “We’ve been doing a lot of work with the expectation that this trend will continue.”

In Texas, solar installations are showing up all over Austin, according to Carlos Cordova, a spokesperson with public power provider Austin Energy. “The growing distributed solar footprint on thousands of Austin-area homes, public facilities, and commercial properties is clear evidence of the partnerships between Austin Energy and our customers.”

The trend, he says, has been positive not just for those distributed-generation users but also the local economy.

800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

THERE’S NO DENYING IT: NORTH CAROLINA IS A GREAT PLACE TO DO BUSINESS. In fact, Site Selection magazine ranked

team illuminate the way. We represent

North Carolina 2nd in its annual Top

more than 70 NC Public Power

Business Climate survey for 2013. The

communities across the Tar Heel state.

state also came in at #4 on Forbes Best

Plus, we’re well-heeled with homegrown

States for Business 2013 rankings. Safe

information, industry expertise and

to say that when it comes to business,

economic incentives to help you reach

North Carolina is where it’s at!

your goals.

So if you’re looking at NC (and you

Got your sights set on NC? We’ve not only

should be), let ElectriCities of North

got the vision—we’ve got the sites, too.

Carolina’s Economic Development

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CONCORD

KINSTON

International Crossing Business Park Location (Under Construction): Building size: 277,253 s.f.

Build-to-suit office space Ceiling height: 32’ clear height Sprinkler: ESFR Sprinkler System Dock doors: 70 dock doors with 10 knock-outs Trailer: Storage onsite Depth: 240’ Column spacing: 45’ typical Doors: Two drive-in

Highway 70 West Industrial Park Location: 2010 Smithfield Way, Kinston, NC 28504 Building size: 40,000 s.f. expandable to 160,000 s.f.

Year built: 2009 Acreage: 9 acres with additional 8 acres available Ceiling height: 30 feet Dock doors: 2 dock-high, 1 drive-in Flooring: 10 mil vapor barrier

MONROE Monroe Corporate Center Location: 447 Goldmine Rd., Monroe, NC 28110 Building size: 102,000 s.f.

Year built: 2013 Ceiling height: 30 feet clear Dock doors: 4 dock-high, 1 drive-in Flooring: Stone

JUST SOLD!

CONCORD International Business Park Location: 4541 Enterprise Dr., Concord, NC 28027 Building size: 88,527 s.f. expandable up to 141,000 s.f.

Year built: 2011 Acreage: 12.8 acres Ceiling height: 28 feet Dock doors: 4

CONCORD

SHELBY

Concord Airport Business Park Location: 7055 Northwinds Dr., Concord, NC 28027 Building size: 150,000 s.f.

Year built: under construction Ceiling height: 32 feet clear Dock doors: 20-30 side loading Flooring: 6 inch concrete Adjacent to Concord Regional Airport

Foothills Commerce Center Location: 1001 Partnership Drive Shelby NC 28152 Building size: 100,000 s.f. expandable to 200,000 s.f.

Year built: 2013 Ceiling height: 30 feet Rail: .56 miles Walls: Structural precast concrete 100% ESFR

We partner with our member cities to provide customized assistance with all aspects of economic development.

Our comprehensive approach begins at project outset and continues through the site selection and building processes.

What can we do for you? From site selection to targeted recruiting to grant assistance and marketing, we’ve got all the tools and expertise you need to successfully develop your business. To help us serve you better, let us know more about your needs and areas of interest, or go to electricities.com/ecodev for more information.

Brenda Daniels Manager, Economic Development 800.768.7697, ext. 6363 bdaniels@electricities.org

CONCORD Concord Airport Business Park Location: 7035 Northwinds Dr., Concord, NC 28027 Building size: 400,000 s.f.

Year built: under construction Ceiling height: 36 feet Dock doors: 40-80 side loading Flooring: 6 inch concrete Adjacent to Concord Regional Airport

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“Incentive programs have helped our customers by sharing the cost of installing solar systems and spurred the development of the clean energy industry in our region,” Cordova observes. “Solar Austin, a local nonprofit group, estimates that Austin Energy’s solar programs have created more than 600 clean-energy jobs in our area. The solar program has helped spur the development of the solar and clean-tech industry by creating green-collar and professional jobs and attracting other related solar companies and investment.”

The utility’s focus on solar is likely to create a lot more business opportunities down the road if the area’s population grows as much as The Urban Institute predicts, adds Rodney Gonzales, deputy director in the City of Austin’s economic development department.

“Supplying electricity to one million new residents brings about challenges,” he notes. “Embedded in these challenges are opportunities for supplying electricity to the end-user, such as solar installations at the home and business. The solar installations then lead to new jobs and businesses to support this industry.”

By the end of 2014, nearly 200 commercial projects had committed to install solar arrays in Austin, along with nearly 3,500 residential customers of Austin Energy. The developments were encouraged by rebates totaling $43 million since 2004 for the residential customers, plus $21 million in performance-based incentives for the commercial projects. “Combined, the residential and commercial installations — including some demonstration projects at schools and municipal buildings — total 23.1 megawatts of customer-sited, local-distributed solar,” Cordova says.

Benefits for Everyone Why support and facilitate distributed generation in the first place? How could it possibly fit with the goals of a power utility to encourage customers to create their own power rather than buy it?

First of all, it’s essential to note that public power utilities have goals that are a good bit different from their for-profit counterparts. Their purpose in life is not returning a profit to investors, but rather serving the needs of the stakeholders in the community. “We are a community-owned utility, so our motivations are different,” says SMUD’s Rawson.

“When we look at customer service, and we ask our customers what they want, they want choice.”

The needs that those stakeholders express are diverse, and include not just affordable power but

economic development, environmental responsibility, and innovation. Distributed generation fits into those needs in a number of ways. “Our customers are asking for solar,” Rawson says. “They pursue solar for whatever their drivers are, whether they’re environmental concerns or they want to be independent and generate their own power.”

Distributed generation offers benefits for utilities, too.

For example, just as conservation measures can help put off the need to construct costly new power plants, so can distributed generation. It reduces the need for backup power, too. And because distributed generation nearly

“theThesystem folks who maintain live and work in the areas they serve.

They know the areas they’re maintaining and that tends to enhance response time, Haas says.

”

always involves solar power, it helps utilities meet goals for increasing the amount of renewable, clean energy in the mix.

That just adds to the eagerness that many public power utilities have for supporting distributed generation, through rebates, assistance programs, and the customer’s ability to sell excess power back to the utility. The concept of net metering charges customers for the power they draw from the grid when they’re using more energy than their solar installation can generate, but credits them when their distributed-generation system has excess power that it feeds back to the grid.

Such benefits help make solar more feasible and attractive, says Sean Hamilton, general manager of the Sterling Municipal Light Department in Massachusetts. “The state of Massachusetts offers a very good solar renewable energy certificate program; there are tax incentives, and we offer net metering credits to commercial customers who install solar.”

Rebates are important because they help defray the cost of installation, which is falling but still significant. Austin Energy recently decided to take the enticements a step further by offering incentives to customers that lease their solar installations. Leasing eliminates the upfront cost to the customer, so rebates aren’t appropriate, but the utility rewards these types of customers with a special “Value of Solar” rate.

S

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SOLAR POWER purchasing agreements put the benefits of distributed generation and green power into reach for many customers, says Hamilton. “A project like this allows all the customers to benefit

800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

from low-cost power, and not just those with the means; the utility offers interconnection benefits providing further cost saving to the project, which is reflected in the low-cost power.”

As Hamilton suggests, distributed generation isn’t feasible for some customers. Some are turned away by the upfront costs, and some are deterred because their structure is shaded by trees, or because they live in a high-rise condo.

In many public power areas, these customers still have options.

Austin Energy, for example, is developing a community solar project in the two- to four-megawatt range. “Customers who are not able to install solar panels at their homes will be able to subscribe to solar energy once the local community solar project is completed next year,” says Cordova.

Customers of SMUD have the option of buying what the utility calls SolarShares, rather than installing their own generation equipment onsite. The program has a fixed monthly fee based on usage, and by paying into the program customers are then credited each month for the power produced at a large solar farm in the area.

It’s worth pointing out that the planet also benefits from the focus on distributed generation, and renewable energy in general. At Austin Energy, for example, there was a goal of generating 35 percent of power from renewable sources

by 2020, but it turns out the utility is on track to achieve that four years ahead of schedule. The new goal is now 55 percent by 2025.

The generation mix recorded by Nebraska Public Power District (NPPD) was 43 percent carbon-free by 2013, according to Rick Nelsen, economic development manager for NPPD. In California, there’s a statewide target of getting greenhouse gas emissions to 1990 levels by 2020, and then 80 percent below those levels by 2050. Rawson says his utility aims to beat that goal, getting to 90 percent below 1990 levels.

Making Distributed Generation Work It could be that someday distributed generation can be efficient enough, and battery storage effective and affordable enough, that users could exist completely off the power grid and soak up the sun for all their power needs. In most cases, that’s nowhere near feasible at this point. “They still need the utility to be there,” Rawson says. “Photovoltaic can’t do it on its own.”

But that creates some challenges for utilities and customers. For example, the traditional electric bill primarily covers the actual cost of the power itself, but built into the payment is also the cost to build and maintain the distribution system that gets the power where it’s going.

When it comes to successfully expanding or relocating your business,

Nebraska’s low energy costs, central geographic location, and high-quality, low-cost workforce SURYLGH VWUDWHJLF DGYDQWDJHV IRU \RXU EXVLQHVV 7R À QG RXW KRZ WR KDUQHVV 1HEUDVND·V power, contact the economic development professionals at Nebraska Public Power District.

econdev.nppd.com 800.282.6773, ext. 5534 econdev@nppd.com

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Imagine that a customer with distributed generation is able to cover the vast majority of his or her power needs through solar panels on the roof, and on some occasions is generating excess power back onto the grid, earning credits. That customer may end up with an electric bill of nearly nothing — but if that’s the case, who pays to maintain the power lines that give that customer a backup supply as well as the means of selling excess power on the grid?

U

UTILITIES AND REGULATORS

continue to sort out that issue. In some cases, the credit for excess power sold back to the utility is lower than the retail rate to buy power. In other cases, there may be a separate fee assessed to all customers to cover the transmission and distribution system. “We’re working toward making sure we get the pricing right,” Rawson says. “We want to be sure it’s fair.”

Utilities also must ensure that their systems can handle the intermittency and fluctuation that can come with distributed generation. If it’s a hot but very cloudy afternoon (not to mention a hot night after sunset), distributedgeneration customers will draw a much greater load of power from the system. That creates challenges that researchers must address. “Given the intermittent nature of photovoltaic, what does it do to the system and how do we ensure reliability?” Rawson asks.

All systems are different, he notes, but he’s confident SMUD is ready to face the ongoing wave of solar installation that most people believe is in the not-too-distant future.

“Our system design is robust enough that we can accommodate a lot more solar before intermittency of photovoltaic can cause reliability problems,” he says. And that’s good, because the utility prides itself on its support of distributed generation and solar power. “We view our role as being a trusted adviser to customers. We’re not a utility that’s putting up barriers to customers wanting solar.”

Local Control, Local Focus A commitment to meeting such customer demands as distributed generation is just one of the ways public power utilities work on behalf of their communities. It’s really an overall attitude, those in the business say, a reflection of the fact that the actual customers are the only stakeholders — there are no owners or stockholders to please or reward.

“Public power systems are a little more responsive to customer needs, because at the end of the day it’s not about making a dollar for your shareholder, it’s what your customer needs,” says Paul Zummo, manager of Policy Research and Analysis for APPA. “One of the main benefits of public power is the notion of local control,” observes Jeff Haas, APPA’s vice president of membership. “It allows our business customers and the local public power utility to collaborate and

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work together to achieve common interests. In a nutshell, generally the community interests are aligned with the business that wants to locate there.” The public power utility, he says, is “working for the betterment of the community.”

“It ties to the idea of representative and local control — in government, and in this case, in the utility. Our customers are our stakeholders,” agrees NPPD’s Nelsen, who has served as chair of the APPA Economic Development Committee. “It’s very much a partnership relationship with our customers. It allows us to reinvest revenues back into the system, as opposed to paying dividends.”

Public power was formally established in Nebraska back in the 1930s, and it’s the only state where all areas are served by public power. The lack of profit motive and the proximity of leadership offer distinct pluses, Nelsen says. “It gives us somewhat of an advantage in terms of lower rates and high system reliability.”

R

RELIABILITY IS, first and foremost,

a preventive concept — building and maintaining systems that can keep the lights on through all but the worst situations. It’s also about having repair crews nearby so that when something does go wrong, it can be fixed quickly. That’s a public power advantage tied to its very local nature. “The folks who maintain the system live and work in the areas they serve. They know the areas they’re maintaining and that tends to enhance response time,” Haas says.

Because public power utilities are owned by the communities they serve, they have an inherent interest in the well-being and prosperity of those communities. That makes them logical partners in economic development and support of local businesses. For example, Nelsen says NPPD’s economic development staff of 10 is heavily involved in helping businesses find ideal locations in the state, and helping existing companies grow and prosper.

“We will do everything from helping screen communities to allowing you to maintain confidentiality and providing you information to make a decision,” he says.

Public power utilities, he adds, also do their best to help business customers keep costs in line. He cites one example from NPPD: “We have an economic development incentive rate on the energy cost that can be passed along to businesses.”

There’s also a strong connection to the needs of local schools and governmental agencies. In the Massachusetts community of Sterling, for example, the utility created a win-win situation with a local vocational technical school, rehabbing a very old building into an energy-efficient facility, providing training opportunities along the way, and saving money, too. Hamilton says the 1885 building “was cleared to the outside walls and has new counters, insulation, walls, LED lighting, a new HVAC system, as well as a vestibule in our entryway. This project is being

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done at a tremendous savings because of the work by the Montachusett Regional Vocational School,” he explains.

“We also received a grant to perform energy-efficiency improvements in seven of our municipal buildings as part of a pilot to look at commercial programs.”

“Public power is committed to being responsive to

community needs,” Haas confirms. “Our willingness to work with businesses to achieve a common objective and provide a return on investment all comes down to providing a benefit to the community. That’s something you’ll find is a common thread throughout public power.”••

SPONSORS Nebraska Public Power District

NPPD is Nebraska’s largest electric utility, with a chartered territory including all or parts of 86 of Nebraska’s 93 counties. NPPD owns and operates 7,800 miles of overhead and underground power lines, and uses a diverse mix of generating facilities to meet customers’ needs. NPPD and public power utilities work with their local, regional, and state economic development organizations to position communities and regions for economic growth, to assist with the expansion and retention of existing industry, and to attract new businesses.

Rick Nelsen, CEcD, Economic Development Manager Nebraska Public Power District 1414 15th Street P.O. Box 499 Columbus, NE 68602-0499 402-563-5534; 800-282-6773 • Fax: 402-563-5090 econdev@nppd.com • www.econdev.nppd.com

ELECTRICITIES Of North Carolina, Inc.

ELECTRICITIES is a not-for-profit government service organization representing 70+ N.C. cities and universities that own electric distribution systems. A site selection professional can receive detailed reports from our extensive databases on dozens of N.C. sites, from mountains to coast, within 48 hours of a request. We’re your turnkey services partner.

Brenda Daniels, Manager, Economic Development ELECTRICITIES of North Carolina, Inc. 1427 Meadow Wood Blvd.

Raleigh, NC 27604 1-800-768-7697 ext. 6363 • Cell: 919-218-7027 bdaniels@electricities.org • www.electricities.com

San Antonio Economic Development Foundation

San Antonio has a “culture of business” that includes pro-business leadership, solid growth, abundant workforce, land, and affordable energy that attracts diverse industries and job-producing investments to the city. Learn why 100 companies in six years have chosen to partner with SAEDF and San Antonio’s collaborative business community.

Tom Long, Executive Vice President of Business Recruitment San Antonio Economic Development Foundation 602 E. Commerce St. San Antonio, TX 78205 210-226-1394 tlong@sanantonioedf.com • www.sanantonioedf.com

BUSINESS. HERE, IT HAS ITS OWN CULTURE. You’ll find proof in our abundant land, power, facilities, financial incentives, and college workforce programs all geared for economic growth. Yet you can also discover art and music festivals doing a booming business. Run or bike 35 miles of riverside trails on 1400 acres of dedicated greenway. Or enjoy home ownership where the median price runs a comfortable $184,200. And when you’re ready to discuss your needs, you’ll find a local government eager to satisfy.

Call or go online to discover a culture that values growth.

866.949.0357 | www.sanantonioedf.com © 2 0 1 5 S A N A N T O N I O E C O N O M I C D E V E LO P M E N T F O U N DAT I O N

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Seeking Data Nirvana Continued from page 70 reduced cost-per-square-foot or increased utilization rates as measures of success. Analytics can be used to combine input from different data streams, correlating new workplace initiatives with value drivers such as employee attraction and retention, client satisfaction, speed to market, or other relevant performance indicators. Although there isn’t a consistent methodology to define employee engagement or worker and workplace productivity today, there is a huge opportunity for analytics to help measure and optimize productivity initiatives.

Cutting-edge workplace sensors and mapping technology can be used to see, in real time, how and why employees are using — or avoiding — particular facilities. These insights, in turn, can be used to repurpose or reconfigure underused space and inform the design of workspaces that inspire productivity and innovation. Understanding where and why employees are most engaged and productive can also help companies shape talent recruitment and retention programs that are responsive to employees’ work styles and preferences.

• Improved building performance and operating efficiency: Advanced building technologies offer tremendous energysavings potential based on the data generated by today’s computer-controlled “smart” systems. With real-time smart building management and control software, the CRE team can prevent costly and disruptive equipment failure, optimize building performance, and manage resources across a huge property portfolio with a single highly efficient dashboard. Combined with financial and legal inputs, this portfolio data becomes an invaluable tool for long-term strategic planning.

Using data and analytics to forecast workforce trends, fine-tune site selection strategies, or optimize the corporate real estate portfolio provides exactly the kind of information that the C-suite wants to know about. Sixty-four percent of CRE teams experienced an increase in their data and analytics budgets in last fiscal year, according to the JLLcommissioned Forrester Consulting study, and expect a budget increase this year, too.

Maybe your team has already mastered tactical, foundational techniques, from building standardized datageneration processes and orchestrating storage to structuring data sets. Those basics are only the beginning. The next step is to transcend tactics in favor of a more integrated strategy that cross-pollinates data from different departments.

Bumps in the Road No path to ‘enlightenment’ is ever without challenges, but knowing that others are facing similar obstacles can be helpful. The study reveals some common impediments to integrating CRE into overall business strategy — and some ways to surmount them.

• Weak data governance policies — Only 30 percent of CRE teams have standardized governance policies, suggesting

fundamental risks for data integrity. A robust data governance framework frames policies across several areas, from data collection and warehousing to access and privacy, ensuring data integrity even as diverse contributors access it.

• Lack of accountability to the business — Only 26 percent of CRE teams have established key performance indicators (KPIs) that align CRE data and analytics activities with overall business goals. For example, a company might establish that investment in a data and analytics platform should enable it to reduce underused workspace by 20 percent in 18 months. Without KPIs, it can be difficult to measure the return on data and analytics investments.

• Talent and technology gaps — Only 36 percent of CRE teams effectively utilize the data they collected. No wonder, then, that 33 percent of CRE executives say their teams needs training to fully understand data and analytics. Training can help overcome this knowledge gap.

• Fragmented data initiatives — More than 60 percent of CRE executives note that their organization’s data and analytics strategy is driven and funded by individual business groups. Only 9 percent strongly agree that they constantly gather and exchange information across departments to proactively manage shared workspaces and other resources. This fragmented model of departmental ownership creates information silos that can undermine the use of data and analytics to shape corporate strategy.

Enlightening the C-suite To turn general interest in CRE data into strong, decisive action, it’s crucial to provide clear illustrations of how aligning corporate real estate data with other departmental data creates greater business value and fuels better business decisions. Enlightened corporate real estate involves more than instinct — it means sophisticated data and analytics that reveal meaningful insights on where corporations should locate and when that makes sense. ■ To listen to three executives discuss the growing opportunity presented by facility data and analytics, go to www.areadevelopment.com/big-data-cre

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