The 31st Annual
CORPORATE
The 13th Annual
CONSULTANTS
SURVEY
TOP REAL ESTATE TRENDS TO BEAT THE COMPETITION
THE FOURTH INDUSTRIAL REVOLUTION IS TAKING OFF
AREADEVELOPMENT S I T E
A N D
F A C I L I T Y
P L A N N I N G
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N AV I G AT I N G U N C H A R T E D W AT E R S I N 2 0 1 7
A N E W A D M I N I S T R AT I O N I N W A S H I N G T O N , E S C A L AT I N G W A G E S , A N D A D W I N D L I N G S U P P LY O F I N D U S T R I A L R E A L E S T A T E A R E J U S T S O M E O F T H E T R E N D S T H A T M A Y C A U S E C O M P A N I E S T O T A K E A W A I T- A N D - S E E A P P R O A C H T O C A P I T A L I N V E S T M E N T.
W W W . A R E A D E V E L O P M E N T. C O M
Providing the Necessary Tools
NV Energy’s Economic Development Department can provide the most cutting edge comprehensive listing of available properties for companies to consider in the state of Nevada. Nevada Site Locator is the state’s most advanced and only searchable GIS site selection database that is geared towards assisting businesses, brokers and developers searching for the perfect location.
` Save hours of research time ` Generates site-specific demographic and business analysis ` Download comprehensive easy to read reports
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THE STORY OF
BUSINESS IN
LAS VEGAS IS A STORY
WITHOUT LIMITS
WHAT IS THE LAS VEGAS GLOBAL ECONOMIC ALLIANCE? The Las Vegas Global Economic Alliance grows the economy of Southern Nevada and helps foster a more prosperous, diverse and connected regional economy that thrives in the global marketplace. We’re a dedicated group working to grow and promote the business climate and quality of life in a region that we also call our home. Call or visit our website to learn more.
702-791-0000
www.lvgea.org
CONTENTS 16
COVER STORY
FEATURES 14 Site Certification:
Only Part of the Story
Site certification programs should be viewed as a chapter in the location decision process rather than the entire story.
19 Knockin’ on the Golden Door: Top Real Estate Trends to Beat the Competition
NAVIGATING UNCHARTED WATERS IN 2017 A new administration in Washington, escalating wages, and a dwindling supply of industrial real estate are just some of the trends that may cause companies to take a wait-and-see approach to capital investment.
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Companies — and communities — that align their real estate and workforce strategies will enhance their competitive positions.
51 Gubernatorial Shift:
New Economic Development Policies
New governors of eight states reveal their ideas for strengthening their states’ economies and growing their business bases.
STATES with new Governors
31ST ANNUAL CORPORATE SURVEY & 13TH ANNUAL CONSULTANTS SURVEY The survey respondents feel confident about the economy under President Trump, but are still concerned about finding the skilled workers they will need to operate their growing businesses.
Exclusive Online Content • In Focus: Why America’s Supply Chain Is Shifting East
FEATURES • A Winning Strategy to Realize Maximum Incentive Benefits • The Future of Site Location Decisions Outside the U.S.
www.areadevelopment.com
• Record Demand Brings New Heights and
Challenges to Industrial Real Estate Market • Changing Investor Climates at Home and Abroad
DATA CENTERS • Credit and Incentive Trends in Landing a Data Center • Tackling The Risk Factors of Third-Party Data Centers
Area Development® Site & Facility Planning (USPS 345-510) is published five times per year (Q1, Q2, Q3, and Q4 — 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 52 | Number 1 Q1/2017
Quote:
Our workforce and our entire economy are strongest when we embrace diversity to its fullest, and that means opening doors of opportunity to everyone and recognizing that the American Dream excludes no one. Thomas Perez (1961– ), American politician, consumer advocate, and civil rights lawyer who was U.S. Secretary of Labor from 2013 to 2017 and recently elected chairman of the Democratic National Committee
62 It’s Your Move — Critical
DATA CENTERS
Considerations When Relocating Corporate Headquarters
55 Data Center Outsourcing Trending Up
The improving economy is making it more financially feasible for companies to relocate their corporate headquarters, but such a move calls for careful consideration of a variety of factors that will determine the ultimate success — or failure — of relocation.
Corporate data center sales volume is on the rise as enterprise moves to colocation and the cloud continue.
59 Site Factors for MissionCritical Facilities
When searching for a location for their next data center, companies need to take a holistic view of the process, prioritizing and balancing all the factors involved in site selection.
65 SPECIAL REPORT
Powerful Partners
Publicly owned utilities have always been deeply involved in economic development.
DEPARTMENTS 4 Editor’s note Will Corporate Optimism Be Sustained?
6 In Focus Regulation Rollback: Will Worker Safety Suffer?
8 In The Know • Kentucky Passes Right-to-Work Legislation • Industrial Manufacturers’ Optimism Reflected in Expectations of Higher Revenue Growth, Increased Capital Spending • Automation Takes Hold, But Humans Still Needed • Business Location Tracker
10 First Person
Steven L. Blue, CEO, Miller Ingenuity
Join Our Newsletter areadevelopment.com/newsletter Follow Us On twitter.com/areadevelopment
12 Front Line The Fourth Industrial Revolution Is Taking Off
13 Front Line 21st Century Cures Act May Spur Pharma/Medical Device Expansions in U.S.
72 Ad Index/
Web Directory
Online Database Resources www.facilitylocations.com Follow Us On www.fastfacility.com
POSTMASTER: Send address changes to Area Development, Circulation Department, 400 Post Ave., Westbury, NY 11590. Subscribers requesting address changes must provide both old and new addresses. © Copyright 2017 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 | Q1/2017
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EDITOR’SNOTE
Q1/2017
Will Corporate Optimism Be Sustained? Our most recent surveys of our corporate executive readers and the consultants who serve industry were conducted immediately after the 2016 presidential election — and respondents to both surveys are bullish about the economy under the new Trump administration. Trump’s campaign promises to cut corporate taxes, reduce regulations, and invest in infrastructure are seen as positive moves by industry executives. Nonetheless, countering the promised corporate tax cuts is Trump’s threat to slap tariffs on companies that move jobs overseas and then import their products back to the U.S. Although this measure has not been clearly defined, it could meet with corporate resistance, as noted by Michael R. Strain of the American Enterprise Institute in a recent New York Times article. President Trump has also promised to create 25 million new jobs, many of which will be in the factories he plans to bring back to U.S. shores. However, as noted by Scott Paul, president of the Alliance for American Manufacturing, “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.” Many companies are already struggling to find workers to fill today’s high-skill manufacturing jobs. Bureau of Labor Statistics figures confirm that 325,000 manufacturing jobs were unfilled in December 2016. And 80 percent of the 400 U.S. executives, most of whom are with manufacturing firms, recently surveyed by human resources consultancy Randstad Sourceright say a shortage of sufficiently skilled workers will affect their ability to hire in the coming year.
www.areadevelopment.com EDITORIAL E-mail: editor@areadevelopment.com Editor Geraldine Gambale Staff and Contributing Editors Dale D. Buss Craig Guillot Dave Claborn Cynthia Kincaid Mark Crawford Phillip Perry Dan Emerson Mark Schantz Tom Ewing Steve Kaelble Clare L. Goldsberry Karen Thuermer
DESIGN/PRODUCTION Art & Design Patricia Zedalis Production Manager Jessica Whitebook Production Assistant Talea Gormican EXECUTIVE Publisher Dennis J. Shea dshea@areadevelopment.com Sydney Russell, Publisher 1965-1986 ADVERTISING SALES William Bakewicz (ext. 202) billbake@areadevelopment.com Valerie Krpata (ext. 218) valerie@areadevelopment.com ONLINE SERVICES
Additionally, many skilled workers in the U.S. today are working under the H1-B visa program, which is due to come under a lot of scrutiny by the Trump administration. How the new administration addresses the issues of immigration and workforce training, as well as trade agreements, offshoring, and other concerns remains to be seen, but it will ultimately affect the sustainability of corporate optimism, plans for growth, and business competitiveness.
Digital Media Manager Justin Shea (ext. 220) jshea@areadevelopment.com Business Development Matthew Shea (ext. 231) mshea@fastfacility.com Web Designer Carmela Emerson Circulation circ@areadevelopment.com EXECUTIVE OFFICES
Editor
Halcyon Business Publications, Inc. President Dennis J. Shea Finance Mary Paulsen finance@areadevelopment.com
2017 Editorial Advisory Board Josh Bays, Principal, Site Selection Group, LLC
Stephen Gray CEO, Gray Construction
Marc Beauchamp, Vice President and Partner, The CAI Global Group
Minah C. Hall Managing Director, True Partners Consulting LLC
Bradley Migdal Senior Managing Director, Business Incentives Practice, Cushman & Wakefield, Inc.
Christine Bustamante National Co-Leader, Global Location and Expansion Services, KPMG
Scott Kupperman Founder, Kupperman Location Solutions, LLC
John Morris Leader of Industrial Services for the Americas, Cushman & Wakefield, Inc.
Gregory Burkart Managing Director, Specialty Tax Practice Leader, Duff & Phelps, LLC
Dan Levine Practice Leader, Location Strategies and Economic Development, Oxford Economics, Inc.
Eric Stavriotis Senior Vice President, CBRE
Brian Corde, Managing Partner, Atlas Insight, LLC
Jamie M. Lominack Real Estate Manager, Michelin North America
Thomas Stringer Esq., Managing Director & Practice Leader, Site Selection & Business Incentives, BDO Consulting
Les Cranmer Senior Managing Director, Savills Studley
Bill Luttrell Senior Locations Strategist, Werner Global Logistics, Werner Enterprises, Inc.
Dean J. Uminski Executive, Site Selection Consulting, Crowe Horwath LLP
Dennis Cuneo Partner, Fisher & Phillips LLP
Michael McDermott Consulting Manager, Global Business Consulting, Cushman & Wakefield, Inc.
Dan White Senior Economist, Moody’s Analytics
Tim Feemster Managing Principal, Foremost Quality Logistics
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Business/Finance Assistant Barbara Olsen (ext. 225) olsen@areadevelopment.com
All correspondence to: Area Development Magazine 400 Post Avenue, Westbury, NY 11590 Phone: Toll Free: Fax:
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INFOCUS
Regulation Rollback: Will Worker Safety Suffer? By Brian Fielkow, CEO, Jetco Delivery
Throughout Donald Trump’s campaign for president, slashing regulations has been a core theme. Many of President Trump’s cabinet nominees are longstanding opponents of a heavily regulated business environment. To underscore his seriousness about deregulation, Carl Icahn, a historical proponent of deregulation, will serve as Trump’s special advisor on regulatory reform. As regulations are rolled back or right-sized, will workers be safe under the Trump administration? The answer is easy: It’s up to business leaders. In reality, responsibility for worker safety always rests with business leaders and not with regulators.
With over 30 years of executive leadership experience in both public and privately held companies, Brian Fielkow, J.D., advises companies big and small on issues of safety, accident prevention, and corporate culture. He’s CEO of Jetco Delivery, a multimillion-dollar Houston-based trucking and logistics company that was not only named a “Top Workplace” by the Houston Chronicle and highlighted on the 2015 Inc. 5000 list, but was also given the Gold Safety Award by the Dow Chemical Company.
Safety and regulatory compliance simply are not the same. While some level of regulation clearly is essential, when politicians and regulators dictate the structure of our safety programs, there is a low probability that desirable safety outcomes will result. At their best, regulations provide only the minimum to get by. While the government can and must be a partner in promoting safety, oftentimes the promulgation of more regulations provides the appearance of action when, in reality, safety is driven and owned by the private sector. Assuming President Trump is successful in identifying and repealing wasteful regulation and creating a collaborative tone, American business has a true opportunity. We can show the government that safety is best driven by the private sector — those of us with our hands actually on the levers. If we live up to our end of the bargain, we can partner long-term to create improved worker protection and less need for regulations. If the private sector ignores its responsibility, you can be sure that the pendulum will swing back with a vengeance in the next election cycle to a cry for more regulation.
Here’s how business leaders can drive desired safety outcomes faster than any new regulation: • Ensure your employees report a near miss without fear of retribution. This will allow you to diagnose and prevent near misses so that an actual accident does not occur in the future. • Get out on the floor. Create a system of field-behavior observations to ensure employees are following processes. • Bring your front lines inside. They have the best idea of where the risks lie and, if engaged, will be your greatest source of information. Lecture less and listen more. • Ensure an ongoing system of process audits exists. Be your own worst critic to find flaws in the system and locate areas for improvement. Don’t wait for OSHA to visit. • Promote a culture of accountability. Every employee should adopt a mindset of prevention and should be personally accountable for making this happen, both individually and peer to peer. • Implement a new employee onboarding process that instills preventative behaviors from day one. Just because a new hire knows how to execute a given job function does not mean that he or she knows how to do this in your organization and in line with your safety values. In addition to simply repealing wasteful regulations, President Trump has the opportunity to establish a new tone between businesses and regulatory agencies. Let’s move from enforcement to collaboration. Most businesses want to operate safely and simply need the tools. What if we redirected some of our regulatory resources to helping these businesses improve, as opposed to looking for ways to immediately penalize them? Of course, enforcement efforts are appropriate for willful and repeat violators. For the majority of businesses that desire to operate safely, a collaborative approach will yield better results than one of assuming guilt at the outset.
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for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com
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White Papers:
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Providing What Others Don’t
INtheKNOW Kentucky Passes Right-to-Work Legislation On January 7th, Kentucky’s state Senate voted 25–12 to pass legislation making it the nation’s 27th right-to-work state — and the last southern state to do so. The bill allows individuals to work in unionrepresented facilities and received union-negotiated benefits without having to join the union and pay union dues. In a statement to Reuters, Speaker of the House Jeff Hoover said, “I personally have no problem with an individual opting to be part of a labor union…but government shouldn’t stand in the way of someone who opts not to join a union.” Kentucky’s legislature — now controlled by Republicans for the first time in nearly a century — believes the right-to-work law will help
to boost economic development in the state and now puts it in the same league as other states in the region that have recently passed rightto-work laws, including Indiana, Michigan, and Wisconsin. According to the Bureau of Labor Statistics, approximately 200,000 Kentucky workers belonged to unions in 2015. Labor activists in the state are protesting against those who reap union benefits without paying dues, calling these workers “free riders.” Hoover responded to this by saying, “Right-to-work is not an anti-union measure, but a pro-worker measure as Kentuckians will no longer be forced to join a union in order to work the job they choose.”
Industrial Manufacturers’ Optimism Reflected in Expectations of Higher Revenue Growth, Increased Capital Spending PwC’s Q4/2016 Manufacturing Barometer reveals increased optimism about the U.S. economy. The senior executives of U.S.-based industrial manufacturing companies surveyed expect revenues to increase, and they are also increasing their capital spending plans. There appears to be renewed optimism among industrial manufacturers despite uncertainty with regard to the global economy. More than three quarters (78 percent) of those surveyed by PwC believe the domestic economy is growing — up from only 38 percent in Q2/2016 and edging closer to the levels of optimism reached back in 2006 before the Great Recession, when 92 percent of the surveyed companies were optimistic about U.S. economic growth. When it comes to near-term economic prospects (over next 12 months), 57 percent said they are optimistic. However, these same industrial manufacturing panelists aren’t as optimistic about the outlook for the world economy — only 30 percent expressed 8
AREA DEVELOPMENT
optimism about the global economy over the next 12 months; 54 percent remained uncertain; while 16 percent were pessimistic. These lingering doubts reflect a persistent dichotomy between industrial manufacturers’ perceptions of the health of the U.S. and worldwide economies. In line with their optimism about the U.S. economy, 85 percent of industrial manufacturers said they expect positive revenue growth in 2017, predicting their own companies’ average revenue growth would increase by 4.6 percent from 3.6 percent a year ago. And despite their pessimism about the global economy, they still expect international sales to represent a third of their total revenues. With increased revenue comes industrial manufacturers’ plan to increase capital spending over the next 12 months, rising to the 60 percent level and nearing the high of 67 percent in the fourth quarter of 2011. Also, plans for new hiring remained fairly stable at 35 percent, compared to 32 percent two quarters prior.
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Track business relocations and expansions 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.
Studies/Research/Papers on Area Development Online. We cull insightful corporate real estate-focused studies, research, and papers from credible industry sources at www.AreaDevelopment.com/Studies.
BUSINESS LOCATION TRACKER Amazon to Add Two More California Fulfillment Centers Amazon.com, Inc. will open new fulfillment centers in Eastvale and Redlands, Calif., and will hire more than 2,000 new full-time associates. More than 15,000 full-time associates currently staff Amazon’s nine existing California fulfillment centers.
Minnesota Lands New Medical Device Manufacturing Facility Contract medical device manufacturer Biomerics LLC, which is based in Salt Lake City, plans to invest $6.5 million and create 120 high-paying jobs at a new facility in Brooklyn Park, Minn.
New Jersey Food/Recipe Fulfillment Center to Create 2,000+ Jobs A fresh ingredient and recipe delivery service — Blue Apron — is expanding its operations with the opening of a new 495,000-square-foot fulfillment center in Linden, N.J. The company expects to employ over 2,000 people in the new facility when it opens later this year.
Manufacturer to Establish Operations in Former GM Facility in Virginia A supplier of global solutions for retail environments, idX Corp., will invest $7.2 million to establish its manufacturing operation in the former General Motors Fredericksburg Powertrain facility in Spotsylvania County, Va. The project is expected to create 150 new jobs.
Indian Auto OEM Supplier to Invest in South Carolina
Intel to Complete Fab 42 in Chandler, Arizona Intel Corp. plans to invest more than $7 billion to complete Fab 42, in Chandler, Ariz., which is expected to be the most advanced high-volume semiconductor factory in the world The completion in three to four years will create about 3,000 high-tech, high-wage jobs.
India-based Sundaram-Clayton Ltd., a leading manufacturer and supplier of aluminum cast products to global automotive OEMs, will open its first U.S. operation in Dorchester County, S.C., investing $50 million and creating 130 new jobs over the next five years.
Food Processor to Create 150 Jobs in Mississippi Pearl River Foods is locating a poultry processing plant in Carthage, Miss. The company plans to invest more than $2 million and create 150 jobs.
Aerospace Manufacturer to Locate at a Florida Certified Site GKN Aerospace intends to lease a new manufacturing facility in Bay County’s Venture Crossings Enterprise Centre, which is a “Florida First Sites” certified site. GKN will make a capital investment of $50 million and plans to create 170 jobs at the facility
Automation Takes Hold, But Humans Still Needed A new report from the McKinsey Global Institute — A Future That Works: Automation, Employment, and Productivity — highlights trends in automation technologies — including robotics, artificial intelligence, and machine learning — and their effects on businesses and economies worldwide. Some of the key findings of the report are highlighted below: • Automating activities can reduce errors and improve quality, while improving productivity and, thereby, business performance. • Although less than 5 percent of all occupations can be fully automated, about 60 percent of occupations are comprised of at least 30 percent of activities that can be automated. Importantly, more occupations will change than be eliminated by automation. • Physical activities, which make up about 51 percent of all economic activities, are the most susceptible to automation. These activities are most prevalent in manufacturing, food service, retail,
and some middle-skill jobs. • The feasibility and cost of technology will determine its pace and extent. Social and regulatory factors will also come into play. • In order to produce the per capita GDP growth to which countries worldwide aspire, people will need to continue working alongside machines. • Policymakers must recognize the benefits of policies that encourage investment in innovation, while simultaneously helping workers to adapt to new technologies through education and training and providing a safety net for those dislocated. The authors of the report explain that today’s shift in workforce activities is similar to that previously seen in the shift from agriculture as well as the decreasing share of manufacturing employment in the U.S. Both of these shifts in employment were accompanied by the creation of new types of work not previously anticipated. AREA DEVELOPMENT | Q1/2017
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FIRSTPERSON STEVEN L. BLUE
CEO
MILLER INGENUITY
You believe that manufacturing in the U.S. is poised for growth in the future. Can you explain? It just got a lot better because President Trump has started to unravel some of these horrible trade deals that were made under previous administrations. However, if CEOs in the United States aren’t preparing for resurgence in manufacturing, they are going to miss out. That demand that they can’t capture is going to go somewhere. It’s going to go offshore again. CEOs ought to be hiring now. CEOs ought to be training their workforces now. CEOs ought to be arranging for product flow and sourcing material. They may have only one shot at this. It’s a fairly large window, but it won’t stay open forever. You have noted that the biggest threat to this resurgence in manufacturing will come “from the corner office of your own company.” Why? The biggest danger that exists is CEOs who think that machines are the answers to all of their problems. A robot has no initiative. A robot does not display any innovation. And a robot never suggests how an operation can be improved. The biggest danger CEOs present is in thinking the answer is at the top with machines when the answer is really at the bottom with employees. The single biggest asset, or the single biggest threat, in any company is whoever is sitting in the corner office because they can do so many damaging things. They have a certain work ethic they think everyone should have too. They have no tolerance for these millennials who want a life. Well millennials make up about half the workforce these days. Find a way to work with them. Most CEOs don’t want to talk about people skills, they want to talk about machines and marketing plans. It’s easy to talk about machines. It’s not easy to motivate an employee or group of employees. It’s not easy to lead or inspire people. Please describe the “Seven Values of Ingenuity.” The values are respect, integrity, teamwork, community, commitment, excellence, and innovation. Taken as a whole, the Seven Values of Ingenuity is a highly integrated system, and these values actually work for propelling a company and producing astonishing results. They harness the enthusiasm, ingenuity, and creativity of employees. They can create astonishing results if the values are implemented or installed
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in a certain order and a certain sequence. For example, you don’t jump into teamwork if you haven’t created a leadership team and an environment that has the first two values, which is respect and integrity. You can’t have a team when no one trusts one another. Tell us about building a culture by design and not default. Most organizations today have cultures by default, not by design. Cultures by default are generally destructive. I tell CEOs that the model you want to have is Cirque du Soleil. They are highly talented, enthusiastic, and engaged performers who come to work every single day on the edge, completely dedicated to doing better today than they did yesterday. That’s the kind of culture you want. You can attract these kinds employees if you want to because all cultures are based on values. How important is teamwork? Teamwork is not a natural act. Most performance appraisals are about the employee as an individual. So employees want to know why they should act as a team when they are not being evaluated as a team. There are parts of the organization where you have to make changes. People can’t work on a team unless they have common goals, trust each other, and are all competent. When everybody is bound by the same goal then everybody just naturally works toward making that happen. The quality guy gets together with the manufacturing guy and says, ‘Let’s make sure that we get this product out the door, on time, with no defects. How can we work together to make that happen?’ How important is having buy-in from company leadership in making these value changes? Leadership has to buy-in. People from below will never do what the top does not. In so many organizations the leaders are saying, ‘We want you to be this,’ but they are not that. That’s what I called bumper-sticker values. You have to have integrity in everything you do and every-
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thing you say. A lot of CEOs only tell half the truth and hope the other half doesn’t show up. You either have respect for people and you are a person of integrity, or you’re not. You can’t beat that into somebody. The leaders have to be committed or the employees won’t be committed. In an age of “expendable workers,” you are a big proponent of smart manufacturers treating employees with dignity and respect. Why? When we view workers as expendable, we wonder why employees check their brains at the door when they come in. I have found there is a vast difference in productivity, ideation, and creativity when people respect each other. If you respect one another you will feel better about being at work. What impact do you think the Donald Trump presidency will have on manufacturing? My suspicion is that he knows exactly what he is doing.
Laddawn, Inc.
He has the industry right where he wants it, and we better figure out how to go along with the program. I think we have to be careful of becoming too protectionist. He knows this because he has business operations all over the world. He knows how interconnected commerce is throughout the world. I think he also knows manufacturing is imbalanced right now and not in favor of the United States. I think he wants to restore some of that balance. The manufacturing community is excited about President Trump.
THE ASSIGNMENT Steven L. Blue is CEO of Miller Ingenuity, an innovative company revolutionizing traditional safety solutions for railway workers, and author of American Manufacturing 2.0: What Went Wrong and How to Make It Right. In this interview he provides insights for the business community on how to be innovative and competitive.
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AREA DEVELOPMENT | Q1/2017
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FRONTLINE
The Fourth Industrial Revolution Is Taking Off
I
n its report on the annual Consumer Electronics Show in Las Vegas, the financial news website Marketplace predicted five major trends for 2017: virtual reality technology, driverless cars, wearable devices, artificial intelligence, and the cloud/Internet of Things (IoT). At the show, much of the “buzz” revolved around the software making possible what Brian Raymond, director of Innovation Policy for NAM, calls “the convergence of the physical and digital worlds.” With consumer demand for the “latest and greatest” continuing to drive that convergence, Raymond says the biggest challenge for the manufacturing industry will be helping eliminate the “mismatch” between the skills required by the new manufacturing and the supply of workers who have those skills. But a NAM survey of manufacturers showed a high level of optimism about the impact of technology going forward, Raymond says, the belief that “the adoption of new technology will only increase and benefit the entire manufacturing ecosystem.” As 2017 begins, Michelle Drew Rodriguez, manufacturing leader for Deloitte’s Center for Industry Insights, sees “limitless possibilities” for manufacturing: “Each of those trends is definitely poised for growth with the IoT, smart products, and smart factories. When you look at them combined, that’s really where the true value comes together.” As an example, she cites autonomous cars, which bring together artificial intelligence, the IoT, digital sensors, and other technologies.
U.S. Poised for Resurgence In Deloitte’s 2016 global manufacturing competitiveness survey of more than 500 executives, the U.S. came out on top as the country which is expected to be most competitive by the end of the decade. “The U.S. has been poised for a resurgence, within the past couple of years,” Rodriguez says. “We’re seeing that in the news, with both domestic and international companies investing more in the U.S., especially around manufacturing. Modern manufacturing is moving to
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By Dan Emerson
increasingly advanced technologies and skill sets.” Rodriguez says Deloitte’s research indicates that talent has become the number-one driver of manufacturing competitiveness, “so we’re seeing companies making site selection choices based on where the skilled workforce is, both from a talent and from a broader supply chain perspective.” Proximity matters, as does having “a more tightly integrated supply chain or network — because consumers expect quicker, more convenient, more cost-effective, and more customized [products].” Greg Matter, a managing director with JLL and leader of its advanced manufacturing group, says he agrees that when it comes to site selection, companies “are looking at more localized requirements. Consumers are asking for greater customization, and asking for things to be relatively immediate, which is driving the localization of advancements in the industry.” With the Trump administration’s emphasis on creating jobs, some companies that had been looking at investments in Mexico are reconsidering the U.S., Matter says. He notes that the three largest third-party manufacturing firms “are all growing their operations in the U.S., and not only in the lower-cost U.S. markets. They’re expanding in places like Silicon Valley.” For example, in January, Taiwan-based Foxconn Technology Group announced it is considering building a $7 billion, display-panel manufacturing facility in the U.S. in a joint venture with Apple that could create up to 50,000 jobs. And, within the past year, Flex Ltd., the Singapore-based electronics manufacturer, announced new partnerships with MAS Holdings, a “technology apparel” maker, to “integrate the IoT into clothing”; Aito, whose haptic interface technology can eliminate the need for physical buttons in vehicles; and Enable Injections, which makes wearable medical devices that enable easy, self-administration of injectable drugs. It’s all part of what is being called “the fourth industrial revolution.”
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FRONTLINE
21st Century Cures Act May Spur Pharma/ Medical Device Expansions in U.S.
I
n December 2016, former President Barack Obama signed the 21st Century Cures Act, a $6.3 billion package of bills intended to stimulate medical research and innovation and accelerate the development of new drugs and medical devices. The bill, which passed by wide margins in the House and Senate, includes $4.8 billion to the National Institutes of Health (NIH). The NIH funding includes $1.4 billion for the president’s precision Medicine Initiative; $1.8 billion for former Vice President Biden’s Cancer Moonshot; and $1.6 billion for the BRAIN (Brain Research Through Advancing Neurotechnologies) initiative. The bill will also provide $500 million in funding to the U.S. Food and Drug Administration (FDA) over 10 years with the goal of getting drugs and medical devices to patients more quickly. Advocates say pharma and device-makers should save billions in R&D costs. Ed Roach, a managing director with Maetrics, a medical device industry consulting firm, says many are taking a “wait and see” stance on the law. “The theory is to get new cures to market faster. It will certainly help (the device industry and patients) if it is implemented in a way that this actually happens.” Roach says that in recent years, some changes in FDA regulations have had the effect of lengthening the time to approve new devices and drugs. “Part of this whole initiative is for the FDA to be more educated in its response to various types of devices and the science behind them, to give them a more thorough review. It’s probably the right thing to do; it’s just that, as these programs get started, there is a learning curve.”
Accommodating the New Administration in Washington How will the act impact growth and expansion by medical device and pharmaceutical companies in the U.S.? Kevin O’Laughlin, a principal with KPMG Strategy who works
By Dan Emerson
with life sciences companies, doesn’t expect any of its provisions will have much influence on manufacturing strategies and site selection decisions. But he does anticipate that the Trump administration’s emphasis on retaining manufacturing in the U.S., “and the likely retaliatory measures that will result” for not doing so, will have a significant effect in stimulating facility expansion and new construction, especially for products that are used in the U.S. “We are already seeing manufacturers in other industries re-calibrating expansion plans to accommodate or preclude new administration interventions,” O’Laughlin says. Industry reps have long contended that the FDA’s approval processes have hampered the growth of the life sciences industries. O’Laughlin believes the changes in FDA procedures stipulated in the act will significantly benefit medical device and pharma companies. “Faster approval processes leveraging data summaries rather than full-blown clinical trials for new indications, for example, are favorable to the industry. And, the ability to promote off-label drug uses to insurance companies is also going to expand markets.” With Trump’s mandate to reduce federal regulations, O’Laughlin also believes the new administration will push for “significant refocusing of the FDA’s oversight, not as part of the Cures Act but in separate initiatives. What direction this might take is uncertain.” O’Laughlin also thinks the current climate of opposition to continued globalization — both in the U.S. and Europe — may accelerate the adoption of “more decentralized, smaller scale, market-focused manufacturing, particularly in pharma. “The adoption of continuous manufacturing in pharma (which provides a more scalable manufacturing solution at lower capital cost) will likely be accelerated by some of these macro trends,” McLaughlin says. AREA DEVELOPMENT | Q1/2017
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SITE SELECTION
Site Certification: Only Part of the Story Site certification programs should be viewed as a chapter in the location decision process rather than the entire story. By Courtney Dunbar, Industrial Program Leader, Olsson Associates
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hen a novelist begins his work, it is quite possible the he may know how he wishes to begin and where he wishes to see the characters in the end — but it’s what is penned in the middle that makes the story. Similar to the creation of a good novel, site selection begins with a theme. This theme involves the identification of a location where a corporate end-user can operate more efficiently and effectively than anywhere else. The hopeful end result is that the decisions made throughout the process lead to a successful company location decision. However, the storyline that develops in the middle — the careful scrutiny of site location attributes — sets the tenor as to whether or not the chosen site will provide for a successful site location story. To address the nationwide gap in available industrial greenfield sites, many communities have adopted site certification processes for identification and inventory of land assets suitable for primary investment. Site certification programs can range from consultant-driven models to governmentally adopted programs tailored to meet the demands of assumed targeted users within their regions. As popular as site certification programs are in the U.S., these programs should be viewed by the site selection community as a chapter in the location decision process rather than the entire story.
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While site selectors can find valuable initial site diligence information in certified sites, a critical eye is necessary to identify lacking or inaccurate information that can drastically impact development capabilities and timelines for the end-user. To achieve a desirable ending to the story of the site selection process, consider the benefits of critically assessing the details provided through certified sites as follows:
Site Diligence Most site certification programs will request a fairly extensive analysis of existing infrastructure and site diligence conditions. This initial understanding of how a site is served, positioned, and permitted is incredibly important in identifying critical timeline factors that impact an end-user’s ability to develop a site. What is often not considered within site certification programs is that infrastructure demands vary widely depending upon the individual user type. For example, mission-critical companies often view near-proximity to natural gas, rail, and airport influences as site deficiencies. Assembly operations would conversely view near-proximity to natural gas, rail, and airport influences as assets. Site certification programs that are simply built on minimum site service requirements as compared to total site acreage do not provide an accurate picture of service capabilities or risk. And, because many highly suitable sites are lacking in infrastructure that is deemed a deficit within the certification requirements, but not particularly a deficit as
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it pertains to an individual user’s needs, it is possible that optimal tracts can be overlooked in the site search process. In addition, it is common for site certification programs to provide technically affirmative answers to questions about infrastructure service and capabilities that simply are not achievable. For example, an industrial user desiring rail service of four carloads per week was recently seeking a site to accommodate this need. The certified site of interest affirmed that rail service to the site is possible; however, with further investigation, it was found that this rail service could only be achieved if a spur capable of accommodating a unit train (preferably a loop track) were constructed. The costs for overbuilding of this rail extension were not feasible in relation to the development and, therefore, even though the site was certified as rail-served, it could not accommodate the user’s needs. It is important to understand how infrastructure specifically benefits a particular end-user. Unlike what is suggested in typical site certification program requirements, there is not a single “correct” answer as it pertains to infrastructure availability, abundance, and location. Modeling user demands and needs into the site’s service capabilities is critical to ensuring timely identification of any deficiencies so that the site selection process isn’t drastically slowed or halted due to the inaccuracy or inapplicability of site certification information to user needs.
Land Planning Often, site certification programs will request current and future land use designations as well as zoning for sites as part of their screening criteria. This necessary step helps to ensure that land tracts can become easily occupied by a prospective end-user, eliminating costly permitting and construction time delays. However, the full story does not exist in this initial chapter. What is often overlooked is that many communities update their comprehensive plans on a regular basis, but don’t always update their corresponding zoning codes. With the ever-changing nuances in industrial facility design, zoning codes that were deemed as acceptable for site certification may not apply to the prospective industrial end-user considering development. Beyond the minimums of site certification standards, it is imperative that site selectors understand what is allowed within that code as many heavier uses, including industrial, allow for lighter uses such as residential and commercial to freely locate within these land tracts, adjacent to the prospective end-user’s chosen site. Land use laws provide the highest level of protection to residential, commercial, and retail areas with industrial receiving the least protection. Hence, it is critical to dive deeper in understanding not only how a prospective site is zoned, but also what use types are allowed within that zone and within proximity of the site, to ensure ultimate land-use compatibility for the prospective end-user. Site selectors must fully understand the ramifications of a site’s intended land use and zoning code, ensuring that any prospective long-term infringements on the end-user’s ability to effectively and efficiently operate within the chosen site are understood and mitigated.
Master Planning Many site certification programs will request that a singular pad site be represented, along with associated grading costs, on the property to show how a representative user of an identified industry segment can be accommodated. This form of site planning is effective in representing capacity and accommodation for an anchor end-user. In many instances, site certification programs will require large amounts of “contiguous acreage” to allow for a site to be certified. An unfortunate reality of site certification programs is that, far too often, excellent industrial sites are overlooked in a search process because they cannot present a “contiguous acreage” coverage that is acceptable to the certification program. This means that all streams, easements, roads, and virtually any encumbrance that may interrupt the ability to place a pad site be completely mitigated to ensure no issues with facilities placement. And while this may seem like a great idea, it often leads to oversight. Often, site certification programs do not desire to see full master planning of an industrial tract, but rather a simple plan that shows one facility of designated size with a grading plan. This method is not effective in working with natural or built encumbrances that may impact the tract. If a full master plan is developed taking into consideration these features, it is possible to manipulate that master plan to show optimal pad site placement and master planned alignment to the prospective end-user. To create the story, site selectors must understand the individual user’s site needs and then encourage the alignment of those pad site requirements to the master plan to see how the site may be able to be developed without excessive mitigation. This method saves considerable amounts of money and time in potentially unnecessary mitigation. And if communities and/or developers recognize that it is possible to align pad sites at the request of a site selector into these sites because they have a fully master planned site, they can avoid upfront mitigation costs that they may need to pass onto the prospective end-user in land negotiations.
Certification vs. Information The site selection community desires “fast track, readyto-go sites,” and while a good amount of information can be obtained in the first chapter of site identification and diligence through site certification programs, underlying questions exist that require site selectors and end-users to thoroughly understand and ask questions that go beyond site certification requirements. Solid diligence information that provides assumptions of timelines, mitigates risks, and allows for effective and efficient modeling of user needs is of utmost importance and should not be dependent upon a site’s achievement of certification status. Understanding the basic services to the site is the first chapter of investigation, but really knowing the full story — i.e., how the site will be used assuming all infrastructure service, development timelines, and how any potential risks will be mitigated — leads to an excellent finale to the site selection story for everyone involved. ■ AREA DEVELOPMENT | Q1/2017
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COVER STORY
N AV I G AT I N G U N C H A R T E D W AT E R S I N 2 0 1 7
A N E W A D M I N I S T R AT I O N I N W A S H I N G T O N , E S C A L AT I N G W A G E S , A N D A D W I N D L I N G S U P P LY O F I N D U S T R I A L R E A L E S T AT E A R E J U S T S O M E O F T H E T R E N D S T H AT M AY C A U S E C O M P A N I E S T O T A K E A W A I T- A N D - S E E A P P R O A C H T O C A P I T A L I N V E S T M E N T .
A
s capital investment plans for 2017 are well under way, companies should be paying close attention to changing conditions that will potentially affect their location decisions this year. When speculating which trends will have the greatest effect on corporate site selection decisions this year, the conversation quickly turns to the potential impact of President Trump and his administration. Despite Wall Street’s positive reaction to the new administration, it is tough to deny that we are entering a time of relative uncertainty. And although there is a sense of corporate optimism, any type of uncertainty tends to promote a wait-and-see approach as it relates to capital investment. Based on Site Selection Group’s recent experience and changes in macro-economic factors, highlighted below are five potential trends for companies to monitor. 1. Investment in Mexico by U.S. companies will slow significantly.
By Josh Bays, Principal, Site Selection Group, LLC
President Trump has been very forthright about initiating policy changes that will keep U.S. companies from relocating operations to other countries, especially Mexico. While it is likely that the President is sin-
cere in following through with this effort, his stance will not be the only contributing factor to stemming corporate investment in Mexico. Rather, it is Mexico’s diminishing value proposition that will have companies rethinking their plans to locate investment south of the border. Anecdotally, some of Site Selection Group’s industrial clients that have a presence in Mexico are not too terribly satisfied with their operations. They frequently cite productivity issues, turnover issues, rising labor costs, and lack of support services as having the most negative impact on their operations. One executive of a tier-one automotive supplier recently expressed, “I operate a plant in Mexico because my customer insists I do so. The same is true for the majority of my competitors.” With news of multiple original equipment manufacturers such as Ford and General Motors rethinking their Mexico strategy, it is logical to assume suppliers will be re-evaluating as well. Statistically speaking, rising labor costs alone have increased the required headcount of a production project to break-even in Mexico as compared to the United States. Five years ago, Site Selection Group estimated that a company establishing a location in Mexico only needed 300 employees to realize the savings in labor to justify the added costs of shipping, real estate, utilities, etc. Today, that break-even number is well over 500 workers. While Mexico can still
offer real advantages for certain industries and project types, it is more critical than ever to evaluate locations there with your eyes wide open and oftentimes with the support of a trusted adviser. 2. Project timelines will finally lengthen. Those familiar with the corporate site selection industry over the last 10 years will be astonished (or perhaps relieved) at the notion that project timelines might actually lengthen. Industry insiders have been preconditioned to the speed-to-market concerns of companies over the last several years. Due to a variety of reasons, but mainly the issues associated with the economic recovery, companies have waited until the last moment possible to commit to their capital projects leading to compressed timelines. More often than not, this means that site selection projects are behind schedule before they have started and, in some cases, this can lead to less optimal location decisions. While there are several macro factors that might relax timelines a bit — including upward pressure on wages and interest rates — continued political uncertainty may convince some companies to hit pause to more clearly see the direction the administration and the Republican Congress decide to go. 3. Wages will escalate even faster. Domestic wages and salaries have been steadily escalating over the past eight years. According to the
AVERAGE NATIONAL WAGE ESCALATION RATES 12-Month Average Change 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%
2009
2010
2011
2012
2013
2014
2015
2016
Source: BLS
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Bureau of Labor Statistics, the average annual wage escalation in 2016 was 2.8 percent. There are certain occupations in high demand, such as skilled production workers, IT professionals, and skilled trades that have experienced annual wage escalation as high as 10 percent. As the nation’s unemployment rate falls to 4.9 percent, and the labor force participation rate dips to 62.7 percent, the country has essentially reached full employment. In other words, those workers with desired skill sets have little trouble finding employment. The current labor market has companies competing for workers largely on the basis of price, both directly in terms of wages and salaries but also indirectly in terms of hard and soft benefits. Pending some unforeseen economic circumstance, the competition for workers will continue well into 2017, thus continuing the upward trend in wages and salaries. 4. There’s no relief for the industrial real estate market. Available industrial buildings, especially quality options for production-oriented uses, have been scarce for the last several years. This has been a function of industrial activity since the economic recovery outpacing the supply of new buildings. Based on the latest construction and delivery statistics from CoStar, the trend of diminishing supply in 2017 will likely continue.
The current national industrial vacancy rate of 5.4 percent is the lowest since 1999. Further compounding the issue are both construction starts and deliveries that are expected to be down 15 percent in 2017 from the previous year. All of this comes at a time when the country is otherwise primed for continued corporate growth. Basic economic principles of supply and demand will undoubtedly affect market rental rates in 2017. Average industrial rental rates have been rising since 2010 and closed 2016 at $6.62/square foot. As the competition for space continues to be fierce this year, rental rates will continue to climb. These market factors are making companies more amenable to the notion of constructing and owning their own real estate. 5. The right-to-work movement continues. Kentucky recently made headlines, as it became the latest state to enact right-to-work legislation. A couple of years have passed since the latest wave of states (Indiana, Michigan, and Wisconsin) passed the same legislation. All of this activity has exacerbated the pressure for non–right-to-work states with attractive site selection assets to join the mix. Key states to keep an eye on are Missouri and Ohio. Right-to-work legislation has been proposed in both states recently and appears to be gaining momentum.
•
NATIONAL AVERAGE INDUSTRIAL RENTAL RATES $7.00 $6.80 $6.60 $6.40 $6.20 $6.00 $5.80 $5.60 $5.40 $5.20 $5.00
2010
2011
2012
2013
2014
2015
2016
Source: CoStar
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REAL ESTATE/LABOR
Knockin’ on the Golden Door: Top Real Estate Trends to Beat the Competition Companies — and communities — that align their real estate and workforce strategies will enhance their competitive positions. By Sara Benson, Senior Consultant, Strategic Consulting, Cushman & Wakefield
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rivate industry is facing two central and sometimes countering dilemmas: how to attract top talent while doing more with fewer resources. A similar challenge exists for economic developers, i.e., how to attract business investment with limited public resources. Both private industry and civic organizations want to stand out from their competition. With that in mind, the following five trends illustrate how some leading companies are using their real estate creatively to drive better, more dynamic and competitive workplaces. 1. Closer proximity and interaction with higher education and start-up communities — Progressive companies have developed multifaceted partnerships with universities and have chosen to locate near such institutions to drive product innovation and achieve workforce objectives. For example, since 2012 Janssen Pharmaceuticals, a division of Johnson & Johnson, has opened six life science co-working facilities totaling 150,000 square feet (operating as JLabs) in partnership with leading academic institutions. JLabs acts as an active landlord with a goal to accelerate drug development. Startups apply and are judged on their scientific and business-case merit. There are no contractual obligations other than rent, but JLabs is undoubtedly well placed for potential partnerships. Another example is VMware, headquartered in Stanford Research Park, California. Beyond convenient university access, VMware wanted to ignite collaboration among its employees and visitors alike through inspirational design that
highlights natural landscape and environmental architecture. The outdoor landscape features tree preservation, trails, and a town square while the interior allows sunlight to freely flow through glass walls, while natural materials accent the space. Through the setting and events programming, the campus attracts visitors by the literal busload. Guests attend academic seminars and training sessions, which provide direct feedback for product development. Lesson: There’s an opportunity to replicate the co-working model and partner with institutions to strengthen entrepreneurship. Investors under similar pressures to innovate may have interest in developing institutional partnerships. 2. People-centered space — The built
Rendering of Salesforce Tower, 25 percent taller than any other building in the city, overlooking the city of San Francisco AREA DEVELOPMENT | Q1/2017
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common driver, as investors favor these transactions due to tax-free dividend gains, and — they argue — market specialization achieved increases organizational agility. A side effect of the financial benefit driving the trend is that the new entities are challenged to recreate their identities, while seamlessly continuing normal business operations. A popular method is through headquarters relocation. Case in point: Abbvie, a Cushman & Wakefield client, spun off from Abbott Laboratories. It relocated its headquarters and rethought its design. Office eligibility was reduced, and offices were placed on the interior core so natural light could fill the workspace. OfficeCushman & Wakefield’s map illustrates the demographic cohort living in the Oakland, California, area, sized spaces were reused as rooms which is easily accessible to San Francisco and relatively affordable. for private conversations. Interestingly, the design adjustments of this strategy did not demand large construction costs. Rather, environment influences brain activity in ways in which hushifts were made to make a traditional office more appealmans are often not consciously aware. Settings with visual ing. Many employees were skeptical of the changes, but variety and a sense of natural beauty have positive neuro— after the move — 73 percent said they preferred the new logical impacts. A famous study, conducted in 1984 by Roger space to the old. Ulrich,1 showed that visual access to green space actually has Lesson: Be aware of the opportunity to gain (or risk to the power to heal. The study found that gallbladder patients lose) a headquarters or major regional operation following a with visual access to natural landscapes took less medication spinoff. Perhaps spinoff companies will be willing to listen to and were released one day (out of seven) earlier as compared an offering as they manage organizational change. to those without such access. Office space has been slow to incorporate these concepts, 4. Architecture as a workplace benefit — Highly competibut there is now a growing recognition that utilitarian office tive labor markets are looking toward high-end design to design is harmful to our health. The reality is that sitting attract top talent. One of the most anticipated headquarters stagnant in a chair for 8+ hours a day in an uninspired enviis the Frank Gehry design of Facebook’s new campus in ronment is bad for people. Even Pope Francis has weighed Menlo Park, California. While critics argue that the space is in on the subject: “We were not meant to be inundated by an extravagant expense, there is a strategic purpose behind cement, asphalt, glass, and metal and deprived of physical it. Facebook is betting big that the artful design will be an contact with nature.” This idea, however, is commonly set asset in the war for talent. aside in the shuffle of daily obligations and cost-minimiThe design for the campus centers on what will be the zation exercises. The negative consequences are real, and largest open-plan office in the world: 10,000 people will fit in directly impact the profitability of companies that choose to a single room. A space of that magnitude could easily become ignore them. ominous and imposing, but it will, in fact, not be visible from Outdoor features, such as terraces, are increasingly being the side. A rooftop park will give the appearance of a hilly woven into architecture. For example, Two World Trade Cenforest rather than a large office building. Through his edgy ter, designed by Bjarke Ingels, prominently features terraces design, Gehry will accomplish what Facebook has as a comthat are stacked throughout the building and form its shape. pany — to be everywhere and nowhere at the same time. It looks as if it were a grand staircase to the sky, and proOthers are also investing heavily in architecture. Norman vides visual connection to nearby greenery, while increasing Foster designed Apple’s $5 billion California headquarters, access to the outdoors for the tower’s inhabitants. and Google invested in two designs after stating that it Lesson: Each area has a design community; promote it and wanted to be more “thoughtful in the (our) design process.” connect it to potential investors. It could be a unique benefit Lesson: Lobby for thoughtful urban design. Walkable, vito an investor while also promoting existing local businesses. sually interesting, and accessible communities attract population. Millennials demand it, but healthy design benefits all 3. Space as a catalyst for cultural change — From 2014 generations. Economic developers can be a powerful voice in through 2016, more than 100 corporations either completed that effort. or announced plans for a spinoff. Stock performance is a
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5.1. Chasing the workforce — The desire for companies to be located near large labor pools is driving a wave of office locations to urban cores across the country. Few examples are more apparent than Salesforce, on track to arguably be the most accessible large tech company in the Bay Area. It will occupy half of the 61-story tower currently under construction in downtown San Francisco. Space is limited due to high demand and ordinances that allow a limited amount of new commercial square footage each year. Adaptive reuse of existing buildings has become a popular option to address the limited supply, while providing more authenticity to office space. The buildings may be old, but the designs are as young as the millennials who occupy them. Twitter, Airbnb, Uber, Spotify, and Yelp are all examples. Like their Silicon Valley counterparts, they believe that creating uniquely designed spaces will create interest among new recruits and enhance their productivity once there.
In Sum: Architecture, interior design, and location strategy are powerful drivers of employee attraction, retention, and engagement. Real estate and urban design investments that support innovative programming, facilitate more livable environments, and anticipate demographic trends are proactive in attracting a diverse population and serve long-term interests. Companies — and communities — that successfully align their real estate and workforce strategies will create a sizable competitive advantage over their less strategic peers. ■ 1
https://mdc.mo.gov/sites/default/files/resources/2012/10/ulrich.pdf
5.2. The millennial ripple effect — As housing costs escalate in San Francisco, many workers are looking elsewhere for more affordable living conditions. Oakland is becoming an attractive option due to its accessibility to San Francisco, which is a 10-minute train ride, and relative affordability. The median value of housing in Oakland is 40 percent less than in San Francisco, but it has grown 122 percent since 2000. Cushman & Wakefield analyzed demographics in millennial neighborhoods across the country and found a narrow segment of highly educated millennials were concentrated significantly higher than the U.S. average. The accompanying map illustrates that demographic cohort living in Oakland. The sizeable and growing volume in locations like Oakland is perhaps an indication of where the next wave of tech office development might occur. Lesson: Communities must know their demographics and conduct a self-assessment to determine if there is alignment with the type of workforce their target industries are seeking. Using data to illustrate where first-mover advantage might occur could be an effective selling point to potential investors.
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17/02/17 2:12 PM
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
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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,
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Respondents titles: Other
14 %
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%
figure 2
Number of facilities currently operating worldwide:
Three
CFO, Controller, Financial Officer
10%
Two 18 %
8%
Foreign*
One
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
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21%
Change in the number of your company’s facilities during the past 12 months:
Number of facilities not changed
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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
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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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© Mississippi Development Authority 2017
AREA DEVELOPMENT | Q1/2017 AREA0660.indd 1
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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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AREA0662.indd 1
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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%
figure 15
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
Location of new foreign facilities (as a percentage of total
Will they relocate existing facilities?
Total number of new jobs to be created at new foreign facilities:
Canada
4%
Mexico
27%
50-99 7%
figure 18
Total amount to be invested in new foreign facilities: $100 million–$500 million
13%
4%
Central America South America
12%
Western Europe
15%
Less than $10 million
$50 million– $100 million
40%
7%
$10 million– $50 million
8%
Eastern Europe
4%
Middle East
40%
27%
Asia
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%
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Total number of new jobs to be created by company’s domestic expansions: 500-999
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 —
4%
100499
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
36%
Three
9%
Two
36% figure 24
10%
Government regulations
5%
Labor costs
5%
Labor availability
20%
Infrastructure
40%
Energy costs
15%
New markets/Market proximity
40%
Logistics/Supply chain
35%
Capital access
15%
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% 100%
Product quality issues
67%
Transportation/supply chain costs
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: 100%
Labor costs
50%
Labor availability
figure 30
BELIEVE THERE WILL BE FINANCIAL INDUCEMENTS TO RESHORE UNDER THE NEW TRUMP ADMINISTRATION: Yes
13%
No
2%
No response
85%
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OUR BUILDING SITES ONLY NEED ONE LAST APPROVAL: YOURS. ;PTL PZ TVUL` :V SL[»Z J\[ [V [OL JOHZL 6\Y *LY[PÄ LK :P[LZ 7YVNYHT KLZPNUH[LZ [OL WYVQLJ[ YLHK` PUK\Z[YPHS ZP[LZ `V\»YL SVVRPUN MVY [V I\PSK H UL^ MHJPSP[` ;OL` JVTL JYLKLU[PHSLK ^P[O ZP[L YLSH[LK KH[H HUK KVJ\TLU[H[PVU HZZLTISLK \W MYVU[ :V KL]LSVWPUN VU HU 0V^H *LY[PÄ LK :P[L PZ YLSH[P]LS` YPZR MYLL MVY `V\ 3LHYU TVYL H[ V\Y ^LIZP[L ILSV^ (UK NL[ I\PSKPUN
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AREA0668.indd 1
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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
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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% 4%
Other
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
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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
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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: 25%
Cash grants
Tax incentives (tax credits, exemptions, etc.) 71% Other financial incentives (bonds, loans, etc.) 18% 39%
Worker training incentives
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
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
https://www.bloomberg.com/news/ articles/2016-11-29/corporate-executiveshave-opinions-on-donald-trump
8
http://www.industryweek.com/public-policy/manufacturing-group-awaits-presidenttrump-s-policy-putting-american-jobs-first
3
4
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
33% 38% 21% 8%
Company uses outside site selection or business consultants when site selecting: 11% 29% 34% 26%
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%
for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com
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:
chart F
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
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
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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
41%
8%
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.
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
No
No response
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%
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AREA0667.indd 1
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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%
•••
Clients consider weatherrelated factors in the location decision: Yes No
87% 13%
chart AA
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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.
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 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
GOVERNMENT POLICY
Gubernatorial Shift: New Economic Development Policies New governors of eight states reveal their ideas for strengthening their states’ economies and growing their business bases. By David Hickey, Senior Director, Hickey & Associates
• West Virginia • Vermont • New Hampshire • Delaware • North Carolina • South Carolina • Missouri • Indiana
STATES with new Governors
F
ollowing a contentious election cycle, the dust has finally settled across the U.S. political landscape with a new president and administration in Washington and new governors in eight states. These new state leaders come from diverse backgrounds and have distinct views on how to address the challenges facing their constituents. Following is a brief review of these new leaders and their perspectives on economic development for their respective states.
Delaware Governor John Carney, formerly the lone U.S. representative for Delaware, has placed economic development among his administration’s top priorities. However, with a projected budget shortfall for FY’18, Governor Carney must first address the state’s fiscal situation. The governor has asked the public to weigh in on the “Budget Reset” process. Over the coming months,
Indiana the administration, along with members of the General Assembly, will hold town hall meetings across the state to discuss challenges and elicit ideas from constituents. In addition to these discussions, a website has been created for state residents to submit ideas directly to the governor’s office: http://governor.delaware.gov/BudgetReset/. In his budget recommendations for FY’18, Governor Carney outlined where he believes economic development targets should be focused. These marks include further investments in designated Downtown Development Districts, $10 million for the Delaware Strategic Fund, infrastructure funding for the Port of Wilmington, and monies directly aimed at biopharmaceuticals and life sciences.
With former Governor Mike Pence’s new role in the White House, Governor Eric Holcomb has officially taken over the reins of the Hoosier State. In his first State of the State address, Governor Holcomb outlined several key policies for economic development in Indiana. To encourage further investment in Indiana communities, he proposed an additional $4 million for the Regional Cities Initiative. The governor also placed a heavy focus on infrastructure spending, including an additional fourth water port in southeastern Indiana. He also discussed the need for continued spending on workforce development programs in the state, which would include an investment of $2 million to create regional Jobs Ready Grants to help state residents AREA DEVELOPMENT | Q1/2017
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receive credentials or certificates for more skilled and highly paid jobs. Additionally, the governor proposed establishing a Superintendent of Public Instruction, a governor-appointed position to begin in 2021.
THE NEW STATE LEADERS
North Carolina
Governor Roy Cooper takes over leadership in North Carolina at a pivotal period HAVE DISTINCT in the state’s history. Known as a business friendly environment, the Tar Heel State has VIEWS ON faced multiple challenges in recent years and HOW TO state politics are as contentious as ever. As the Missouri state’s attorney general since 2001, the new Newly elected Governor Eric Greitens wasted ADDRESS THE governor is well aware of the situation movno time targeting Missouri’s tax incentive proing forward. Nevertheless, optimism is still grams. During his State of the State address, GovCHALLENGES high in the state, especially with an estimated ernor Greitens called for an extensive audit, and FACING budget surplus of $552.5 million. then signed an executive order creating a special As of this writing, the public controversy review committee. In his address, the governor THEIR surrounding House Bill 2 (HB2) continues in previewed this new order: “Together, with a team CONSTITUENTS. Raleigh. Governor Cooper has targeted repeal of outsiders and legislators, we are going to do a of the legislation as one of his top priorities. thorough, end-to-end audit of our tax credit system Debate over the controversial legislation is — and create a tax code that works not to benefit expected to occur in the early months of 2017. privileged insiders, but instead is fair to all.” During the campaign, Governor Cooper outlined his key State legislators have followed the lead by introducing economic initiatives. These included middle class tax cuts, bills directly impacting state incentive programs, including passing a transportation bond for future infrastructure, exannual caps on funding, new approval procedures concurpansion of Medicaid, and restoration of the state’s film tax rent with annual budgets, and placing expiration dates on credit, along with repeal of HB2. Governor Cooper is expectbusiness incentives, among other measures. Business leaded to release a formal budget proposal in the coming weeks. ers should take note of these potential changes as the year progresses.
South Carolina
New Hampshire Governor Chris Sununu, son of former Granite State Governor John H. Sununu, laid out his agenda in his recent 2017 budget address. The new governor put the state’s economy at the top. Governor Sununu lead with the goal “…to create a fiscal and regulatory environment that promises greater job growth, job retention, workforce development, and economic opportunity for all.” In doing so, Governor Sununu targeted infrastructure investment, which would include any surplus beyond an increase of the state’s Rainy Day Fund to $100 million; expanding investment in education; and creating a new department built specifically for businesses — Business and Economic Affairs, which as proposed, would house the state’s economic development division, among other business-related offices. Senate Democratic leaders recently proposed economic development policies for the new administration to consider. These proposals focus squarely on workforce and education. Among the programs the leaders targeted is the New Hampshire College Graduate Incentive Partnership (GRIP) — a program providing a $1,000 incentive for each year of work for the initial four years in the workforce.
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With former Governor Nikki Haley’s confirmation as U.S. Ambassador to the United Nations, a new individual takes over as leader of the Palmetto State. Now officially sworn in, Governor Henry McMaster takes over South Carolina’s top post. Near the top of his initial priority list are the state’s infrastructure, economic development, and education. As state leaders agree on a focus to fund infrastructure development, the mechanism for funding the investment has led to significant discourse in the ranks. Many support an increased gas tax, which is now the third-lowest in the nation, while others call for borrowing to raise the funds. House Democratic Minority Leader Todd Rutherford recently proposed another revenue source: casino gambling. The legislation would allow the voters to decide on an amendment to the state constitution allowing casinos to open in South Carolina, with revenues going directly to the maintenance and construction of highways, roads, and bridges. Governor McMaster has also submitted a request to President Trump for $5.18 billion to help support these infrastructure challenges.
Vermont Governor Phil Scott is not a new face in Vermont politics. Since 2011, he served as the state’s lieutenant governor. Pre-
for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com
lion in direct spending to the state annually. Identifying the vious to that, he was elected four times to the Vermont Sensector as a key to economic development, Governor Justice ate. Now he takes over the Green Mountain State at a pivotal proposed a reorganization of the state’s agency in charge of economic crossroads. tourism. The governor spoke directly about competing state In his budget address to the joint assembly of the legisefforts: “I’ve said it a million times. I said it in the inaugural lature, Governor Scott presented a balanced budget that, speech. For crying out loud, every time you turn the TV on according to the administration, does not increase taxes or it says, ‘Come to Michigan.’ Every time. I said in the inaugucuts programs. With a particular focus on economic developral address, ‘Who in the world wants to go to Michigan?’ I ment, the governor proposed several initiatives. Of those ofmean, really? You know what? If I called up tomorrow and fered, proposals included strategic investments in workforce said, ‘I tell you what let’s do; let’s get a bus and let’s go to development, funding training and retraining support for Detroit.’ But do we market us? We don’t. We don’t. We got to working Vermonters. Additionally, the governor supported do that.” ■ an increase for the downtown and village-center tax credits to encourage more investment in co-working spaces. Recognizing a need to better the state’s economic story, the governor also proposed $750,000 for economic development marketing efforts. At the end of his address, Governor Scott summed up his approach for the state: “For our economic security, we need to clear the way to get our economy With over 400 miles of canals and moving and growing again. We more than 9,200 businesses, Cape Coral have an opportunity to achieve has once again become one of the fastest great things, but only if we are growing cities in the U.S. unafraid of change, and willing to make difficult choices. We must be · Our commercial tax base increased by bold, because that’s the right thing 50% over the past few years to do for all Vermonters.”
West Virginia With a projected budget shortfall estimated at $500 million for FY’18, debate in West Virginia will immediately focus on addressing the funding gap. Newly elected Governor Jim Justice recently outlined his proposal for budget cuts, which reportedly could surpass $600 million, in his State of the State address. The billionaire businessman didn’t exactly adhere to traditions for his speech, as he spoke from the chamber floor and utilized a whiteboard. Governor Justice spent the majority of the address speaking directly to the economic and fiscal challenges facing his state. One of his more controversial proposals was related to an increase in the state’s gasoline tax and higher automotive registration fees. Altogether, according to the new governor, the proposed increases would raise approximately $2.8 billion. Tourism is a critical industry for West Virginia, bringing over $4 bil-
· The number of new residential building permits jumped by 43% in 2016 · Commercial building permits increased by 29% Cape Coral’s Economic Development team is committed to helping area businesses grow and thrive. Contact us to get started on your business relocation or expansion today.
Cape Coral Economic Development Office (239) 574-0444 (866) 573-3089 ecodev@capecoral.net www.bizcapecoral.com
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When it comes to successfully expanding or relocating your business,
Nebraska’s low energy costs, central geographic location, and high-quality, low-cost workforce provide strategic DGYDQWDJHV IRU \RXU EXVLQHVV 7R À QG RXW KRZ WR KDUQHVV Nebraska’s 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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DATA CENTER OUTSOURCING TRENDING UP Corporate data center sales volume is on the rise as enterprise moves to colocation and the cloud continue.
STABILIZED CAP RATE HIGHER VALUE
MEDIUM VALUE
• Primary market location
• Secondary market location
• Longer lease term (10+ years)
• Moderate lease term (5–10 years)
• Investment-grade credit
• Single or multi-tenant
• Single-tenant net lease
• Moderate tenant credit rating
T
he adoption of cloud computing, colocation, and IT outsourcing has never been greater. The multi-tenant data center market continues to grow over time. In 2016 alone, CBRE tracked nearly 195 megawatts of critical IT load capacity leased across major markets, nearly equaling the record setting highs of 2015. For perspective, the average monthly residential customer used roughly 900 kilowatt hours of electricity per month in 2015 per the U.S. Energy Information Administration.1 The 195 megawatts of data center absorption in 2016 is the equivalent of the power to provide electricity to over 150,000 homes! Owning and operating a data center is capitalintensive. A CBRE study published in late 2015 showed that the average cost to build and operate a 5 MW data center over a 10-year period was nearly $270 million.2 As the world moves forward in a digi-
LOWER VALUE • Secondary/tertiary market location • Shorter lease term (~5 years) • Multiple tenants • Non-investment-grade tenants
tal age, the number of third-party regulations and certifications enterprises must achieve and maintain is growing. Faced with all of these challenges, enterprises are quickly realizing that their core competencies do not lie within the data center and they are better served through outsourcing. Reducing costs, improving operational efficiency, and increasing reliability across the enterprise are the core drivers pushing enterprise users toward monetization strategies to divest themselves of their owned data center facilities. As a result, the next 12 months will likely see an increase in the number of corporate data center dispositions. As companies divest these assets and move from owned to lease models, the importance of evaluating the right disposition strategy to minimize write down, maximize value, and provide the solution of greatest value to the organization will be of the highest importance.
By Kristina Metzger and James McCarthy, Advisory & Transaction Services; and Jeff West, Research Director; CBRE Data Center Solutions Group 2017 • 55
becoming accepted as the new frontier. Today, the cost for an enterprise to build and operate a data center is significantly higher than that of a third-party developer. Developers capitalize on economies of scale by building out tens of megawatts at a time. The total fixed costs are then spread over a greater 2016 number of megawatts, thus lowering the effective cost per megawatt built. Some operators claim they can develop operational capacity near or below $10 million per megawatt, whereas enterprise costs typically average more than double that total. Developer/operators also typically benefit from lower operational costs as facilities managers, security, engineers, and other technical staff can be shared across several users and/or facilities. End-users, leasing from said developers/operators, benefit by paying a fraction of what their own cost would be for a modern, state-of-the-art solution. Financial benefits aside, leasing or outsourcing allows companies to secure short-term, flexible solutions, based on their current needs and the prevailing technologies driving strategies decisions today, while reserving the ability to modify or adjust course in the near future as their requirements and technologies evolve. Leasing or outsourcing places the residual and technological risk on the landlord or provider, freeing the enterprise to continue to evolve as technology changes over time. While the goal of migrating to a fully outsourced, third-party solution is easy to imagine, the path for most corporate users to achieve that goal is not always so clear. First a company must determine what their underlying requirements are: • What are the most critical applications? • What is the most effective go-forward cost and security solution?
DATA CENTER SALES VOLUME $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0
Year 2013 2014 2015 2016
2013
2014
2015
Sales Volume (millions) $1,716.94 $1,275.61 $808.81 $1,783.00
Source: CBRE, Real Capital Analytics
This trend has already taken a foothold; total sales volume for data center assets increased dramatically to nearly $1.78 billion in 2016, up from roughly $800 million in 2015. All signs point to an even greater transaction volume in 2017. Third-Party Locations While some of the growth is organic, much can be attributed to the migration of previous enterprise owned and operated data centers into third-party locations. Ten or 15 years ago, when companies often made the decision to build, own, and operate their own data center facilities, they did not have the depth of solutions available in today’s market to evaluate. Cloud services solutions didn’t fully exist and colocation was viewed as new, potentially risky, and applicable for smaller requirements only. As wholesale colocation — the leasing of larger chunks of space and power, oftentimes in fully dedicated suites with isolated infrastructure — became more readily available, the adoption of outsourced and colocation solutions slowly began to increase. Over time, colocation has become a prevailing mainstream and normalized trend, with cloud services solutions
56 •
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DALLAS IS NORTH AMERICA’S CITY CENTER The Dallas Office of Economic Development is here to partner with you on your data center, big or small. When you’re ready to discuss your business or development needs, contact us: (214) 670-1685 DallasEcoDev.org
Dallas is the most centrally located and globally connected major business center in North America: i Located in the Central Time Zone, easily accessible to both coasts i All major North American cities are four hours or less away by air i Dallas is a major Internet peering point, with concentrated fiber offering great speed, reliability and low latency i Texas’ electric power grid is independent from other states, with some of the lowest power costs for large industrial users i 8I\EW SJJIVW WMKRMƤ GERX XE\ MRGIRXMZIW JSV HEXE GIRXIVW XLEX QIIX OI] GVMXIVME
Photography: Cargo Plane - DFW Airport
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• What are the business implications of shifting from an in-house to outsourced environment? • As it relates to the data center facility itself, what strategy achieves the best end result? For some, this process can take years. Minimizing Impact/Maximizing Value As companies look to monetize data center assets, they must evaluate the optimum structure to minimize write-down and balance sheet impact, maximize value, and optimize operations based on their own specific long-term goals. The formula for each asset can vary significantly based on the location, age, and credit of the tenant. The leaseback term and structure also impacts the anticipated logical investor pool and sales price quite dramatically. Once the optimum structure has been decided,
Generally, dispositions with varying levels of vacancy are viewed more favorably in primary markets with strong end-user demand and favorable market fundamentals. Data center operators prefer these types of “value-add” opportunities as they can utilize their development and operational efficiencies to drive higher long-term returns than the pure income-driven investment opportunities previously noted, where returns are fixed over a longer investment horizon. Vacant capacity in secondary or tertiary markets, however, is oftentimes less desirable. In these markets, end-user demand is likely to be much lower compared to primary markets. Leasing excess capacity will be more difficult and a riskier proposition for any potential investor. For assets with a mixture of leased and vacant capacity, market pricing varies dramatically based on the strength of the local market demand profile. For these partially leased assets in secondary or tertiary markets, striking the right balance between maximizing the sales price and minimizing the rental exposure can be a difficult and arduous process. Developing and executing a strategy to maximize data center asset value is best achieved by working with an integrated team of experts in data center construction, facilities management, capital markets, and leasing. Project/construction managers will analyze the cost to replace existing aging improvements as well as develop additional capacity. Facilities managers underwrite the operational cost to maintain the data center over time. Leasing experts accurately forecast tenant demand, expected time to lease up, as well as market rent and concessions. All of these key data points drive the underlying analysis to determine forecasted cash flows over time. The capital markets expert then provides the appropriate guidance on anticipated investor and/or operator/developer interest, projected sales price, as well as gain or loss from the transaction (pending book value).
DEVELOPING AND EXECUTING A STRATEGY TO MAXIMIZE DATA CENTER ASSET VALUE IS BEST ACHIEVED BY WORKING WITH AN INTEGRATED TEAM OF EXPERTS. CBRE advises engaging in a formal marketing campaign with a competitive, managed bid process to solicit all interested users, developers, and investors for optimum results. For assets that are fully occupied on a longterm basis, whereby the tenant covers all expenses (a triple-net or “NNN” lease), capitalization rates remain relatively constant across regions with minor inflections. In recent months, increased investor demand, particularly from foreign investors, coupled with low interest rates, has driven an uptick in pricing, effectively pushing capitalization rates to new historic lows for the data center asset class. The primary driver for pricing for long-term fully leased data center facilities is the underlying tenant credit. The data center investor community prefers longterm leased assets, as they prefer not to operate or develop facilities, but merely hold assets for cash flow and return-on-investment.
58 •
dataCENTERS
•
1 2
https://www.eia.gov/tools/faqs/faq.cfm?id=97&t=3 http://www.cbre.us/research/2015-US-Reports/Pages/Enterprise-Data-Center-US-MarketCost-Comparison.aspx
SITE FACTORS FOR MISSION-CRITICAL FACILITIES When searching for a location for their next data center, companies need to take a holistic view of the process, prioritizing and balancing all the factors involved in site selection.
1. No data center is an island.
Apple has invested in solar farms to power its data centers.
D
isasters are never local anymore. When a hurricane lands and reaps destruction, impacted data centers could interrupt operations all over today’s connected world. So, when the storm comes in, the clock starts ticking. Remaining operational during such an emergency avoids enormous cost burdens for every hour of downtime. In this high stakes situation, choosing where to store data is mission-critical. Data center providers must think strategically about where to invest in real estate, balancing factors such as energy and construction costs, tax incentives, proximity to customers, and demand. Following are six important tips for data center operators to consider when selecting a location for a mission-critical facility:
Before you think about the building, think about what’s underneath and around it. No matter how well a building is designed, without the right public infrastructure in place, a mission-critical facility will face a litany of challenges. A site’s security, geography, power capacity, and fiberoptic connectivity are all vital. Data centers are power hogs. They require advanced energy infrastructure, so the reliability of the power grid is a critical site selection factor. The idea of data center microgrids is catching on as operators pursue reliable, high-quality power that endures when the central grid is unavailable or congested. Data center owners and operators are also considering renewable energy options such as hydro, wind, and solar. In 2016, major data center operators, including Apple and Google, pledged to run their operations fully on renewable energy, demonstrating their commitment to reducing their carbon footprint. In realizing these pledges, some projects will call for sites offering nearby sources of renewable energy, while other requirements will be met by investing in renewable credits to offset their carbon footprint. The former will help more in case of an emergency, since nearby power reduces reliance on the wider power grid. Geography is another important issue for mission-critical facilities. The environment must be as-
By Mark Bauer, Managing Director, and Co-Lead, Data Center Solutions Group, JLL 2017 • 59
sessed for risks such as exposure to extreme weather events, seismic activity, and flood plain threats. Manmade disasters must also be considered, which is why many companies examine a site’s closeness to chemical and nuclear plants and railroad lines that might carry hazardous materials. Last, climate plays a role as air temperature and humidity levels impact energy costs significantly. Temperate climates offer natural cooling through systems that rely on outside air to offset the heat generated by equipment inside.
2. Speed matters. Proximity weighs heavily in choosing where to open a data center. Consumers demand speed, whether to support binge-watching habits or to conduct business. Data centers that serve time-sensitive transactions, especially finance and banking, have locational restraints that influence real estate decisions. As trading becomes more technologically dependent, the proximity of data servers gains importance. Financial firms depend on transactions that occur within nanoseconds. Latency of even a few milliseconds as data travels to a distant server can mean a major loss in revenue. Because of this, markets like northern New Jersey, northern Virginia, Toronto, and greater Chicago remain preferred data center locations. Financial firms and other companies depending on accurate, quick data processing are willing to pay premium prices for data centers in primary markets if it means keeping data up-to-date and secure.
3. What is the cost of security? For all businesses, an obvious goal when selecting a new site is to minimize taxes and developmental and operational costs. Skyrocketing construction costs are unavoidable in the United States. Labor costs are at all-time highs and the national average construction wage is expected to rise another 3 percent by March 2017, according to a recent JLL report.1 The most expensive markets to build in coincide with high-demand data center markets such as New York, northern California, and Chicago. Technology-rich data centers are especially susceptible to rising costs, as the IT infrastructure investment can be up to three times the amount to build.
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While the cost of building a facility is important, electricity rates play an even bigger role in site selection. In a 20-megawatt data center, for example, a $.01 increase in the per-kilowatt-hour cost of power increases annual data center operating costs by an estimated $1 million. High electricity rates in the Northeast and California markets often spur companies to consider cities where energy is cheaper, but this is not an option for facilities that need to be close to consumers or business users. Rural areas often appear attractive because of the lower cost and greater availability of land for sprawling complexes. But higher land costs in a metro area, relative to the cost of the data center itself, are negligible. Urban areas generally have better telecommunications and power infrastructure in place. One area where data center operators are finding success is at the “edge” of the network, in lower-tier yet highly populated markets. These cities provide access to key consumer bases outside traditional core markets.
4. Factor in tax incentives. Data centers, which deliver high-paying and stable jobs, are especially promising candidates for economic development incentives. In fact, government officials extended nearly $1.5 billion in tax incentives to hundreds of data center projects nationwide during the past decade, according an Associated Press analysis of state revenue and economic development records in 2015.2 Arizona incentive legislation provides data center owners, operators, and qualified tenants full exemption from sales and use taxes for any equipment to outfit, operate, or benefit a data center. As states compete for data centers, we expect tax incentives to continue, easing the burden for these mission-critical facilities.
5. Consider the people behind the data. Mission-critical facilities don’t run themselves; they rely on around-the-clock operational and security personnel. Facilities must be located in markets with access to skilled labor for many important functions, from security to technical IT and engineering jobs. An educated workforce is a basic requirement for any data center, while a high quality of life for employees is a consideration for companies prioritizing recruitment and retention.
6. What “always on” means in the real world.
These requirements open up secondary and tertiary markets as options.
The “always on” demands of consumers and businesses mean there must always be a second home for data when disaster strikes. This is particularly important for mission-critical industries such as healthcare. Hospitals and doctors are required by HIPAA regulation to have policies and procedures in place for safeguarding electronic health information in the event of fire, natural disaster, vandalism, or system failure. Regulatory measures around disaster recovery require facilities to be located certain distances away from company headquarters. It’s important to make sure a disaster recovery facility is out of the same geographic path of natural disasters and has separate power supplies and redundant network paths.
Harness the POWER of Nebraska
The Ideal Scenario In an ideal scenario, when you set out to identify a new site for a mission-critical facility, you will find a location near your customers where real estate and energy costs are low, local universities supply abundant talent, natural disaster risks are limited, and the state offers tax incentives for new development. But in reality, the stars don’t always align and businesses must sacrifice one requirement for another. The key is to take a holistic view of the process, prioritizing and balancing all the factors involved in site selection.
•
http://www.us.jll.com/united-states/en-us/research/us-construction-perspective 2 http://www.datacenterknowledge.com/archives/2015/09/30/ap-states-issued-1-5b-in-datacenter-tax-breaks-over-past-decade/ 1
Mary Plettner, CEcD Economic Development Manager Nebraska Public Power District ••• 1414 15th Street PO Box 499 Columbus, NE 68602-0499 402-563-5534 Fax: 402-563-5090 econdev.nppd.com econdev@nppd.com
Each year, Nebraska is a regular on the list of most “business-friendly” states. There are many reasons for this; however, the experts typically focus on three of Nebraska’s natural advantages when it comes to business expansion or relocation: (1) energy availability, (2) central geographic location, and (3) a high-quality, dedicated, low-cost workforce. This trio of business-friendly attributes sums up the power of Nebraska.
is ideally suited for data center loads, especially large enterprise operations.
Workforce. The Cornhusker state’s workforce consists of productive, dependable, educated, and well-trained individuals who take pride in and care about the quality of their work.
Energy. NPPD and its public power partners have developed a large customer economic development incentive electric rate that offers energy at a discounted price for a fixed period of time. This rate
NPPD’s experienced Economic Development Team has assisted numerous companies in finding productive and profitable locations to do business in Nebraska. For more information visit econdev.nppd.com.
Geography. Nebraska’s central geographic location when compared to coastal areas is more shielded from natural disasters such as earthquakes, floods, and hurricanes.
2017 • 61
LOCATION DECISION
It’s Your Move — Critical Considerations When Relocating Corporate Headquarters The improving economy is making it more financially feasible for companies to relocate their corporate headquarters, but such a move calls for careful consideration of a variety of factors that will determine the ultimate success — or failure — of relocation. By Dean J. Uminski, Partner, Crowe Horwath LLP
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Companies on the Move Several well-known corporations completed or announced notable corporate headquarters relocations in 2016, including General Electric, Boeing Company, Marriott International, North American Roofing, Beam Suntory, Arctic Cat, and ConAgra Brands. Many of the companies that have moved their headquarters shifted from sprawling suburban campuses that employees drove to every day to more compact urban spaces near public transportation. The renewed interest in urban environments reflects some of the more important factors that can influence the decision of companies anticipating a relocation.
Business Strategy Relocating headquarters often is
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courtesy: Boeing
ven with the economy on the upswing, competitive pressures are forcing companies to continue their quests to increase efficiencies and synergies within their operations. Relocating corporate headquarters is one option for doing so, as evidenced by the recent exodus of companies from their previous locations. Those making the decision about where to relocate need to consider several critical factors, whether moving headquarters within the current state or across state lines. With Boeing’s move of its defense headquarters from St. Louis, Mo., to Washington, the company will be in walking distance to the Pentagon.
driven by strategic reasons. One of the overriding goals generally is to reduce overall costs through, for example, lower taxes and overhead. Relocation also can facilitate an organizational realignment that allows formerly segregated departments or functions to employ common core systems. A company that has its sales force, research and development (R&D) team, and engineers located in different satellite offices might want to combine them into one central campus. Companies sometimes consolidate locations in this way in the hope of enhancing innovation, communication, and collaboration among employees. The theory behind such a move is that
the engineers who build products would be able to more easily work with the R&D folks who design the products. Relocation also might come up as part of a company’s strategy regarding its real estate holdings. A company might want to sell some of its holdings (including its headquarters location) to raise the capital necessary to underwrite new initiatives. It could need larger space to expand its capacity, or it may simply want to optimize its holdings by deploying staff in a more concentrated, less spread out manner. Of course, a company must balance the potential cost savings and strategic gains associated with reloca-
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tion against the costs stemming from relocation. Moving headquarters is no small task, and it is not cheap. The costs related to leasing, acquisition and disposition of property, employee relocation, and technology could outweigh the benefits. Even seemingly minor costs, like reprinting marketing and other materials with a new address, can add up.
Talent Acquisition Much of the recent migration of corporate headquarters to urban areas is tied to employee recruitment. Companies believe they are better positioned to uncover and draw top talent — especially millennial talent — when they are based in major cities. In the Chicago area alone, many well-known companies are moving their headquarters from long-held suburban properties to the city, including McDonald’s, Motorola Solutions, the Kraft Heinz Company, and the Hillshire Brands Company, largely motivated by their bids to attract desirable candidates from a changing workforce.1 Retention of existing top performers also merits consideration, though. That means a company must weigh such factors as the potential relocation site’s cost of living and quality of life, which can include commute time, school district quality, and crime rates. These matters could deter valued employees from moving with the headquarters. And the company must take into account the labor costs and availability of labor to fuel or keep up with future growth. Right-to-work laws and the costs of unemployment insurance and workers’ compensation coverage also might affect the relocation decision.
Tax Incentives The availability of financial incentives from state and local governments can play a substantial role in the relocation decision. Many jurisdictions are willing to extend such breaks for relocating headquarters in recognition of the ripple effect these moves can have on the economy in the surrounding area, as well as the potential benefits of corporate philanthropic efforts. States offering financial incentives for headquarters relocations include: Alabama: New investment in a new site in the state might qualify for the income tax capital credit of up to 5 percent of the project’s capital costs, to be applied to state income tax liability each year for 20 years. Arizona: The qualified facility tax credit is equal to the lesser of 10 percent of the total qualified investment made at the headquarters, $200,000 per qualified job created, or $30 million. Indiana: The headquarters relocation tax credit is assessed against the corporation’s state tax liability. The credit can be up to 50 percent of the corporation’s relocation costs. Kentucky: The Kentucky Business Investment Program offers tax credits up to 100 percent of corporate income tax liability for up to 10 years. Enhanced incentives based on wages are available in certain counties for up to 15 years.
Louisiana: The Corporate Headquarters Relocation Program provides a 25 percent rebate over five years on facilities and relocation costs. Missouri: The Missouri Works Program offers eligible corporations state tax credits (which are refundable, transferable, and saleable) or the retention of the state withholding tax on new jobs. South Carolina: The corporate headquarters credit is a 20 percent credit against corporate income tax, based on the cost of the actual portion of the facility dedicated to the headquarters operation or direct lease costs for the first five years of operation. The credit potentially can eliminate corporate income taxes for 10 years. Tennessee: The Super Job Tax Credit of $5,000 per job is available for companies establishing or expanding a regional, national, or international headquarters in the state with a capital investment of $10 million or more that creates 100 headquarter jobs paying at least 150 percent of Tennessee’s average occupational wage. West Virginia: Corporations that relocate their headquarters to the state are eligible for tax credits that can offset up to 100 percent of their liability for business and occupation tax. Wisconsin: The refundable business development credit is based on the wages paid to eligible employees working in headquarters located within the state. Corporate headquarters incentives for all states generally require all of the following: • A minimum capital investment in new or expanded headquarters facilities; • A minimum number of new jobs that meet the state’s “headquarters” definition; and • Worldwide sales in excess of a specified threshold. Although incentives can have a significant effect on a corporation’s bottom line, it’s important to remember that incentives alone rarely make a poor location suitable.
Image Matters The location a corporation selects for its corporate headquarters can say a lot about its brand image. A long-lived company that is hoping to shake the perception of its being out of touch or past its prime might try to reposition itself by moving to a “hot,” up-and-coming hub that reflects its priorities, such as the West Loop neighborhood in Chicago or the Silicon Beach area in Los Angeles. Case in point: When GE announced its move from Fairfield, Conn., to Boston, for example, its Chairman and CEO Jeff Immelt explained that the company wanted “to be at the center
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Forbes ranks Greenville/Pitt County tops in North Carolina as Best Small Metro Area for Business and Careers.
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Greenville Utilities’ Compressed Natural Gas Fueling Station caters to Pitt County’s industrial corridor, providing economical fuel choices to businesses and the public.
We take pride in supporting the economic growth of GreenvillePitt County. To help our industries maximize opportunities, we provide them with specialized care through our Key Accounts Program. The Key Accounts Team provides a single point of contact for commercial and industrial customers to help them retain and nurture long-term relationships, enhance loads, maximize jobs and facilitate economic development by providing outstanding customer service. www.guc.com • (252) 752-7166 401 South Greene Street Greenville, NC 27834 guc_info
GreenvilleUtilities
Contact John Worrell, Assistant Director of Electric Systems, for more information at 252-551-1569, (worreljt@guc.com) or visit www.guc.com/economic-development.
Powerful Partners Publicly owned utilities have always been deeply involved in economic development. By Steve Stackhouse-Kaelble
The best deals are the ones in which everyone wins. Across the country, public P O W E R U T I L I T I E S have established countless partnerships through which businesses, utilities, and their communities have come out ahead — like the deal struck between the Orlando Utilities Commission (OUC) in Florida and the United States Tennis Association (USTA). The utility was part of a partnership of L O C A L E N T I T I E S that joined forces to welcome USTA’s headquarters to Orlando — the complex is the nation’s largest tennis center, with dozens of courts. OUC is an active participant in recruiting H I G H - I M P A C T projects such as the USTA facility. Beyond providing economic development rates, OUC agreed to partner with the USTA on designing and implementing sustainable building practices. The partnership agreement allows promotional rights for the utility, including branding rights on sustainability assets and great opportunities to E D U C A T E the public about conservation and energy efficiency. AREA DEVELOPMENT | 2017 Annual Directory
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And how about the mutually beneficial deal that several years ago created the Pecan Street project in Austin, Texas? Austin Energy was a founding partner, along with the City of Austin, The University of Texas, the Austin Technology Incubator, the Greater Austin Chamber of Commerce, and the Environmental Defense Fund. The initiative was intended to spark the “smart grid” market and tap the area’s technology expertise to jumpstart innovation related to sustainable energy. Such intentions have clear and dramatic economic development implications, given the job-creation promise linked to sustainable energy. That’s obviously good for the community, and what’s good for the community is a high priority for any public power utility. But operating on the cutting edge of sustainable energy is a potential win for the utility itself, too, given the importance of figuring out how to thrive in a future where the rewards are likely to be tied more to energy efficiency than maximizing the volume of power delivered. What has blossomed
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from this partnership has been spectacular. A centerpiece is the Mueller community, a 700-acre former airport redevelopment in central Austin that’s now the world’s largest neighborhood to
WHAT’S GOOD FOR THE COMMUNITY IS A HIGH PRIORITY FOR ANY PUBLIC POWER UTILITY. be Stage 3 LEED-certified and the first in Texas to earn LEED for Neighborhood Development Stage 3 Gold Certification. More than 1,175 single-family homes there have achieved an Austin Energy Green Building rating, which is a nationally recognized rating system that served as a precursor to LEED certification. Hundreds of roofs have solar panels, many of which power electric vehicles. That’s just a couple of win-win business stories, but the truth be told, positive examples like these aren’t hard to find in public power communities — cities and
towns served by not-forprofit utilities that are owned by municipalities or other public entities. That’s not terribly surprising, really. After all, local civic leaders want to see their area’s businesses succeed, and public power utilities are typically on the same team as those local leaders.
LOCAL CONTROL, LOCAL FOCUS “One of the things public power has done very well is remain close to its mission,” says Andy Boatright, deputy director at Independence Power & Light in Missouri and chair of the American Public Power Association. That purpose, he says, “is providing reliable, low-cost power to our communities, businesses, and homes; doing it safely; and being responsive in terms of customer service.” And, Boatright adds, “Doing it in a not-forprofit fashion with local control and governance.” Local control
for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com
and governance turns out to be a big win for customers — everyone from homeowners to major industrial operations. “When there is an issue or concern, customers know where to turn, ” he says. They turn to public power representatives who also happen to be neighbors, says Daryl Ingram, senior vice president of External Affairs and Economic Development for ECG (Electric Cities of Georgia). “They live there, work there, go to church
there, see people at the grocery store,” he says. Public power representatives are accessible, Ingram notes, and as locals themselves, they’re just as interested in the things that are important to their business customers: “Reliability and cost are very important.” In fact, adds Boatright, “Oftentimes there are residency requirements that we have to live in the community in which we work. We’re here. People who work in public power are committed to service
and ensuring that the lights are on when there is a calamity, ensuring a strong and proper response.” Tony Cannon, general manager and CEO of Greenville Utilities in North Carolina, agrees: “Being locally owned is a real benefit to our customers. Decisions are made by a board comprised of customers, people who are affected by those decisions. We live in the communities we serve. Policies are created and decisions made with the best inter-
When it comes to expanding or relocating your data center,
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est of our neighbors, customers, and area employers.”
A COMMON INTEREST IN BUSINESS GROWTH “The other piece is that they want to grow,” says Ingram. That’s the root of public power utilities’ partnerships with local employers focusing on many of the factors that are most important to businesses deciding where to locate or expand. Cost is, of course, a prime location factor. That’s why projects such as the $63 million USTA facility in Orlando are offered economic development rates for their power. What’s good for the business is good for the community, starting with the 150 jobs connected to the project. Responsiveness of local representatives is important to businesses, too, and that was one of the keys to another Orlando success story, an Amcor Rigid Plastics’ plant with significant energy requirements. The Orlando Utility Commission put the pedal to the metal to build the infrastructure necessary to deliver five megawatts of power, under a tight deadline. Amcor
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also offered praise for the utility’s legal department, which partnered on hammering out favorable contract details. Ingram says public power communities have a natural inclina-
PUBLIC POWER UTILITIES ARE ABLE TO RELATE TO THE WORKFORCE NEEDS OF AREA BUSINESSES. tion to be responsive, in part because of the strong ties linking so many of the disparate players involved in helping businesses relocate and grow. The utility is tied to the local government, which helps bring city and county interests onto the same page, along with the local school system and various development authorities. “It’s an alignment of single elements to get everyone in a unified approach, and that works well.”
tackle one of the biggest location factors of all, workforce development. Bryan Brackemyre, director of Marketing and Economic Development for the Indiana Municipal Power Agency, can point to numerous examples involving the public power communities that his organization serves. “Many communities are taking a very active approach in upgrading their systems and building relationships with employers,” he says. The Indiana public power city of Lebanon, for example, was part of a partnership to create the Gene Haas Training and Education Center, a facility including smart classrooms, a lecture hall, a high-tech project collaboration room, and flexible labs for CAD, manufacturing, materials testing, logistics training, and robotics instruction. Training expertise comes from Vincennes University, one of the Midwest’s leading advanced manufacturing educational institutions. Brackemyre also cites
WORKFORCE DEVELOPMENT A unified approach helps these communities
for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com
the Flagship Enterprise Center in another Indiana public power community, Anderson. The business center and incubator initially sprouted as a collaboration between numerous partners responding to the loss of General Motors jobs. Area educational institutions are part of the effort to build a well-prepared workforce. The result of the collaboration has been thousands of jobs
at scores of companies. An unusual collaboration in Georgia has resulted in the Georgia Consortium for Advanced Technical Training Program, or GA CATT. The initiative involves the Central Educational Center, Coweta County’s College and Career Academy that has benefited from a nearly two-decades-old partnership with public power provider Newnan Utilities. GA CATT also
involves the German American Chamber of Commerce of the Southern United States (GACC South), along with local educational representatives and area businesses. The idea is to train students through a German apprenticeship model. Students begin their apprenticeship in 10th grade with a combination of high school classes, college-level manufacturing courses,
MORE RELIABLE ENERGY. MORE WATER TO THRIVE. MORE GROWTH. From some of the lowest electricity costs in the Southwest to a young and diverse workforce, SRP and Greater Phoenix offer you the tools and incentives needed to make your move a success. With a low risk of natural disasters and a reliable water supply, Greater Phoenix is consistently named one of the top 10 places to locate businesses. Coupled with SRP’s award-winning customer service and broad dark fiber network, you’ll find what you need to build your business here. To learn what we can do for you, visit PowerToGrowPHX.com.
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and paid apprenticeship modules. By their senior year of high school, these students spend 80 percent of their day learning at the manufacturing site and earning $12 per hour. Public power utilities are able to relate to the workforce needs of area businesses in part because they deal with the same issues. “We know we are challenged in terms of impending retirements,” Boatright points out. Given that, even as they work to help the businesses in their communities succeed, they’re gearing up their own workforce development and recruitment campaigns. In Independence, for example, “we have assembled a pretty strong apprenticeship program.” Electric Cities of Georgia serves its member communities with a wide range of training opportunities. Says Ingram, “We have soft skills training and DOLcertified apprenticeship programs for linemen. We have ongoing programs in customer service and management training.” Susan Wheeler, workforce pipeline planning and educa-
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tion relations strategist for the Sacramento Municipal Utility District (SMUD) in California, is also heavily involved in career development efforts. A Career Ambassadors program sends
PUBLIC POWER’S SUPPORT OF ECONOMIC DEVELOPMENT IS PART OF ITS HERITAGE. representatives into area educational institutions to inspire and inform through career storytelling. The program, she says, helps students learn about career opportunities, both at SMUD and at other local companies. It benefits teachers by giving students more reasons to be engaged in the classroom. And, the utility argues that the program benefits the community by better preparing the workforce and thus strengthening the economy. In the past year, the program was part of about 120 events that reached nearly 50,000 students.
Workforce outreach is certainly paying dividends, across public power communities and within the utilities themselves. Boatright notes that a lot of students don’t initially consider careers in the utility industry, but their interest grows as they learn more about technology advances and increasing emphasis on such areas as sustainability, green power, and energy efficiency. “Technology is playing a greater role than it ever has,” he says. “There is a lot of excitement in our business.” It’s no secret that a good quality of life is a major driver of workforce development — public power utilities and their affiliated local governments recognize this and involve themselves heavily in trying to have a positive impact. “They’re using that as part of their arsenal to develop an environment that attracts people,” Ingram says. Quality of life attracts new residents, and that, in turn, attracts new employers. “If you’ve got
for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com
the right kind of people, companies are going to find you.”
A LONG HISTORY OF ECONOMIC DEVELOPMENT
Public power’s support of economic development is part of its heritage. As Ingram points out, “Cities got into the utility business as an economic development effort. They had to have the infrastructure in place to attract industry.” In Georgia, for example, most public power communities have provided energy for more than a century. When textile companies moved to the South, communities invested heavily in utility infrastructures to allow for growth and job creation. When many of those companies started expanding overseas, communities adapted and involved their utilities in helping other sectors grow. Further enabling that flexibility is the fact that a lot of these communities have fully integrated public utilities, offering not just electricity but
also gas, water, and sewer services — and increasingly, fiber or other digital telecommunications connections. “All of them are motivated to create this environment for investment,” Ingram says. “The public power community is a unique animal.” “The fundamental issue is the desire to be aligned with customers’ wishes,” says Boatright. Beyond lower cost and high reliability, those wishes are increasingly including support for energy-efficiency initiatives and sustainability options. It’s noteworthy, says Cannon of Greenville Utilities, that meeting customer needs frequently means selling less power. “Being a public power agency means that we are constantly working to help our customers save money on their utilities. It gives us the ability and motivation to find solutions that can reduce peak loads for our largest customers and, in return, helps us lower the load we use during times of peak rates. That helps all of
CONTACTS ARIZONA SALT RIVER PROJECT More energy. More growth. From low electricity costs to a young and diverse workforce, SRP and Greater Phoenix offer you the tools and incentives needed to make your move a success. To learn what we can do to help you build your business here, visit p o w e r t o g ro w p h x . c o m Salt River Project Caryn Gose 602-236-2192 Caryn.Gose@srpnet.com Karia Moran 602-236-2396 Karia.Moran@srpnet.com
our customers save money,” he says. “We are the only business around here I know of that teaches our customers how to spend less money on the products we sell.” Public power utilities, Boatright says, are laser-focused on serving customers. “Public power is, in my opinion, the best model for being able to be flexible and responsive to customers’ desires.”
Gretchen Kitchel 602-236-2654 G re t c h e n . K i t c h e l @ s r p n e t . com
NEBRASKA NEBRASKA PUBLIC POWER DISTRICT Nebraska Public Power District is Nebraska’s largest electric utility, with a chartered territory including all or parts of 86 of Nebraska’s 93 counties. NPPD uses a diverse mix of generating facilities to meet customers’ needs, including nuclear, coal, natural gas, oil, wind, hydro, and diesel resources. 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. Mary Plettner, CEcD Economic Development Manager Nebraska Public Power District 1414 15th Street P.O. Box 499 Columbus, NE 68602-0499 402-563-5534 • Cell: 402-750-1907 Fax: 402-563-5090 econdev@nppd.com e c o n d e v. n p p d . c o m
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ADINDEXWEBDIRECTORY Advertiser
Page
Advertiser
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ALABAMA
NEBRASKA
City of Opelika 5 www.OpelikaEconomicDevelopment.org LHuguley@Opelika-AL.Gov
Nebraska Public Power District www.EconDev.NPPD.com EconDev@NPPD.com
ARIZONA Salt River Project www.PowerToGrowPHX.com Caryn.Gose@srpnet.com Karia.Moran@srpnet.com Gretchen.Kitchel@srpnet.com
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Cheshire Economic Development www.CheshireCT.org JSitko@CheshireCT.org
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FLORIDA Cape Coral Economic Development Office www.BizCapeCoral.com EcoDev@CapeCoral.net
Las Vegas Global Economic Alliance www.LVGEA.org
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NEW YORK LaSalle Nova Global Markets of NYC www.LaSalleAMO.com Gray@LaSalleAMO.com
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NORTH CAROLINA
Enterprise Florida, Inc. www.EnterpriseFlorida.com/ thefutureishere pmarttila@enterpriseflorida.com
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Greenville Utilities www.GUC.com Worreljt@GUC.com
Greater Fort Lauderdale Alliance www.gflalliance.org www.LessTaxing.com dcoddington@gflalliance.org
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TEXAS City of Dallas www.DallasEcoDev.org Lubbock Economic Development Alliance www.LubbockEDA.org info@LubbockEDA.org
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ILLINOIS LaSalle Nova Capital Markets of Chicago www.LaSalleAMO.com Gray@LaSalleAMO.com
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Iowa Economic Development www.IowaEconomicDevelopment .com/certifiedsites info@iowaEDA.com
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Harold Gutzwiller, Manager Economic Development/Key Accounts Hoosier Energy P.O. Box 908 Bloomington, IN 47402 812-876-0294 www.HoosierSites.com Hgutzwiller@hepn.com
KENTUCKY Kentucky Cabinet for Economic Development www.ThinkKentucky.com EconDev@ky.gov
MASSACHUSETTS MassDevelopment (Devens Massachusetts) DevensBusiness.com mbrewer@massdevelopment.com
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MISSISSIPPI Mississippi Development Authority www.Mississippi.org/Automotive
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of an ecosystem that shares our aspirations. Greater Boston is home to 55 colleges and universities. Massachusetts spends more on research and development than any other region in the world, and Boston attracts a diverse, technologically fluent workforce focused on solving challenges for the world.”2
Selecting the most advantageous location for a corporate headquarters also can turn on the following factors: Customer base: For some companies, it’s vital to be near their current clients and future markets. With Boeing’s move of its defense headquarters from St. Louis, Mo., to Washington, for example, the company will be in walking distance to the Pentagon. Proximity to other facilities: It makes little sense for a corporation to move its headquarters to a location that is remote from its other facilities. When GE moved its headquarters to Boston, for example, it already had almost 5,000 employees in the state of Massachusetts. Community relations: A corporation might choose to move its headquarters to a location where it already has established a solid working relationship with the nearby community (for example, the location of its manufacturing plant). Strong working relationships with local government agencies can smooth the way for abatements and incentives like tax increment financing. Public infrastructure: Corporate headquarters are often the focal point of much business travel, with employees, customers, vendors, and others regularly commuting to and from the headquarters. Multiple transportation options are essential — hub airports, road and highway systems, and possibly ports. The company also should investigate the reliability and capacity of relevant utilities, including fiberoptic wiring. Space needs: When determining space needs, a corporation must look at least 10 years forward. If necessary, is future expansion practicable at a site?
Look Before You Leap
MICHIGAN Michigan Economic Development Corporation www.MichiganBusiness.org
Correction: Our Select Sites listings in the 2017 Annual Directory issue incorrectly listed the contact name at Hoosier Energy. The correct listing is below:
IOWA
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Additional Factors
NEVADA
NV Energy www.NevadaSiteLocator.com
CONNECTICUT
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Relocating corporate headquarters typically is a massive undertaking, and not one to take lightly. Before settling on a new location, a corporation must take the time to evaluate a wide range of factors based on the company’s individual circumstances. ■ Samantha Bomkamp, “McDonald’s HQ Move Is Boldest Step Yet in Effort to Transform Itself,” Chicago Tribune, June 13, 2016, http://www.chicagotribune.com/business/ct-mcdonalds-chicagoheadquarters-0614-biz-20160609-story.html 2 “GE Moves Headquarters to Boston,” Jan. 13, 2016, http://www.genewsroom.com/press-releases/ ge-moves-headquarters-boston-282587 1
for free site information, call 800-735-2732, ext. 225, or visit us online at www.areadevelopment.com
FacilityLocations.com
Find the Right Location for Your Next Business Site, Facility or Headquarters FacilityLocations is a GIS map-driven, online economic development directory used to research potential locations during the business re-location or expansion process.
Discover Search and identify potential site and facility locations within big, easy-to-navigate, GIS-driven maps
Research Drill-down into location profile pages: • Google Streetview and Bing Bird’s Eye Imagery • Heat Maps and Data Layers • Downloadable Point-and-Click Radius Demographics Reports • Available Property Listings and Key RE Assets
Connect A directory with 5000+ listings including: • Local and Regional Economic Development Contacts • Port Authority Contacts • Utility Contacts • Foreign Trade Zone Contacts • Foreign Inward Investment Contacts If you are an economic development agency and want to have an enhanced listing with a location profile on FacilityLocations.com, please contact Dennis Shea at 800.735.2732 x 208 or dshea@areadevelopment.com
PURE AEROSPACE
The state that revolutionized the automotive industry has taken to the skies to become one of the top places in the country for aerospace business. Michigan. Home to more than 100 top aerospace companies, Michigan leads the Great Lakes region for major new and expanded facilities. When it comes to aerospace success, the sky’s the limit in Michigan.
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