Area Development's 31st Annual Corporate Survey & 13th Annual Consultants Survey

31st

ANNUAL

corporate

survey

A N D 13 th

ANNUAL

consultants

survey

The survey respondents feel confident about t h e e c o n o m y u n d e r P r e s i d e n t Tr u m p , but are still concerned about finding the skilled workers they will need to operate their growing businesses.

by Geraldine Gambale, Editor

corporate

W

ith a new president and administration in Washington, what’s to be expected for the U.S. economy, and how will the administration’s policies affect Area Development’s readers’ new facility and expansion plans? Our 31st Annual Corporate Survey attempts to answer these questions.

But before we begin to analyze the Corporate Survey results, let’s look at what economic analysts are saying about the U.S. economy’s prospects for growth.

Following the presidential election, Moody’s forecasted the U.S. economy to expand 2.2 percent in 2017 — up from about 1.6 percent in 2016 — driven by healthy job and wage growth. Of course, this projection depends a lot on policies implemented under our new President Trump. “… there could be an upside to growth in the short term from increased fiscal expenditure, tax cuts, or higher infrastructure spending,” noted Madhavi Bokil, a vice president and senior analyst at Moody’s. However, Bokil warns, “A restrictive stance on trade would be detrimental in the medium term.”1 Nonetheless, in early 2017, Cushman & Wakefield’s economists also noted the U.S. economy

is positioned to perform well in 2017, with upwardly revised growth of 2.3 percent in 2017 and 3.0 percent in 2018.

“Even before the election, the U .S. economic fundamentals were showing signs of heating up,” said Kevin Thorpe, Cushman & Wakefield’s global chief economist. “Now when you layer in the expected tax cuts and spending multipliers from the new administration, it creates an even stronger economic backdrop for the property markets heading into 2017.”2 Although it will take some time for the new administration’s policies to form and be implemented, it seems economists are looking on the bright side. The manufacturing executives surveyed by PricewaterhouseCoopers for its Q4/2016 Manufacturing Barometer also displayed increased optimism, with three quarters saying the U.S. economy is growing, 85 percent expecting positive revenue growth this year, and 60 percent planning to increase capital spending.3 A detailed look at the

survey

responses to our annual Corporate Survey will let us know if our readers are as optimistic as the economic analysts and those responding to PwC’s survey of industrial manufacturers and, importantly, whether that sentiment is reflected by their plans to open and/ or expand facilities at home and abroad.

Who are the respondents?

Of the 136 respondents to our 31st annual Corporate Survey, 37 percent are with manu-

Current operations of respondents: Manufacturing — Durable Goods Manufacturing — Non-Durable Goods Manufacturing — Other Distribution/Logistics/Warehousing Data Processing, Software & Other Computer-Related Services Energy Industry Hospitality Industry Healthcare/Life Sciences Retail Construction & Trades Other

26% 4% 7% 8% 3% 1% 3% 3% 2% 9% 34%

figure 1

facturing firms, 9 percent in the construction and trades industries, and 8 percent with distribution/warehousing operations. More than half are their companies’ CEO,

AREA DEVELOPMENT | Q1/2017

23

Respondents titles: Other

14 %

Number of facilities currently operating worldwide:

Business Unit Manager or Director 14 %

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

Domestic:

Chairman, President, Partner, CEO, or Owner

One

41%

Five or more

27%

47%

Four

5%

V.P., Secretary, or Other Corporate Officer 7%

Three

CFO, Controller, Financial Officer

10%

Two 18 %

8%

Foreign*

One

figure 2

15% Five or more

Two

22%

44%

Primary role in company’s location decisions:

Three

Four 7%

Not involved 10% Final decision Information gathering

52%

11%

figure 5

10 %

* Of the 20% of total survey respondents who say they operate foreign facilities

Preliminary recommendation 28%

Number of people employed worldwide:

figure 3

1,000 or more

Fewer than 20

23%

Departments significantly involved in the site selection process/project:

23%

500-999

20-49

10%

11% 50-99

Executive management

82%

Tax and finance

28%

Real estate

27%

Information technology

13%

Supply chain or logistics

22%

Operations or business unit management 42% Human resources

figure 4

19%

100-499

figure 6

Decreased number of facilities by 3 or fewer 9%

70%

figure 7

AREA DEVELOPMENT

21%

Change in the number of your company’s facilities during the past 12 months:

Number of facilities not changed

24

12%

Increased number of facilities by 4 or more

8%

Increased number of facilities by 3 or fewer 13%

president, CFO, or other top-ranking executive, and more than half are involved in their companies’ final location decision.

While 82 percent of the survey respondents say executive management is involved in the site selection process, 42 percent also say operations and business unit management play a large role, and nearly 30 percent cite the importance of the tax and finance as well as real estate departments to the location process.

Approximately 40 percent of our Corporate Survey respondents claim to operate just one domestic facility, while nearly a third operate four or more.

While just 20 percent of the respondents say they operate foreign facilities, more than 40 percent of those individuals say their firms operate five or more foreign facilities.

Nearly a quarter of the respondents say their companies employ 1,000 or more people, while another 23 percent say their firms have fewer than 20 employees. A fifth note their firms are mid-sized in terms of employment numbers, with 100–499 individuals

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

survey

corporate

on their payrolls.

Seventy percent of the Corporate Survey respondents say the number of their companies’ facilities has not changed over the last 12 months. However, a fifth say their companies have increased their number of facilities.

Of those who have decreased their number of facilities over the past year, none claim to have closed more than three operations.

Will they open new facilities?

More than two thirds of our Corporate Survey respondents believe that economic conditions under the new Trump administration will be favorable to moving ahead with new facility or expansion plans. This optimism on the part of the respondents echoes what other C-level executives have been saying.

For example, post-election, Thomas Williams, CEO of Parker Hannifan Corp., told Bloomberg news, “I think a lot of things that Trump is thinking about, whether it’s tax reform, regulatory reform, infrastructure, are all things that would help Parker.”4 Nearly half (47 percent) of the respondents to our Corporate Survey plan to open a new (not relocate an existing) fa-

cility within the next five years, with the majority of them (41 percent) planning to open new domestic facilities. Two thirds of these respondents will do so within the next year or two.

Nearly half plan on opening just one new domestic facility, with more than a quarter expecting to open two.

When it comes to location of new domestic facilities, the Southwest (Arizona, New Mexico, Oklahoma, and Texas) will garner the most activity, responsible for

BELIEVE that economic conditions under the new Trump administration will be FAVORABLE TO MOVING ahead with new facility or expansion plans: Yes

68%

No

29%

No response

2%

18 percent of the total number to be opened, followed by the South Atlantic (North Carolina, South Carolina, Virginia, and West Virginia) with 17 percent of the total, and the Southern states of Alabama, Florida, Georgia, Louisiana, and Mississippi with 14 percent. Interestingly, there appears to be renewed interest in the Midwest states (Illinois, Indiana, Michigan, Ohio, and Wisconsin), with 13 percent of the new domestic facilities slated for this region.

While the plans for new facilities appear to be robust, only a fifth of these will be manufacturing plants that create high value-added jobs.

About two-fifths are to serve as warehouse/ distribution operations.

Also, more than 70 percent of the respondents expect these new domestic facilities to create fewer than 100 new jobs, and more than half say their new domestic facilities will represent less than $10 million in investment.

Only 13 percent of the respondents to our Corporate Survey believe potential penalties for moving operations/ jobs offshore under the Trump administration will affect their plans for new foreign facilities (more than half of the surveytakers did not respond

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AREA DEVELOPMENT | Q1/2017 AREA0660.indd 1

25

02/02/17 3:08 PM

Types of new domestic facilities

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

7%

Those planning to open new domestic facilities (41% of total survey respondents) will do so within: 5 years or more

22%

R&D

3%

Other

12%

19%

Back Office/ Call Center

Warehouse/ Distribution

9%

39%

Data Center 5%

1 year

Manufacturing

Headquarters

5%

29% figure 11

3 years

12%

2 years

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

37% figure 8

1,000 or more 500-999

Number of new domestic facilities to be opened: Four

2%

8%

6%

Fewer than 20

33%

100-499

14%

5 or more

10%

Three

50-99

20-49

10%

29%

One

14%

47%

figure 12

Two

27%

Total amount to be invested in new domestic facilities:

figure 9

$100 million– $500 million

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

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

3%

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

10%

South Atlantic (NC, SC, VA, WV)

17%

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

7%

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

14%

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

13%

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

2%

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

5%

Southwest (AZ, NM, OK, TX)

18%

West (CA, NV, OR, WA)

7%

Offshore (AK, HI, PR, VI)

2%

$50 million– $100 million

More than $500 million

2%

8%

8%

Less than $10 million

$10 million– $50 million

56%

27%

figure 13

Those planning to open new foreign facilities (12% of total survey respondents) will do so within: 5 years or more

13%

1 year

19%

3 years

13%

figure 14

AREA DEVELOPMENT

POTENTIAL PENALTIES FOR MOVING OPERATIONS/ JOBS OFFSHORE WILL HAVE AN EFFECT ON PLANS FOR NEW FOREIGN FACILITIES: Yes

figure 10

26

to this question). We aren’t sure if this has any bearing on the small percentage of respondents (just 12 percent of the total) who expect to open new foreign facilities. Of those with plans, three quarters will open new foreign facilities within the next two years, with 82 percent planning to open just one or two new foreign facilities.

Despite Trump’s threats about penalties for opening operations in Mexico, our neighbor to the south will garner more than a quarter of these planned new foreign facilities, with an equal percentage slated for Asia and 15 percent going to Western Europe. China still seems to be the destination of choice when it comes to new Asian facilities, garnering half of those

2 years

56%

13%

No

31%

No Response

57%

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

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13/02/17 3:30 PM

Political Risk Comes to the United States

corporate

survey

BY DAN LEVINE, PRACTICE LEADER, LOCATION STRATEGIES AND ECONOMIC DEVELOPMENT, OXFORD ECONOMICS, INC.

International site selection is already changing in response to our new era of presidential tweeting. To last year’s rankings must now be added the challenges presented by major shifts in federal policies and tactics. Already some companies have reportedly reconsidered foreign investments after weighing the benefits of cost savings and operational efficiency against the pitfalls of adverse publicity, risk to future government contracts, and the threat of new taxes on trade. Such overt political risk has been quietly influencing a growing number of investment decisions for some time — consider the impact that privacy laws have had on global data center projects. The new political risk originating in the United States, however, takes this concern to another level.

Large technology and manufacturing companies often rely upon internationally integrated supply chains to compete in global markets. Federal policies now under consideration have the potential to create new and contradictory risks that will make managing these supply chains and producing U.S. products in foreign markets more complicated. Being discussed, for example, are expansionary fiscal policies that would strengthen the dollar (and consequently harm exports) while other proposals would increase tariffs, tax imports, and exempt export revenue from federal taxation.

Competing domestic policy will affect different companies differently, and adding to that uncertainty is risk regarding how trading partners will respond to protectionist U.S. trade policies.

Managing these new political risks is now part of the site selection process. The 2016 rankings (particularly on labor quality and cost) still remain highly relevant. But now careful consideration must also be given to changing tax and tariff policy and the risk that new foreign investments might jeopardize future opportunities to do business with the U.S. government.

International site selection in 2017 will be unlike any investment environment that we have worked in before.

ANALYSIS 28

AREA DEVELOPMENT

planned for that region of the world.

In juxtaposition to the planned new domestic facilities, 45 percent of the new foreign facilities will house manufacturing operations, with a quarter being warehouse/distribution operations — so much for companies not moving manufacturing offshore! And these new foreign facilities will create many more jobs than the domestic ones, with 27 percent of the respondents saying they will create 100–499 jobs, and an equal percentage saying they will create 500-1,000+ jobs.

Additionally, 40 percent say between $10 million and $50 million will be invested in these new foreign facilities.

Will they expand existing facilities?

Nearly 45 percent of the respondents to our

P

31st annual Corporate Survey expect to expand an existing domestic or foreign facility. Of the 37 percent of respondents with plans to expand a domestic facility, most (nearly 60 percent) are expecting to do so with one to two years. Nearly half (44 percent of those with domestic expansion plans) say they will expand just one facility, and 82 percent claim their domestic expansions will create fewer than 100 new jobs.

Just 9 percent of the total of Corporate Survey respondents plan to expand an existing foreign facility, with the majority (84 percent) saying they will do so with a year or two. More than 70 percent of those respondents will expand one or two foreign facilities, with 61 percent saying these foreign expansions will create fewer than 100 new jobs.

lan to open a new (not relocate an existing) domestic or foreign facility within next five years: Yes No

47%

53%

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

Number of new foreign facilities to be opened: Location of new ASIAN FACILITIES: China Singapore India

50% 10% 40%

5 or more

13%

1,000 or more

7%

One

38% Three

6%

20%

20%

Two

44% 20-49 20%

100-499

27%

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

Eighty percent of the Corporate Survey respondents are not planning to relocate an existing domestic or foreign facility within the next five years. Of the 14 percent of total survey respondents who do plan to relocate an existing domestic facility, 68 percent plan just one domestic relocation, and nearly two thirds plan to relocate in one to two years.

The primary reasons for relocating domestically are access to new markets or market proximity and infrastructure concerns — each cited by 40 percent of the respondents with domestic relocation plans. A fifth are also very concerned about labor availability in their present location.

Interestingly, just 13 percent of all the Corporate Survey respondents believe there will actually be financial inducements to move foreign facilities back to the United States or reshore. Even if

Fewer than 20

500-999

figure 15

Will they relocate existing facilities?

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

Canada

4%

Mexico

27%

Central America

50-99 7%

figure 18

Total amount to be invested in new foreign facilities: $100 million–$500 million

13%

4%

South America

12%

Western Europe

15%

Eastern Europe

Less than $10 million

$50 million– $100 million

40%

7%

$10 million– $50 million

8%

Middle East

40%

4%

Asia

27%

figure 16

figure 19

Types of new foreign facilities

Those planning to expand existing domestic facilities

(as a percentage of total number to be opened): Other Back Office/ Call Center

10%

(37% of total survey respondents)

expect to do so within:

Shared Services

5 years or more

10%

18% Manufacturing

5%

45%

Warehouse/ Distribution

14%

4 years

2%

3 years

2 years

22%

45%

25%

Data Center

1 year

5%

figure 20

figure 17

Number of domestic facilities to be expanded: PLAN TO expand an existing domestic or foreign FACILITY within five years: Yes

44%

5 or more

10% Three

13%

44% Two

33%

No

56%

One

figure 21 AREA DEVELOPMENT | Q1/2017

29

U.S. Will Remain a Prime Area of Expansion

BY CHRIS STEELE, COO, INVESTMENT CONSULTING ASSOCIATES

Area Development’s annual Corporate Survey always provides a great forum in which to explore ideas, and this year’s results provide an excellent opportunity to explore global political change: 2016 saw not only the election of President Donald J. Trump, but also the Brexit vote in the UK and various nationalist or protectionist movements across Europe. Such changes were momentous from a political point of view, but this year’s survey results show how the resulting policy changes affect corporate plans.

Seventy percent of the respondents noted their number of facilities did not change over the previous 12 months. This suggests that companies may have awaited the results of the U.S. election. This is not unusual, as any election year poses unknowns for regulation and policies. However, specific discussions of trade, tariffs, and reshoring would make any wise corporate investor hold his/her decision.

Second, only 20 percent of the total respondents noted that they currently have a foreign presence or facilities; only 9 percent of the total respondents noted plans to expand existing foreign facilities; and only 12 percent expect to open new foreign facilities. Coupling this with the fact that 68 percent of the respondents see the Trump administration’s policies as favorable to moving ahead with new plans, it would appear that the U.S. will be a prime area of expansion and investment focus for the near term.

It is interesting to speculate what these domestic-focused trends and the potential changes to the global economic environment might mean for economic development strategies. Foreigntrade zones, which were originally a byproduct of the Smoot-Hawley tariffs of 1930, provide a means of retaining elements of a free-trade globalist approach to economic development.

Perhaps these tools will find a new life in the coming economy.

ANALYSIS 30

AREA DEVELOPMENT

there are inducements, most analysts note that those production jobs that have been moved offshore aren’t coming back. According to an MIT Technology Review released in November 2016,5 Trump’s promise to bring back production jobs ignores the realities of advanced manufacturing. With that in mind, just 2 percent of all the Corporate Survey respondents plan to reshore facilities. Of these individuals, all are concerned about product quality issues overseas, while two thirds also worry about transportation/supply chain costs and intellectual property protection.

Despite the fact that only 2 percent of all Corporate Survey respondents say potential penalties under the new Trump administration will have an effect on their plans to relocate a domestic facility/jobs offshore, just 1 percent of our survey respondents claim to have plans to do so. Labor costs and availability are the reasons they find relocating offshore to be necessary.

P

Which location factors are most important?

As in years past, we asked our Corporate Survey takers to rate the location factors they take into consideration when making new facility, expansion, or relocation plans as either “very important,” “important,” “minor consideration,” or “of no importance.”

We then added the “very important” and “important” ratings together in order to rank the factors in order of importance.

Once again, the top factors are highway accessibility and availability of skilled labor, ranking No. 1 and 2, respectively, and flipping in order from the 2015 Corporate Survey. This time, 94.4 percent of our Corporate Survey respondents rate highway accessibility as “very important” or “important,” and 89.8 percent give that rating to availability of skilled labor. In fact, 47 percent of the respondents say availability of skilled labor is having an effect

lan to relocate an existing domestic or foreign facility within the next five years: Yes No

20%

80%

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

Total number of new jobs to be created by company’s domestic expansions: 500-999

4%

100499

on their new facility and expansion plans. More than half the respondents say workers are lacking basic reading and math competency skills, with nearly 60 percent saying they are also lacking the advanced skills pertinent to today’s advanced manufacturing industries, e.g., advanced welding, machine tool programming, etc.

As the U.S. economy has started to heat up and wages have started to increase, labor costs have also become more important on a yearover-year basis. This factor increased 8.8 percentage points — the largest percentage increase in the ratings — and is now considered very important” or “important” by 89.6 percent of the Corporate Survey respondents, jumping from No. 6 to No. 3 in the rankings.

Maintaining its No. 4 ranking among the site selection factors is occupancy and construction costs, with an 86 percent combined importance rating. It’s not surprising that this factor remains quite important. Overall construction costs are expected to continue to rise in 2017 in the 2 percent to 3 percent range, according to the latest forecasts.6 Three related factors — corporate tax rate, tax exemptions, and state and local incentives —

1,000 or more

2%

12%

Those planning to relocate existing domestic facilities within the U.S. (14% of total survey respondents) expect to do so within:

Fewer than 20

5 years or more

5%

31%

50-99

3 years

20 %

1 year

21%

32% 20-49

31%

2 years

42% figure 22 figure 26

Those planning to expand existing foreign facilities (9% of total survey respondents)

expect to do so within:

More than one

4 years

8%

3 years

8%

Number of planned domestic relocations:

32% 1 year

One

38%

68%

2 years

46%

figure 27

figure 23

Number of foreign facilities to be expanded:

Primary reasons for domestic relocation: Tax concerns

Five or more

9%

Four

9%

One

Three

9%

10%

Government regulations

5%

Labor costs

5%

36%

Labor availability

20%

Infrastructure

40%

Two

Energy costs

15%

New markets/Market proximity

40%

Logistics/Supply chain

35%

Capital access

15%

36% figure 24

Proximity to research centers / Industry consortium 10%

Total number of new jobs to be created by company’s foreign expansions:

Other

35%

figure 28

500-999

15% 100499

Fewer than 20

31%

23% 50-99

15%

20-49

15%

figure 25 AREA DEVELOPMENT | Q1/2017

31

Highway Access, Labor Skills and Costs Remain Primary Concerns

survey

corporate

BY GRANT MILLER AND DON MOSS, SENIOR VICE PRESIDENTS, COLLIERS INTERNATIONAL

As distribution facilities have measurably increased in size, we have seen four critical issues arise: One concern is highway accessibility, the top site selection factor in the 2016 survey with 94.4 percent of the respondents stating that this is a critical factor, up from a #2 ranking in 2015 at 88 percent. The three other issues we are seeing in siting larger square footage buildings are available sites, (#12 with 75.3 percent), permitting (#13 with 71.7 percent), and environmental regulations (#14 with 70.8 percent). These results are in line with similar issues facing real estate professionals, developers, and site selection professionals due to backlash over “greenfield” sites by neighbors voicing concerns over increased traffic, noise, and environmental effects.

For companies considering a new location, labor is of great concern. Skilled labor availability (#2 with 89.8 percent) and labor costs (#3 with 89.6 percent) have become key site selection factors.

The labor market has tightened significantly, which is causing wage rate pressures (wages are projected to increase 3 percent this year according to a 2016 Society for Human Resource Managers’ survey). Many human resource managers are saying available positions for skilled workers seem to be more plentiful than qualified applicants.

Because the labor market has a limited qualified labor pool, companies, economic development organizations, and community colleges are working “hand in hand” to develop a pipeline of local workers. This is especially true for manufacturing companies that have to demonstrate to high school students, parents, and guidance counselors that new manufacturing jobs have better pay and require more advanced technical training than ever.

As the country has climbed out of the recession, companies have more checks and balances in place than before. A typical final decision team could include several of these individuals: CFO/finance director, logistics leader, human resources leader, operations director, COO, and CEO/president.

ANALYSIS 32

AREA DEVELOPMENT

Reasons cited by those planning (2% of total survey respondents) to relocate a foreign facility back to the U.S. (reshoring): Labor costs

33%

Energy costs

33%

Product quality issues

100%

Transportation/supply chain costs

67%

Geopolitical/government policy concerns 33% Tech transfer/Intellectual property protection 67%

figure 29

Reasons cited by those planning (1% of total survey respondents) to relocate a domestic facility to offshore or near-shore: Labor costs

100%

Labor availability

50%

figure 30

BELIEVE THERE WILL BE FINANCIAL INDUCEMENTS TO RESHORE UNDER THE NEW TRUMP ADMINISTRATION: Yes

13%

No

2%

No response

85%

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

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17/02/17 2:18 PM

CORPORATE SURVEY 2016* Site Selection Factors LABOR Availability of skilled labor Availability of unskilled labor Training programs/ technical colleges Labor costs Low union profile Right-to-work state

Very Important %

Important %

Minor Consideration %

Of No Importance %

49.1 16.0

40.7 35.9

8.3 29.3

1.9 18.9

23.8 46.2 49.1 42.1

42.9 43.4 21.7 28.0

24.8 9.4 12.3 15.0

8.6 1.0 17.0 15.0

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

65.4 12.5 22.4

29.0 21.2 30.0

3.7 31.7 33.6

1.9 34.6 14.0

3.8

14.3

26.7

55.2

11.4

29.5

31.4

27.6

34.3 44.9 41.7 43.4

32.4 37.4 38.0 40.6

23.2 14.0 15.7 8.5

10.2 3.7 4.6 7.6

29.3 34.3 43.0

46.2 41.0 43.0

14.2 14.3 9.4

10.4 10.5 4.7

34.9 16.7 41.1 23.6 38.1 21.7 33.6

36.8 37.0 37.4 47.2 40.0 44.3 35.5

18.9 26.9 14.0 21.7 14.3 22.6 15.9

9.4 19.4 7.5 7.6 7.6 11.3 15.0

16.8 17.0 31.1

22.4 29.3 45.3

42.1 32.1 20.8

18.7 21.7 2.8

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

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 innovation/ commercialization/R&D centers Water availability Quality-of-life factors

*All figures are percentages and are rounded to the nearest tenth of a percent. figure 31

34

AREA DEVELOPMENT

Potential penalties OF RELOCATING DOMESTIC FACILITIES/JOBS OFFSHORE under the new Trump administration will have an effect on plans to do so: No

2% 21%

No response

76%

Yes

also continue to increase in importance. State and local incentives moved up four spots and is now the No. 5 ranked factor. It showed the second-largest percentage increase, rising 8.2 percent, and now considered “very important” or “important” by 84 percent of the Corporate Survey respondents. In fact, 74 percent of the respondents separately note that incentives are very or somewhat important to a project moving forward in a particular location. More than 70 percent consider tax incentives the most important type, and 39 percent cite the importance of worker training incentives.

The high ranking of state and local incentives is not surprising, considering the fact that corporate tax rate, with an 82.3 percent combined importance rating, and tax exemptions, with a 79.7 combined importance rating, are ranked No. 6 and

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

COMBINED RATINGS* CORPORATE SURVEY 2016 Site Selection Factors 7, respectively, among the site selection factors.

Although energy costs vary by location, energy availability and costs is ranked No. 8, considered “very important” or “important” by 78.5 percent of the Corporate Survey respondents. In fact, 80 percent of the survey respondents say they’ve made energy-saving modifications to their existing facilities.

Proximity to major markets is ranked No. 9, considered “very important” or “important” by 78.1 percent of the survey respondents. The rise of e-commerce, with customers expecting next-day or even sameday delivery, continues to increase the significance of this factor.

Although quality of life showed the secondlargest percentage decrease in the ratings (11.2 percentage points), this factor still made it into the top-10 with a 76.4 percent combined importance rating.

Despite the fact that quality of life is not the primary consideration when a company is choosing a location, experts say it cannot be overlooked. It’s not only important to attracting young, tech-savvy workers but also mature workers who require good schools for their children and access to quality healthcare, as well as cultural and recreational amenities.

The only factor drop-

2016

2015

RANKING 1. Highway accessibility 2. Availability of skilled labor 3. Labor costs 4. Occupancy or construction costs 5. State and local incentives 6. Corporate tax rate 7. Tax exemptions 8. Energy availability and costs 9. Proximity to major markets 10. Quality of life 11. Available buildings 12. Available land 13. Expedited or “fast-track” permitting 14. Environmental regulations 14T.Low union profile 16. Right-to-work state 17. Inbound/outbound shipping costs 18. Training programs/technical colleges 18T.Availability of long-term financing 20. Proximity to suppliers 21. Raw materials availability 22. Accessibility to major airport 23. Availability of unskilled labor 24. Water availability 25. Availability of advanced ICT services 26. Proximity to innovation/commercialization R&D centers 27. Railroad service 28. Waterway or oceanport accessibility

94.4 89.8 89.6 86.0 84.0 82.3 79.7 78.5 78.1 76.4 75.5 75.3 71.7 70.8 70.8 70.1 69.1 66.7 66.7 66.0 53.7 52.4 51.9 46.3 40.9

88.0 92.9 80.8 85.4 75.8 78.8 74.7 75.3 76.3 87.6 83.7 73.9 74.2 69.8 66.3 67.7 64.6 68.7 67.7 64.3 52.6 58.6 47.8 54.6 53.6

39.2 33.7 18.1

48.4 32.4 24.0

(2) ** (1) (6) (4) (9) (7) (11)

(10) (8) (3) (5) (13) (12) (14) (18) (16T) (19) (15) (16) (20) (24) (21) (26) (22) (23) (25) (27) (28)

* 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. ** 2015 ranking figure 32

S

ustainable facility development more important to your company now than in the past: Yes No

54%

46%

AREA DEVELOPMENT | Q1/2017

35

Highway Accessibility Tops List of Corporate Site Selection Factors*

BY CHARLES L. RUBY, MANAGING DIRECTOR, DELOITTE TAX LLP

Continued investment in America’s highway infrastructure may reflect a compelling need for communities across the country. Significant federal and state monies will likely need to be invested in our existing highways, bridges, and other public infrastructure over the next decade to meet the needs of the current and projected corporate and residential demand.

The most recent Corporate Survey speaks volumes regarding the need for additional highway improvements with “highway accessibility” ranked #1 as a site selection factor with a rating of 94.4 percent. This is up from a rating of 88 percent and the second spot overall in the 2015 survey. Adding miles of new and expanded highways can improve access to available skilled labor (ranked #2 as a site selection factor this year) and connect qualified employees to both existing and yet to be developed commercial and industrial hubs. Infrastructure investments, e.g., converting a two-lane county road to a four- or six-lane highway, can spur future economic development and create potential opportunities for affected communities to redevelop and rebrand themselves as an ideal place to live, work, and play.

Although “quality of life” slipped from the third spot in the 2015 Corporate Survey, this site selection factor still remains in the top 10 with a rating of 76.4 percent. Despite that drop, communities with good highway accessibility and top-notch talent will likely continue to emphasize their unique quality of life as a differentiator to both attract and retain employers and employees alike. “Quality of life” is a phrase that can refer to many different and often unique qualities of a local community. It could be a cluster of great restaurants all within walking distance, access to world-class museums and art galleries, or simply close proximity to parks, trails, streams, and other outdoor activities. Like the ability to draw in labor from greater distance, good highways and bridges allow residents access to nearby amenities and are factors that a community may use to demonstrate what makes them unique and drive future prosperity. Given the federal government’s focus on transportation, infrastructure, and U.S.-based corporate growth, local communities should consider how best to position themselves to benefit from additional infrastructure investments. * This analysis does not constitute tax, legal, or other advice from Deloitte Tax LLP, which assumes no responsibility with respect to assessing or advising the reader as to tax, legal, or other consequences arising from the reader’s particular situation. Copyright 2017 Deloitte Development LLC. All rights reserved.

ANALYSIS 36

AREA DEVELOPMENT

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

No

Yes

53%

47%

figure 33

If yes, are workers primarily lacking: Basic skills

(e.g., reading comprehension, mathematical competency, etc.) 52%

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

59%

STEM skills (science, technology, engineering, mathematics)

40%

figure 34

Measures undertaken to reduce company’s “carbon footprint”: LEED certification for new or existing facilities 26% Energy-saving modifications to existing facilities 80% Installed on-site renewable generation

14%

Change of supply or distribution routes/methods 16% Recycling or re-use of waste products, etc.

68%

Other

4%

figure 35

Importance of incentives to a project moving forward in a particular location: Of no importance Minor consideration

15%

10%

Very important

33%

Somewhat important

41% figure 36

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

THE M THE MIDWEST IDWEST P PREMIER REMIER R REAL EAL E ESTATE STATE IINVESTMENT NVESTMENT B BANK ANK

S E N I O R S T R E T C H – FO R WAR D D E VE LO P ME NT – P R E - L A N D D E V E LO P ME NT – A & D C O MBINATION

LaSalle Nova Capital Markets of Chicago River Point Plaza, Suite 1700 Chicago, Illinois 60606 800-517-5204 • 312-416-8677

LaSalle Nova Global Markets of NYC Rye Brook Office Park, Suite 641 Rye Brook, NY 10573 800-316-5684 • 914-231-0354

www. L a S a l l e A M O . c om

AREA0669.indd 1

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Economic Incentives Necessary to Mitigate Increasing Project Costs

BY BRADLEY MIGDAL, SENIOR MANAGING DIRECTOR, BUSINESS INCENTIVES PRACTICE, CUSHMAN & WAKEFIELD

As the industrial economy expands, corporate occupiers are looking to mitigate risk by selecting locations where all the stars align. Critical location factors such as labor supply and costs, building supply and costs, highway accessibility, along with strong economic offsets (incentives) are the drivers to most location decisions now.

Thus, the Area Development Corporate Survey rankings results come as no surprise. The top-five site selection factors for 2016 are the same critical location factors aforementioned.

The continued absorption of existing industrial product has really changed the cost structure for industrial projects. Corporations are continuing to see a shortage of available buildings and increasing land and building costs. According to Cushman and Wakefield, Inc.’s U.S. Fourth Quarter MarketBeat, overall industrial vacancy is 5.5 percent due to 63.6 million square feet of net absorption. This is the 27th consecutive quarter of industrial absorption gain; as a result, the construction of 215.6 million square feet of new industrial product is coming to market. The growing demand is raising asking triple net rents to an average $5.64 per square foot, a drastic change from 2012 when asking rents were under $5.00 per square foot and vacancy was over 8 percent.

While e-commerce demand continues its growth, the market will continue to see supply constraints of available industrial buildings in certain markets, and asking rents will rise. That, coupled with a low unemployment rate and increased wages, has made industrial expansions more expensive than ever. As the labor and real estate markets tighten and increase in costs, it is critical for locations to have strong economic incentives to offset costs. As these costs rise, the economic incentives conversation is top of mind for real estate and supply chain executives. Economic incentives are now not just the icing on the cake, they are now truly making projects a reality.

ANALYSIS 38

AREA DEVELOPMENT

ping out of the top-10 from last year is available buildings. It dropped from No. 5 to No. 11 this year, decreasing 8.2 percentage points and now rated “very important” or “important” by 75.5 percent of the Corporate Survey respondents.

This drop in the ratings and rankings is hard to explain considering the fact that the supply of available industrial buildings has been dwindling, as speed to market has been more important than ever, with companies needing to get their operations up and running as quickly as possible. However, perhaps for this year’s pool of respondents, an available building would not fit their parameters for a new or expanded facility and they would most likely consider a build to suit. In fact, about two thirds of the respondents note the relative importance of a shovel-ready or precertified site.

Finally, the factor showing the largest percentage decrease in the combined “very important” or “important” ratings is availability of advanced ICT services, dropping 12.7 percentage points to achieve a 40.9 percent rating, although it only dropped two spots in the rank-

ings to No. 25. As these services become more ubiquitous, they may have become less critical when compared with other factors influencing the location decision, thus garnering a lower combined importance rating from our survey respondents.

How do they conduct the location decision process? What information sources do they utilize?

Nearly half of the Corporate Survey respondents take one to two years to gather information for making their next location decision. Contact with the locations of interest is then made within three to six months by nearly two thirds of the respondents.

More than 90 percent of the respondents put between one and five locations on their “short list.” Sixty percent of the respondents say they visit up to five locations before finalizing their location decision, with a third making the final decision within six months of initial contact being made.

Another 38 percent take between six months and one year to make their final location selection.

Only 38 percent of the respondents to our 31st annual Corporate Survey utilize the services of site selection or business

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

corporate

consultants when making location decisions. Of those that do, about two thirds say the consultants provide location studies/ comparative analyses as well as help with the real estate transaction.

And 55 percent say the consultants negotiate/ manage incentives on their behalf.

More than 80 percent of the respondents utilize site magazines like Area Development as a source of site selection information, and three quarters also use general business magazines and financial newspapers. When searching online, 78 percent claim to be looking for economic data on specific locations, two thirds are looking at listings of available sites and buildings (e.g., FastFacility), and half hone in on specific economic development agencies’ websites.

What do the results mean for economic growth?

After years of slow growth, will the economy shift into high gear? If Trump follows through on his promises to invest in the nation’s infrastructure, revise personal and corporate taxes, and get rid of onerous business regulations, economic

survey

analysts are projecting stronger growth in the year ahead. Like others, the Organization for Economic Cooperation and Development (OECD) has also predicted the U.S. will grow 2.3 percent this year and 3 percent in 2018.7 Our Corporate Survey respondents seem to be riding on this wave of optimism. As stated, more than two thirds of the survey respondents believe that economic conditions under the new Trump administration will be favorable to moving ahead with new facility or expansion plans — and most of those location and expansion moves will take place in the U.S. But, along with others, the OECD’s chief economist, Catherine Mann, warns that Trump’s anti-trade proposals could have negative consequences for economic growth.

And as of this writing, President Trump just withdrew the U.S. from the Trans-Pacific Partnership (TPP) and was calling for the renegotiation of NAFTA. It’s too soon to tell if our Corporate Survey respondents’ optimism is justified and they will

follow through with — or maybe even increase — their new facility and expansion plans. However, the new administration does need to pay attention to business’ need for skilled workers — a primary concern according to the results of our survey. The manufacturing jobs President Trump wants to bring back to the U.S. aren’t the same as the ones that left, as noted by Scott Paul, president of the Alliance for American Manufacturing, in a reaction to the President’s inaugural address: “The offshored jobs President Trump has promised to return will not look like those that left. Manufacturing industries change rapidly, and so do the skill sets they require of workers upon entry. His administration must lead the way in preparing our workforce for this changing economy, so they can participate and reap its benefits too.”8 ••••••

Type(s) of incentives considered most important: Cash grants

25%

Tax incentives (tax credits, exemptions, etc.) 71% Other financial incentives (bonds, loans, etc.) 18% Worker training incentives

39%

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

57%

figure 37

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

15%

20%

Very important

26%

Somewhat important

39% figure 38

1

https://www.moodys.com/research/Moodys-Global-growth-to-stabilize-in-2017-as-USemerging--PR_358009

5

https://www.technologyreview. com/s/602869/manufacturing-jobs-arentcoming-back/

2 http://www.cushmanwakefield.us/en/ news/2017/01/cushman-wakefield-us-macroforecast/

6

http://www.buildingsolutions.com/industryinsights/first-look-at-the-constructionindustry-in-2017

3

http://www.pwc.com/us/en/industrialmanufacturing/assets/pwc-manufacturingbarometer-q4-2016.pdf

7

http://www.usnews.com/news/articles/2016-11-28/donald-trump-to-benefitglobal-economic-growth-oecd-says

4

8

http://www.industryweek.com/public-policy/manufacturing-group-awaits-presidenttrump-s-policy-putting-american-jobs-first

https://www.bloomberg.com/news/ articles/2016-11-29/corporate-executiveshave-opinions-on-donald-trump

AREA DEVELOPMENT | Q1/2017

39

C O R P O R AT E L O C AT I O N D E C I S I O N P R O C E S S Time needed for informationgathering:

After the initial contact, location decision is made within:

3–6 months 6-12 months 1–2 years More than 2 years

1–6 months 6-12 months 1–2 years More than 2 years

7% 21% 49% 24%

Contact with the locations of interest is then made within: Within a month Within 3 months Within 6 months After 6 months

11% 29% 34% 26%

33% 38% 21% 8%

Company uses outside site selection or business consultants when site selecting: Yes No

38% 62%

If yes, consultants are providing: Number of locations/economic development organizations making the “short list”: 1-5 5–10 More than 10

93% 4% 3%

Number of locations visited before finalizing the location decision: 1 or 2 Up to 5 More than 5

Feasibility studies Global asset positioning Location studies/ comparative analyses Incentives negotiations/ management Location decision Real estate transaction Other

52% 12% 64% 55% 29% 67% 2%

28% 60% 12%

S O U R C E S O F I N F O R M AT I O N

40

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

Types of information searched for online:

Site magazines (e.g., Area Development) B2B industry-related magazines (food, plastics, etc.)

General business magazines and financial papers (e.g., IndustryWeek, The Wall Street Journal, etc.)

Economic data on specific locations Specific economic development agencies’ websites Listing of available sites and buildings (e.g., FastFacility) Site selection and facility planning strategy and information (e.g., AreaDevelopment.com) Contact information for consultants and/or real estate professionals who can assist in the site search

AREA DEVELOPMENT

82% 37%

74%

78% 51% 68%

49%

42%

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consultants

A

rea Development also asked the consultants who help our corporate executive readers make their facility location and expansion decisions to tell us about their clients’ plans and priorities.

Since only 38 percent of those responding to our 31st annual Corporate Survey say they utilize the services of consultants when site selecting, it stands to reason that the consultants’ responses will differ from the corporate responses.

Let’s examine the results of our 13th annual Consultants Survey to see where the survey responses agree or differ.

Who are the responding consultants?

Eighty percent of the responding consultants say they are working on projects for durable goods manufacturers, while two thirds say they are also working on projects for distribution/ warehousing operations.

Nearly all (91 percent) say they provide their clients with location studies/comparative analyses, as well as incentives negotiation/ management (89 percent make that claim).

In terms of employment numbers, a third of those responding to our Consultants Survey work primarily with midsize companies (100–499 employees), while a fifth work primarily with large companies (500–999 employees), and 40 percent focus on very large firms (1,000 or more employees). These three employee cohorts only account for slightly more than half of the Corporate Survey respondents.

Sixty percent of the Consultants Survey respondents claim that most of their clients who ask them to perform a location search have already gathered some preliminary data on the locations of interest, with 55 percent saying their clients have narrowed down the geographic area in which they wish to locate. Nonetheless, about two fifths of these consultants say their clients expect them to narrow or make the location choice for them.

Most of the consultants (91 percent) acknowledge that executive management at

survey

their client companies is involved in the location decision process; 68 percent say their clients’ tax and finance departments are also involved; and 72 percent say operations or business unit management teams play a large role in the process as well.

Will their clients open new facilities and/or expand existing ones?

About three quarters of the respondents to our Consultants Survey also expect economic conditions under the new Trump administration to be favorable to their clients’ moving ahead with new facility or facility expansion plans. In fact, 93 percent say their clients will open a new (not relocate an existing) domestic facility within the next five years. Almost all (95 percent) say these new facilities are actually planned within a threeyear window, according to our survey results.

Sixty-five percent of the responding consultants expect their clients to open just one new domestic facility, with about a fifth saying they’ll open two. About 30 percent of these facilities will house manufacturing

Respondents working on projects in the following industries: Manufacturing — Durable Goods

80%

Manufacturing — Non-Durable Goods Manufacturing — Other

53% 28%

Distribution/Logistics/ Warehousing Financial Services/Insurance/ Real Estate

67% 44%

Data Center/Processing/ Software/Other ComputerRelated Services Call Center Operations

37% 15%

Energy Industry Hospitality Industry

27% 11%

Healthcare/Life Sciences Retail

31% 9%

Construction & Trades Other

3% 13%

chart A

Respondents providing the following services to their clients: Feasibility Studies

40%

Global Asset Positioning

21%

Location Studies/ Comparative Analyses

91%

Incentives Negotiations/ Management

89%

Location Decision

75%

Real Estate Transaction

41%

Workforce Analysis

7%

chart B

AREA DEVELOPMENT | Q1/2017

41

In terms of their employment numbers, client companies utilizing consultants’ services are generally: Small (20-99 employees)

4%

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

93% 7%

Mid-size (100-499 employees)

37%

Large (500-999 employees)

19%

Very large (1,000 or more employees)

Clients that expect to open new domestic facilities plan to do so within:

40%

1 year

22%

2 years

45%

3 years

28%

4 years

1%

5 years or more

3%

chart C

Most of the clients asking the consultants to perform a location search have: 37% 60%

Already narrowed down the geographic area in which they wish to locate

Number of new domestic facilities average client plans to open:

55%

1

65%

Already chosen several “finalist” communities

23%

Expect the consultant to narrow or make the location decision for them

2 3

22% 8%

41%

5 or more

5%

chart G chart D

Location of clients’ new domestic facilities (as percentage

of total number to be opened): New England (CT, MA, ME, NH, RI, VT) 91%

Tax and finance

68%

Real estate

60%

Information technology

12%

Supply chain or logistics

47%

Operations or business unit management

72%

Human resources

52%

chart E

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

8% 14%

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

13%

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

18%

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

13%

Plains (IA, KS, MN, NE, ND, SD) Mountain (CO, ID, MT, UT, WY)

4% 6% 13%

West (CA, NV, OR, WA)

6%

Offshore (AK, HI, PR, VI)

1%

chart H AREA DEVELOPMENT

3%

South Atlantic (NC, SC, VA, WV)

Southwest (AZ, NM, OK, TX)

42

73%

No

24%

3%

Already gathered preliminary data

Executive management

Yes

No response

chart F

Not actively initiated the site selection process

Departments of clients’ organizations significantly involved in the location decision process/project:

BELIEVE that economic conditions under the new Trump administration will be favorable to clients’ moving ahead with new facility or facility expansion plans:

operations, while nearly a quarter will serve as warehouse/distribution centers.

The majority of their clients’ new domestic facilities are planned for the southern U.S. — 18 percent for the South region (Alabama, Florida, Georgia, Louisiana, and Mississippi); 14 percent for the South Atlantic region (North Carolina, South Carolina, Virginia, and West Virginia); and 13 percent for the Southwest (Arizona, New Mexico, Oklahoma, and Texas). The Midwest (Illinois, Indiana, Michigan, Ohio, and Wisconsin) will also garner 13 percent of the new facilities projects the consultants are working on. These are the same regions favored by our Corporate Survey respondents.

Most of our Corporate Survey respondents were unsure about whether the Trump administration’s pro-

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AREA0664.indd 1

17/02/17 2:01 PM

Types of clients’ new domestic facilities (as percentage

Location of clients’ new foreign facilities (as percentage

of total number to be opened):

of total number to be opened):

Manufacturing

29%

Canada

17%

Warehouse/ Distribution

23%

Mexico

26%

Headquarters

14%

Caribbean

2%

Data Center

7%

Central America

3%

Back Office/Call Center

7%

South America

4%

Shared Services

8%

Western Europe

13%

R&D

10%

Eastern Europe

10%

Other

2%

chart I

Middle East

5%

Africa

1%

Australia

1% 18%

Asia

Clients plan to open a new (not relocate an existing) foreign facility within five years:

Location of clients’ new Asian facilities (as percentage of total Asian projects): China

38%

India

17%

Vietnam

17%

Clients that expect to open new foreign facilities plan to do so within:

Singapore

11%

Malaysia

11%

Thailand

4%

1 year

18%

Philippines

2%

2 years

48%

3 years

27%

Yes

61%

No

39%

7%

5 years or more chart J

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

Number of new foreign facilities average client plans to open: 1

70%

2

18%

3

7%

4

2%

5 or more

2%

chart K

P 44

chart L

Manufacturing

40%

Warehouse/ Distribution Headquarters

20% 3%

Data Center Back Office/Call Center

5% 12%

Shared Services R&D

10% 10%

Other 1% chart M

posed plan to penalize companies that move offshore would affect their companies’ plans for new foreign facilities (more than half did not respond). The consultants are much more certain in their opinions: Nearly two thirds believe such penalties will have an effect on their clients’ plans for new foreign facilities.

Nevertheless, about 60 percent of the responding consultants say their clients expect to open a new foreign facility within five years, with two thirds of the respondents saying this will happen within two years. Seventy percent say their clients will open just one new foreign facility. And, the most favored foreign location is Mexico, expected to garner a quarter of the new facilities projects on which the consultants are working. Our Corporate Survey respondents also are planning a similar percentage of new facilities for Mexico.

However, whereas they claim to be planning 27 percent of their new facilities for Asia (half of them in China), the consultants say just 18 percent of their clients’

otential penalties for moving operations/jobs offshore will have an effect on clients’ plans for new foreign facilities: Yes

63%

AREA DEVELOPMENT

No

32%

No response

5%

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POTENTIAL PENALTIES FOR MOVING FACILITIES/JOBS OFFSHORE UNDER THE NEW TRUMP ADMINISTRATION WILL HAVE AN EFFECT ON CLIENTS’ RELOCATION PLANS: Yes

51%

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

89% 11%

Those planning to expand existing domestic facilities expect to do so within: 1 year

25%

2 years

48%

3 years

22% 5%

5 years or more chart N

No

41%

No response

8%

Yes No

32% 68%

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

4% 48%

3 years 5 years or more

43% 4%

chart Q

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

new foreign facilities are planned for Asia, with 38 percent of these going to China.

Forty percent of the consultants’ clients’ new foreign facilities will house manufacturing operations, while a fifth will serve as warehouse/ distribution centers.

Again, these results are similar to those reported by the Corporate Survey respondents, and — once again — a larger percentage of new foreign facilities than new domestic facilities are slated to serve as manufacturing plants.

Finally, nearly 90 percent of the respondents to our Consultants Survey say their clients plan to expand an existing domestic facility within the next five years. In fact, nearly three quarters say their clients will actually do so within one to two years.

Clients plan to relocate an existing domestic facility to a foreign location within five years:

Primary reasons for moving these facilities offshore:

62% 38%

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

33%

2 years

42%

3 years

21%

4 years

2%

5 years or more

2%

Tax concerns

66%

Government regulations

41% 7%

Market proximity/new markets

70%

Infrastructure concerns

16%

Labor availability

89%

Labor costs

64%

Quality of life

18%

Energy costs

30%

Proximity to research centers / Industry consortium chart P

Labor costs Labor availability

87% 57%

Healthcare costs Infrastructure

4% 13%

Energy costs New markets/Market proximity

13% 65%

Capital access Proximity to research centers / Industry consortium

4% 9%

chart R

in the recent past or are planning to do so in the near future:

Primary reasons for clients’ domestic relocation:

Access to capital

57% 43%

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

chart O

Healthcare costs

Tax concerns Government regulations

5% 25%

Yes No

32% 68%

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

26% 30% 35% 9% 74% 39% 30% 4%

What are their clients’ relocation plans?

CONSULTANTS SURVEY 2016* Site Selection Factors LABOR Availability of skilled labor Availability of unskilled labor Training programs/ technical colleges Labor costs Low union profile Right-to-work state

Very Important %

Important %

Minor Consideration %

Of No Importance %

93.1 19.7

6.9 49.3

0.0 25.4

0.0 5.6

41.7 56.9 38.9 34.7

50.0 38.9 43.1 41.7

8.3 4.2 15.3 19.4

0.0 0.0 2.8 4.2

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

68.1 15.5 26.8

30.6 29.6 62.0

1.4 50.7 11.3

0.0 4.2 0.0

8.5

21.1

63.4

7.0

40.9

43.7

15.5

0.0

16.7

52.8

27.8

2.8

7.0 21.1 46.5 63.4

33.8 57.8 49.3 32.4

49.3 15.5 4.2 4.2

9.9 5.6 0.0 0.0

50.0 58.3 26.8

38.9 37.5 59.2

11.1 2.8 14.1

0.0 1.4 0.0

47.9 15.5 22.2 35.2 28.2 50.7 33.3

39.4 49.3 50.0 57.8 52.1 45.1 59.7

11.3 29.6 27.8 5.6 16.9 2.8 5.6

1.4 5.6 0.0 1.4 2.8 1.4 1.4

11.3 7.0

50.7 56.3

35.2 31.0

2.8 5.6

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

More than 60 percent of the respondents to our 13th annual Consultants Survey say their clients plan to relocate an existing facility within the U.S., with three quarters saying their clients will do so within one to two years. The primary reason cited for their clients’ domestic relocations is labor availability (cited by 89 percent of the consultants). Market proximity/new markets (cited by 70 percent), tax concerns (cited by 66 percent), and labor costs (cited by 64 percent) are other important impetuses for relocating.

Only a third of the respondents say their clients will relocate a domestic facility to a foreign location.

Half acknowledge that potential penalties for relocating facilities/ jobs offshore under the new Trump administration will have an effect on their clients’ relocation plans.

Interestingly, three quarters of the Corporate Survey takers did not respond to this question.

More than 50 percent of the consultants say those clients who expect to move domestic operations offshore expect to do so with-

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

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

46

AREA DEVELOPMENT

BELIEVE THERE WILL BE FINANCIAL INDUCEMENTS FOR CLIENTS TO RESHORE UNDER THE NEW TRUMP ADMINISTRATION? Yes

63%

No

31%

No response

7%

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

AS A TOP 5 STATE FOR MANUFACTURING ESTABLISHMENTS, FLORIDA IS BUILT FOR YOUR BUSINESS. Why do more than 19,000 manufacturing companies call Florida home? Because not only do we have the space to accommodate them, we also have the custom-trained workforce, infrastructure and trade expertise to ensure success. Add to that a pro-business and costcompetitive environment, and it’s easy to see why Florida ranks among the nation’s top five states for manufacturing. And we have no doubt that your company can make something big of that. Discover what a future in Florida means for your business at floridathefutureishere.com/manufacturing, or call 877-YES-FLORIDA.

AREA0667.indd 1

17/02/17 2:15 PM

COMBINED RATINGS* CONSULTANTS SURVEY 2016 Site Selection Factors

2016

2015

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

100.0 98.7 95.8 95.8 95.8 95.8 95.8 93.0 93.0 91.7 88.9 88.8 87.3 86.0 84.6 82.0 80.3 78.9 76.4 72.2 69.5 69.0 64.8 63.3

100.0 93.5 96.1 96.1 94.9 91.0 91.0 85.8 84.2 86.9 94.8 88.4 88.4 84.0 88.4 83.1 82.9 74.1 76.7 75.3 57.2 65.0 64.9 64.5

62.0 45.1 40.8 29.6

61.9 52.0 39.0 42.9

(1)** (6) (2) (2T) (4) (7) (7T) (13) (14) (12) (5) 12.

(9) (9T) (15) (9T) (16) (17) (20) (18) (19) (25) (21) (22) (23) (24) (26) (28) (27)

* All figures are percentages and are the total of the “very important” and “important” ratings of the Area Development Consultants Survey and are rounded to the nearest tenth of a percent. ** 2015 ranking chart U

48

AREA DEVELOPMENT

INCREASE OR DECREASE in the number of companies establishing FOREIGN FACILITIES or beginning site searches in foreign locations as opposed to domestic ones in the last year?

Increase Decrease

38% 62%

in two years. In this case, labor costs were cited by 87 percent of the respondents as the reason behind such moves; 65 percent cited new markets/market proximity; and 57 percent cited both labor availability and tax concerns.

Only 2 percent of the Corporate Survey respondents say they plan to move a foreign facility back to the U.S., i.e., reshore. However, a third of the responding consultants say their clients have reshored in the recent past or are planning to do so in the near future. Three quarters say the need to reshore is prompted by transportation/supply chain costs; 39 percent cite geopolitical concerns; 35 percent mention product quality issues; and 30 percent cite overseas energy costs as well as intellec-

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com

tual property protection.

More than 60 percent also believe there will be financial inducements for clients to reshore under the new Trump administration. Only 13 percent of our Corporate Survey respondents believe this will happen, with 85 percent not responding to the question.

Which location factors are most important to their clients?

We also asked the consultants to rate the location factors their clients take into consideration when making new facility, expansion, or relocation plans as either “very important,” “important,” “minor consideration,” or “of no importance.” Then we added the “very important” and “important” ratings together in order to rank the factors in order of importance.

Interestingly, the respondents to our Consultants Survey rank the same three factors as most important to their clients as do the respondents to our Corporate Survey. Availability of skilled labor ranks No. 1 in the Consultants Survey (the Corporate Survey respondents ranked this factor No. 2) and is considered “very im-

portant” or “important” by 100 percent of the responding consultants.

It received the same rating in 2015’s Consultants Survey. In fact, 93 percent of the surveyed consultants say availability of skilled labor is having an effect on their clients’ facility plans or current operations, with the same percentage saying it’s the advanced skills such as machine tool programming, bioprocessing, advanced welding, etc. that are lacking.

And three quarters cite a dearth of STEM (science, technology, engineering, and mathematics) skills.

It makes sense then that training programs/technical schools is in the consultants’ No. 10 spot among the site selection factors.

Highway accessibility ranks No. 2 with a 98.7 percent combined importance rating from the consultants, and labor costs, always a primary concern, is No. 3 with a 95.8 percent importance rating.

Tied in the consultants’ rankings with labor costs for the No. 3 spot are tax exemptions and state and local incentives. Half of the responding consultants say incentives have always been of great importance to their clients when making location decisions, while 35 percent say incentives are more important now than in the past.

Availability of skilled labor having an effect on clients’ facility plans or current operations: Yes No

93% 7%

If yes, workers are lacking: Although three quarters claim tax incentives are the most important, about 85 percent say the most important types of incentives are cash grants, worker training incentives, and other types such as land, utility rate subsidies, infrastructure support, etc. And more than 80 percent cite the importance of a shovel-ready or pre-certified site to their clients.

Also tied for the No. 3 spot with a 95.8 percent combined importance rating are proximity to major markets and available land. With customers today demanding next-day and even sameday deliveries, it makes sense that the consultants’ clients would need to be near their markets.

However, as the supply of available industrial facilities has been shrinking, clients may need land for build-to-suit facilities.

Tied for the No. 8 position in the rankings are energy availability and costs and proximity to suppliers, both receiving a 93 percent combined “very important” or “important” rating from the responding consultants. Also, these factors showed large percentage increases in the ratings and jumped from their previous 13th

Basic skills (e.g., reading comprehension, mathematical competency, etc.)

54%

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

93%

STEM skills (science, technology, engineering, mathematics)

76%

chart V

Sustainable development is more important to clients now than in the past: Yes No

66% 34%

If so, measures clients have 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.

Other

53% 84% 16% 33% 63% 14%

chart W

Relative importance of incentives to clients when making location decisions: Have always been of great importance

54%

Are more important now than in the past

35%

Are less important now than in the past

12%

chart X AREA DEVELOPMENT | Q1/2017

49

SPONSORS Type(s) of incentives clients consider most important when making a location decision: Cash grants Tax incentives (tax credits, exemptions, etc.)

86% 75%

Other financial incentives (bonds, loans, etc.)

Worker training incentives

28% 86%

Other incentives (land, utilityrate subsidies, infrastructure support, etc.)

85%

chart Y

Importance of a shovelready/pre-certified site in clients’ site searches: Very important Somewhat important

43% 40%

A minor consideration Of no importance

8% 8%

chart Z

Communities are offering specific incentives for “green” initiatives: Yes No

36% 64%

Clients consider whether there are businesses performing similar activities to theirs in the area of search (clustering): Yes No

93% 7%

and 14th place rankings, respectively. When it comes to energy, nearly 85 percent of the respondents say their clients have made energysaving modifications to their facilities; nearly two thirds say their clients are recycling or re-using waste products of their operations; and more than half claim their clients are seeking LEED certification for new or existing facilities.

It should also be noted that the responding consultants gave combined importance ratings of over 90 percent to all of the top-10 ranked factors. The Corporate Survey respondents only deemed highway accessibility of such importance.

Additionally, although the respondents to our Corporate Survey placed quality of life in the No. 10 spot with a 76.4 percent combined importance rating, the respondents to our Consultants Survey ranked quality of life No. 24 among the factors with a 63.3 percent combined importance rating. The responding consultants may believe that a prospective location’s quality of life is of less importance in the final decision than perceived by corporate executives.

•••

Clients consider weatherrelated factors in the location decision: Yes No

87% 13%

chart AA

50

AREA DEVELOPMENT

FLORIDA Paul Marttila, Senior VP, Business Development Enterprise Florida 800 N. Magnolia Ave., Ste. 1100 Orlando, FL 32803 1-877-YES-Florida • Fax: 407-956-5599 https://www.enterpriseflorida.com/ thefutureishere/ pmarttila@enterpriseflorida.com David Coddington, Vice President, Business Development Greater Fort Lauderdale Alliance 110 E. Broward Blvd., Ste. 1990 Fort Lauderdale, FL 33301 954-627-0123 www.gflalliance.org www.lesstaxing.com dcoddington@gflalliance.org

ILLINOIS Grey Sheldon, CCIM LaSalle Nova Capital Markets of Chicago Three First National Plaza, Ste. 1700 Chicago, IL 60606 800-517-5204 • 312-416-8677 www.LaSalleAMO.com gray@LaSalleAMO.com

IOWA Debi V. Durham, Director Iowa Economic Development Authority 200 E. Grand Ave. Des Moines, IA 50309 515-725-3000 • Fax: 515-725-3010 www.IowaEconomicDevelopment.com info@iowaEDA.com

KENTUCKY Mandy Lambert, Commissioner Kentucky Cabinet for Economic Development Old Capitol Annex 300 West Broadway Frankfort, KY 40601 800-626-2930 • Fax: 502-564-3256 www.ThinkKentucky.com EconDev@ky.gov

•••

NOTE: Be sure to read the consultants’ analyses of the Corporate Survey to see how their thinking aligns with that of the corporate respondents – the majority of whom say they do not use the consultants’ services.

NEW YORK Grey Sheldon, CCIM LaSalle Nova Global Markets of NYC Rye Brook Office Park, Suite 641 Rye Brook, NY 10573 800-316-5684 • 914-231-0354 www.LaSalleAMO.com gray@LaSalleAMO.com

for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com