Area Development Q1 Issue 2022 by Area Development

AN EVOLVING INCENTIVES ENVIRONMENT PAGE 40

ANNUAL

CORPORATE & CONSULTANTS

SURVEY

WAREHOUSE SPACE YET TO MEET DEMAND PAGE 22

AREADEVELOPMENT SITE

AND

FACILITY

PLANNING

Q1/2022

EV FORWARD

As the nation transitions to EVs, mega investments in huge battery production plants, and the thousands of new jobs each will create, spell both opportunity and disruption to industry, workforce, and the communities in which they will locate.

W W W . A R E A D E V E L O P M E N T. C O M

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America’s top state for talent

Virginia continues to raise the bar when it comes to talent development. Virginia Talent Accelerator Program: Fully customized workforce recruitment and training solutions — at no cost to eligible companies Tech Talent Investment Program: America's largest investment in computer science education ($2 billion in new public/private funding), doubling annual grads in CS and related fields Computer Science in K-12: First state to incorporate computer science, including coding, as a mandatory part of the curriculum for all public school students (K-12)

CONTENTS

Cover Story

EV FORWARD 32

Optimizing Market Share in the EV Industry

Driving into an Electric Vehicle Future

With huge growth expected in the EV/battery production market, manufacturers must start their project planning early, taking into account labor, energy, and supply chain needs.

The transition to EVs will bring mega investments and thousands of jobs to some communities while disrupting suppliers of ICE vehicles, the communities in which they’re located, as well as their employees.

Also see Online Exclusive: Auto Giants Race to Build U.S. EV Battery Assembly Plants

features

16 The Labor Challenges

40 An Evolving

A careful evaluation of a site’s labor force is needed to guard against unwelcome surprises.

Remote work is creating challenges for incentive agreements as well as compliance.

of Site Selection

Incentives Environment

22 Supply of Warehouse Space Yet to Meet Demand

19 How the Biden Energy Plan Will Impact U.S. Business With the federal government’s commitment to sustainable energy, businesses must act now to not only meet the new guidelines but also to satisfy customers and investors alike.

A lack of warehouse space in growth markets — driven by the surge in e-commerce — is being exacerbated by a scarcity of building materials and their skyrocketing costs.

37 Locations That

Promote Employee Health and Well-Being Coming to the Forefront As workforce location preferences have evolved over decades, one thing has remained constant: individuals want to work and live in locations that foster their physical as well as mental and emotional health.

44 Crunch Time in the Construction Industry

Supply chain disruptions spawn creative, and possibly lasting, project solutions.

Area Development® Site & Facility Planning (USPS 345-510) is published four times per year (Q1, Q2, Q3, and Q4) at Lancaster, PA, by Halcyon Business Publications, Inc., 30 Jericho Executive Plaza– Ste 400W Jericho, NY 11753. Periodicals postage paid at Jericho, NY, and additional offices. Single copies, $20. Yearly subscription U.S. & Canada, $75; foreign, $95.

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Volume 57 | Number 1 Q1/2022

“

In a world that is more interconnected and interdependent than ever before, it is critical that we work together to uphold the norms and statutes that keep our citizens safe, our countries secure, and our economies fair.

Loretta Lynch (1959–

”

American lawyer and U.S. Attorney General from 2015 to 2017

78 Project Controls: Keeping Complex Project Delivery On-Track A dedicated project controls process will take into account all phases of a project, from planning and scheduling to budgeting and execution, helping to successfully deal with any difficulties encountered along the way.

annual report

departments

4 6 8

Editor’s Note

Speed of Change Will Accelerate in 2022

In Focus

Redefining the “Smart” in Smart Cities

In Focus

T he Business Case for the Building of the Future

10 Front Line

E xtreme Weather Events Factor into Location and Sustainability Decisions

12 Front Line

U .S. Automakers Look to Semiconductor Partners

14 First Person

Carolina Weidler, Principal, Hendy

Ad Index/Web Directory

exclusive online content

ANNUAL

CORPORATE SURVEY

A tight labor market, supply chain challenges, and rising costs have resulted in some surprising changes in corporate respondents’ location priorities.

• In Focus: Michigan Rises to the Competitive Challenge • Do You Need A Facility Manager, Project Manager, or Both? • Auto Giants Race to Build U.S. EV Battery Assembly Plants • Five Ways Automation Will Strengthen Your Labor Force

ANNUAL

CONSULTANTS SURVEY

• How to Choose a 3PL Warehouse Provider

Supply chain considerations, the shortage of skilled workers, and a lack of industrial space are top of mind for their clients, according to consultants responding to our annual survey.

• New Equipment Considerations in Capacity Planning and Manufacturing Resiliency • Warm Economic Welcomes in the Caribbean • 2022 Trade Concerns for Manufacturers

POSTMASTER: Send address changes to Area Development, Circulation Department, 30 Jericho Executive Plaza– Ste 400W Jericho, NY 11753. Subscribers requesting address changes must provide both old and new addresses. © Copyright 2022 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 2022

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Q1/2022

EDITORS NOTE Speed of Change Will Accelerate in 2022

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espite the ongoing global pandemic, the U.S. economy grew 5.7 percent in 2021 — the fastest annual rate since 1984 — bolstered by consumer spending.1 Supply chain bottlenecks brought about by this demand — coupled by the slowdown in production during the pandemic — continue to challenge the country. However, when we asked corporate readers if they had a changed their real estate strategies over the past 12 months due to the pandemic, 70 percent said they had not, with only 17 percent saying they had geographically diversified their operations. And it seems these respondents are staying the course and proceeding with caution according to the results of our 36th Annual Corporate Survey, with three quarters of the corporate respondents saying they have not changed their number of facilities over the past year. Rising labor costs and the tight labor market are the top concerns among our corporate readers. And while consultants to industry who responded to our 18th Annual Consultants Survey also say their clients, many of whom employ thousands of workers, are concerned about skilled labor availability, they believe proximity to markets and to suppliers are top of mind for their clients in light of the supply chain challenges they are facing. Meanwhile, in just the last few months, several large corporations have announced projects representing billions of dollars in investment and thousands of jobs — especially in the electric vehicle (EV) and battery sector. This technology will disrupt suppliers of ICE vehicles, the communities in which they’re located, as well as their employees. However, a Bloomberg New Energy Finance2 study reveals, “By 2025 electric vehicles (EVs) will reach 10 percent of global passenger vehicle sales, growing to 28 percent in 2030 and 58 percent by 2040.” In fact, an Executive Order signed by President Biden in December 2021 calls for all new vehicles to be 100 percent zero-emission by 2035, including 100 percent zero-emission for light-duty vehicles by 2027. Companies large and small have met the challenges over the last two difficult years. As the speed of change continues to accelerate, they will need to adjust their plans and priorities over the course of 2022 in order to grow and succeed. 1

https://www.nbcnews.com/news/us-news/us-economy-grew-57-2021-rebounding-2020-recession-rcna13771 https://about.bnef.com/electric-vehicle-outlook/

2022 Editorial Advisory Board Josh Bays Principal

site selection group

Marc Beauchamp President & CEO cai global group

H. Robert Boehringer III Managing Director Global Location and Expansion Services

kpmg

Brian Corde Managing Partner atlas insight

Kate Crowley Principal baker tilly capital

Dennis Cuneo Owner

dc strategic advisors

Courtney Dunbar Site Selection & Economic Development Leader burns & mcdonnell Amy Gerber Executive Managing Director Business Incentives Practice cushman & wakefield Stephen Gray CEO gray

David Hickey Managing Director hickey & associates

Anthony Johnson President Industrial Business Unit clayco

Scott Kupperman Founder

kupperman location solutions

Dan Levine Practice Leader, Location Strategies & Economic Development oxford economics

Bradley Migdal Senior Managing Director Business Incentives Practice

cushman & wakefield

Daniel Oney Managing Director newmark

Matthew R. Powers Managing Director

Industrial Real Estate & EVP Retail/E-Commerce

jll

Carolyn Salzer Director, Americas Head of Logistics & Industrial Research cushman & wakefield Chris Schwinden Senior Vice President site selection group

Eric Stavriotis Senior Vice President Advisory & Transaction Services cbre

Editor

Steven Tozier US-East Region Credit & Incentives Leader ey

AREA DEVELOPMENT Publisher Dennis J. Shea dshea@areadevelopment.com

Editor Geraldine Gambale editor@areadevelopment.com

Production Manager Jessica Whitebook jessica@areadevelopment.com

Sydney Russell, Publisher 1965-1986

Staff and Contributing Editors Mark Crawford Steve Kaelble Dan Emerson Karen Thuermer Mark Schantz

Business Development Manager Matthew Shea (ext. 231) mshea@areadevelopment.com

Business/Finance Assistant Barbara Olsen (ext. 225) olsen@areadevelopment.com finance@areadevelopment.com Advertising/National Accounts advertising@areadevelopment.com

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Art & Design Patricia Zedalis

Digital Media Manager Justin Shea (ext. 220) jshea@areadevelopment.com

Circulation/Subscriptions circ@areadevelopment.com

Web Designer Carmela Emerson

Halcyon Business Publications, Inc. President Dennis J. Shea

Chris Volney Senior Director Americas Consulting/Labor Analytics cbre

Dan White Director, Government Consulting & Fiscal Policy Research

Correspondence to: Area Development Magazine 30 Jericho Executive Plaza Suite 400 W Jericho, NY 11753

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Scott J. Ziance Partner

Joshua Wright Vice President

Economic & Workforce Development

emsi vorys

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A magnet for educated and diverse talent. Located in America’s top state for talent and business, Greater Richmond, Virginia, is home to the talented workers you are looking for. Compared to U.S. averages, the region is home to a higher percentage of diverse talent (39% vs. 32%) and more workers who have attained a bachelor’s degree or higher (38% vs. 34%). It’s no wonder there are 12 Fortune 1000 headquarters located here along with major

divisional headquarters making the region a perfect spot for both the Hub and Spoke approach. And thanks to the region’s east coast proximity to major markets, our workforce pipeline is primed with more than 1 million higher education students within 150 miles. For your next site selection project, choose Greater Richmond, Virginia, capital of CNBC’s Best State for Business.

Learn more www.grpva.com

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IN FOCUS Redefining the “Smart” in Smart Cities Emerging robotics and AI technologies can help meet critical goals of connectivity, equity, and sustainability.

life for all its residents.

A Prime Example

BY KAREN LIGHTMAN,

Executive Director, Metro21: Smart Cities Institute,

CARNEGIE MELLON UNIVERSITY Karen Lightman is is an internationally recognized leader in building and supporting communities based on emerging technologies. She is a passionate advocate and spokesperson for technology solutions to real-world problems.

The term “smart cities” has a certain aura — it promises to solve the problems urban areas face using technologies like artificial intelligence (AI), machine learning, robotics, digital cameras, and sensor networks. The potential of smart city solutions is seemingly limitless — the market opportunity (estimated at $741.6 billion1 in 2020) is boundless, and there are many problems to be solved. In its simplest definition, a smart city is one that uses data gathered through its operations to improve the efficiency and effectiveness of those same operations. But for a city to truly be smart, it needs to go beyond data and technology and focus on addressing the root causes of inequities and improving quality of

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Most U.S. cities are still using “old” technologies created a century ago — like the traffic signal, water/sewer systems, and street lights — and 43 percent of our nation’s public roadways are in poor or mediocre condition.2 But in Pittsburgh, “Smart City” solutions have been

Mellon University, collaborated with numerous nonprofit and municipal partners to enable Rapidflow’s founder, Professor Stephen Smith, and his team to develop a similar AI algorithm. The technology was developed to optimize the delivery of more than 100,000 meals to families in need in Penn Hills, McKeesport, and McKees Rocks. While this might not fit the traditional definition of a “smart city” project, it is a perfect example of how to deploy technology to equitably solve real-world problems, which is the core of our work at Metro21. When it comes to safety and security applications, smart cities technology has been criticized

THERE IS NO “ONE-SIZE-FITS-ALL” SOLUTION WHEN IT COMES TO DEPLOYMENT OF SMART CITIES TECHNOLOGY. under way for some time and are now expanding more extensively. Sometimes smart city technology is a cute personal delivery robot that distributes packages to doorsteps. More often, however, it is like Carnegie Mellon University (CMU) spinout Rapidflow’s Surtrac.3 Surtrac is a machine learning algorithm that guides an autonomous network of sensors and cameras in real time to help manage traffic, reducing travel time by 25 percent, idle times by 40 percent, and greenhouse gas emissions by 20 percent. Further, during the COVID-19 pandemic, Metro21: Smart Cities Institute, housed within Carnegie

for its role in perpetuating bias — implicit or explicit — and institutional racism. Facial recognition software has come under fire for exacerbating mistrust in communities of color. Several cities, including Minneapolis, San Francisco, New Orleans, and Boston, have banned government use of facial recognition software over concerns of bias and privacy. This fall, in collaboration with CMU’s Heinz College and Traffic21 Institute, Metro21 convened a three-part series featuring national and local experts and advocates to shed light on the issue of justice and smart cities technology. What we learned is that cities are compli-

cated; there is no “onesize-fits-all” solution when it comes to deployment of smart cities technology; and it is critical that deployments are done in a transparent, iterative, and collaborative way to build trust in communities.

Weighing Costs vs. Benefits In collaboration with its 70+ municipal and equity partners, Metro21 has deployed more than 60 pilot projects throughout the Pittsburgh region to better understand the intended, and often unintended, consequences of technology implementation. Sometimes we help spin out companies and learn that technology alone cannot solve the realworld problem because the cost of deployment far outweighs the benefits. Therefore, the recently signed $1T Infrastructure Investment and Jobs Act is critically important for the equitable, inclusive, and sustainable deployment of smart cities technology by focusing on solving real-world problems that are often complicated, messy, and unattractive. The $65B broadband investment that is part of the infrastructure bill has the potential to enable the equitable deployment of smart cities technology in areas that previously could not have imagined such opportunity. We can redefine the “smart” in smart cities — by enabling communities to be connected, equitable, and sustainable. 1

https://www.globenewswire.com/ news-release/2021/07/12/2260896/0/en/ Global-Smart-Cities-Market-to-Reach2-5-Trillion-by-2026.html 2 https://infrastructurereportcard.org/ cat-item/roads/ 3 https://www.rapidflowtech.com/surtrac

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BUSINESS SUCCEEDS HERE “ Hytrol has been in Jonesboro, Arkansas, since 1962. We began with 28 employees and have grown to more than 1,200 employees in that location. When it came time to expand with an additional production facility, it was an easy decision to stay in Arkansas.” David Peacock, President Hytrol

Scan to see how Hytrol is meeting unprecedented demand by expanding its operations in Arkansas. Learn more about doing business in the state at ArkansasEDC.com/Hytrol.

IN FOCUS The Business Case for the Building of the Future Investing in facilities now will yield financial and physical benefits in the short and long term.

ment is one in which all occupants — employees or visitors — feel safe and comfortable.

A New Era of Occupant Expectations BY TYLER SMITH, Executive Director, Healthy Buildings,

JOHNSON CONTROLS Tyler Smith has spent over 15 years with Johnson Controls in roles focused on leveraging building management systems and HVAC equipment to drive important outcomes such as improvements in energy efficiency and indoor air quality.

Over the past two years, building occupants have become more aware of the health of the environment around them, especially indoors. Additionally, awareness of “Sick Building Syndrome”1 — the idea that building occupants become sick from the building they work in — has grown. Now, occupants expect the opposite: a smart, healthy building. It’s not only building occupants. With the labor shortage expected to continue well into 2022, employees are also in the unique position to be selective in the company for which they choose to work. Looking ahead, building owners and managers are going to have to step up their facility infrastructure to make sure their working environ-

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A healthy building consists of more than just an air quality filtration system. The checklist for a healthy building that meets a new standard of occupant expectations includes: • Touchless access controls — Building managers can reduce touchpoints, and therefore the spread of

visitors arrive, keeping the building a step ahead. • Remote building monitoring systems — By connecting HVAC, security, fire safety, and sustainability systems and creating a single dashboard or control room, building managers can get a holistic view of building energy use and opportunities for efficiency as well as occupant behavior and foot traffic. • Public-facing dashboards — Occupants increasingly expect transparency and sustainability from the buildings and organizations where they live, work, and play. By implementing public dashboards displaying realtime data on facility efficiency, energy use, and clean air, building managers can ensure occupants feel more at ease. Advanced, connected

BUILDING OWNERS AND MANAGERS ARE GOING TO HAVE TO STEP UP THEIR FACILITY INFRASTRUCTURE TO MAKE SURE ALL OCCUPANTS FEEL SAFE AND COMFORTABLE. disease, by implementing digital badges for both employees and visitors. Offering a mobile integration of access controls systems allows employees to gain access to areas of the building depending on access level permissions, further heightening security. • Smart lighting and filtration systems — When integrated with access controls and occupancy sensors, lighting and HVAC systems can automatically adjust depending on occupancy levels, maximizing energy efficiency and preparing spaces before

systems allow buildings to make data-driven decisions in real-time to create safer and more comfortable spaces for occupants while also increasing productivity, profitability, and sustainability.

Short- and Long-Term Benefits Although these building improvements may seem like a reaction to the past two years, digital technologies and increased resiliency will be essential for buildings long-term. By implementing these connected technologies, buildings

will use fewer resources and, in turn, reduce operating expenditures — a boon for the organization, the community, and the planet. What’s more, in an increasingly competitive market, employers will need to leverage healthy building environments to attract both employees and customers in order to keep up with (and eventually outpace) the competition. Equally as important, healthy building upgrades create a comfortable, inviting environment for occupants and a higher standard of convenience and security. With warm lighting and well-managed indoor air quality, employees are more likely to be productive and content, giving a boost to company operations and retention. Plus, these upgrades serve to empower occupants with greater autonomy — they can absorb the building performance and energy use data themselves to better understand their environment; they can use touchless access control tools to travel through the building; and they can book rooms and prepare meeting spaces digitally. Through investments focused on health and wellness, building managers have the opportunity to create the building of the future; buildings that are smart, connected, and safe are the ones that will attract talent or customers, bolster productivity and mood, and make all occupants feel safe and informed. 1

https://qz.com/1993935/could-covid19-usher-in-the-age-of-clean-indoor-air/

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A Division of the Missouri Department of Economic Development

FRONT LINE Extreme Weather Events Factor into Location and Sustainability Decisions The risk of extreme weather events is increasingly being factored into companies’ location decisions, as are sustainability initiatives to reduce carbon emissions that contribute to global warming.

ample, a manufacturing plant based in Southeast Asia might be moved to a location that is less susceptible to hurricanes and rising seas caused by climate warming. “Companies are also bringing their supply chains closer to avoid some of the risks associated with international trade and locations,” she notes.

Lowering Carbon Footprints, Too

BY DAN EMERSON

Sometime this spring, the Houston-based software firm Hewlett Packard Enterprise plans to move into a new 440,000-square-foot headquarters in Spring, Texas, a few miles northwest of its current location. The move should make the company somewhat less vulnerable to the kind of flooding that swamped its data centers during a record rainstorm in 2016, and again the following year, during Hurricane Harvey. Scientists say those kinds of extreme weather events are becoming more frequent due to global warming, which is just beginning to impact corporate site selection decisions. Exposure to natural disasters has always been part of the

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site selection equation, but it is becoming more front-and-center as a factor, says Didi Caldwell, president and founding

There’s also another side of the climate risk issue impacting companies: the increasing demand for “lower carbon” products and lower carbon footprints. Internationally, the most visible example of climate risks affecting location choice involves major tech companies that are making data

EXPOSURE TO NATURAL DISASTERS HAS ALWAYS BEEN PART OF THE SITE SELECTION EQUATION, BUT IT IS BECOMING MORE FRONT-AND-CENTER AS A FACTOR. principal of Global Location Strategies, a South Carolina-based consulting firm. “It has gained importance over the last 10 years and become even more prevalent in the last five years.” Because of climate change factors, “We are seeing companies consider either relocation or building new capacity in areas they wouldn’t have considered previously,” Caldwell says. For ex-

center location decisions based on access to renewable energy. “In this sector, it is already leading to some countries winning certain projects and others losing out,” says Dieter Billen, principal at consultancy Roland Berger, in a recent FDI Intelligence article.1 He cited data center projects in Vietnam and Africa where renewables played a major role. And, last October, both

Google and Facebook purchased large parcels of land in Denmark for “potential” data center developments, drawn by access to renewables. In the U.S., environmental impact (and its effect on global warming) is beginning to play a more prominent role in facility design decisions, experts say, partly because consumers and business customers are increasingly demanding lower-carbon products and services. For example, last year, Bendix Commercial Vehicle Systems completed installation of a 1.168-megawatt solar array at its large manufacturing plant in Huntington, Ind., decreasing its reliance on the local power grid and reducing the company’s carbon footprint. The company says the Huntington solar array will contribute a 3 percent decrease to Bendix’s carbon footprint across North America. It will satisfy about 30 percent of Huntington Plant 1’s energy requirements and should decrease the campus’s carbon footprint by nearly 19 percent, Bendix officials contend. Moreover, in 2020, Bendix diverted 99.9 percent of its waste from landfills, and over the past six years, the company has reduced its energy consumption by more than 14 million kWh.2 1 2

https://www.fdiintelligence.com/ article/80284 https://www.aftermarketnews.com/ bendix-solar-array-comes-on-line-inhuntington/

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FRONT LINE U.S. Automakers Look to Semiconductor Partners In response to supply chain challenges and in order to expand production of AVs and EVs, U.S. automakers are looking to design the highly coveted chips in-house.

BY KAREN E. THUERMER

Covid-19 has resulted in wild gyrations in the supply chain with the hard-hit semiconductor industry having a major impact on U.S. auto manufacturing. From its beginning, Covid-19 resulted in auto plants closing around the country while sales of computers and other consumer products skyrocketed. When automakers resumed production, they found fewer chips available to them. In addition, the pandemic and related supply-chain problems depressed sales and drove up prices for new and used cars. However, market analyst IHS Markit sees U.S. auto production stabilizing in 2022 and attributes this to a stabilization in the semiconductor supply chain.1 With today’s strong focus on autonomous vehicles (AVs) and electric vehicles (EVs), demand for semiconductors that are tailored to specific applications is even stronger. McKinsey & Co. points out that these customized chips

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are only available from a few semiconductor companies. Chip production overall is monopolized by a few global, Asia-Pacific suppliers.2 Consequently, automakers now are looking to design the highly coveted chips in-

Wolfspeed, Inc. to develop and provide silicon carbide power device solutions for GM’s future electric vehicle programs. Wolfspeed reported that its silicon carbide devices will enable GM to install more efficient EV propulsion systems that will extend the range of its rapidly expanding EV portfolio. The silicon carbide will specifically be used in the integrated power electronics contained within GM’s Ultium Drive units in its next-generation EVs. “Customers of EVs are looking for greater range, and we see silicon carbide as an essential material in the design of our power electronics to meet customer demand,” said Shilpan Amin, GM vice president, Global

IN NOVEMBER, FORD ANNOUNCED THAT IT HAD REACHED A STRATEGIC COLLABORATION WITH GLOBALFOUNDRIES INC. (GF) OF MALTA, N.Y. house to reduce development timelines and gain more control. Ford and General Motors are two such examples.

GM and Ford Announce Partnerships GM announced in November that it plans to work with chip suppliers Qualcomm, STM, TSMC, Renesas, NXP, Infineon, and ON Semi to produce new families of microcontrollers. The goal is to reduce the number of unique chips by 95 percent on future vehicles.3 GM also announced in October that it had entered into a strategic supplier agreement with

Purchasing and Supply Chain. “Working with Wolfspeed will help ensure we can deliver on our vision of an all-electric future.”4 Ford is following a similar path. In November, the automaker announced that it had reached a strategic collaboration with GlobalFoundries Inc. (GF) of Malta, N.Y. Together they plan to advance semiconductor manufacturing and technology development within the U.S. to boost chip supplies for Ford and the U.S. automotive industry. The companies signed a non-binding agreement that opens the door

for GF to create further semiconductor supply for Ford’s current vehicle lineup and joint R&D to address the growing demand for feature-rich chips to support the automotive industry. These could include semiconductor solutions for ADAS, battery management systems, and in-vehicle networking for an automated, connected, and electrified future. GF and Ford also will explore expanded semiconductor manufacturing opportunities to support the automotive industry. “This agreement is just the beginning, and a key part of our plan to vertically integrate key technologies and capabilities that will differentiate Ford far into the future,” said Jim Farley, Ford president and CEO in the release. 5 Such collaboration is not unique, however. Other well-known companies are pursuing inhouse chip production to abate a chip shortage. These include high-tech giants Apple, Samsung, and Google. Wired.com reported over a year ago how Apple began shifting away a dependence on Intel chips in favor of its own processors.6 1

https://news.ihsmarkit.com/prviewer/ release_only/slug/bizwire-2021-12-16-auto-demand-levels-remain-depressed-onchip-famine-alongside-race-betweenvaccine-and-variants-2022-light-vehicledemand-set-to-post-824-million-37as-supply-chain-shortages-limit-market-recovery-according-to-ihs-markit 2 https://www.mckinsey.com/industries/ advanced-electronics/our-insights/ automotive-semiconductors-for-theautonomous-age?cid=other-eml-alt-mipmck&hdpid=f2800c76-4860-4c43-aa6d2ef04d900922&hctky=9710276&hlkid=2a7 22c75123a41dbbb254f4f3b17e51a 3 https://www.reuters.com/business/autostransportation/gm-aims-tackle-chipshortage-with-new-designs-made-northamerica-2021-11-18/ 4 https://media.gm.com/media/us/en/gm/ news.detail.html/content/Pages/news/ us/en/2021/oct/1004-wolfspeed.html 5 https://media.ford.com/content/fordmedia/fna/us/en/news/2021/11/18/globalfoundries-ford-auto-chip-supply.html 6 https://www.wired.com/story/applemac-intel-switch-guide/

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THE FASTEST ROUTE TO MARKET RUNS THROUGH KENTUCKY

Team Kentucky brings all partners together, ensuring your project can quickly decide on a location, build, hire, train and open faster than anywhere else. • • • •

Site selection and visits Infrastructure Permitting Utilities

• Incentives • Workforce recruitment • Employee training

WHY KY? https://ced.ky.gov

FIRST PERSON things that are reliable. These constants will continue to evolve and aid our continuous search for safety, innovation, and productivity. As facilities think about operations, growth, and overall good business practices, automation will be at the forefront when it comes to investing in new technologies.

How can we provide a safe and resilient manufacturing floor while maintaining social distancing measures that may be in place until 2022 and beyond?

CAROLINA WEIDLER PRINCIPAL HENDY

How specialized or diverse is the robotic workforce? Weidler: In today’s workforce, nearly all manufacturing floors have some sort of automation — but how specialized or diverse varies greatly based on several factors including industry, what part of the world the manufacturer is in, and the scale and sophistication of that business. Robots have been found on automotive manufacturing floors in the United States since 1961, but as technology advances, more companies across all industries are engaging various types of robots with the objective of promoting efficiency, reducing risk and liability, and cutting overhead costs to offset the war against rising wages.

The global pandemic that has changed the course of daily life has made manufacturers pause to think: how can we emerge from this crisis? Weidler: As we strive to accommodate changing safety standards and varying regulations, we have learned that flexibility is essential. The pandemic taught us that technology combined with human resilience and ingenuity are the only

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Weidler: Although the Occupational Safety and Health Administration (OSHA) has already issued standards that provide recommended protocols for daily operations, internal employee health and safety departments will come up with stricter protocols to add, especially as guidelines evolve. Manufacturing facilities especially will need to be resilient to change and open to adopting new ways of working that reimagine the human element of their business operations. Considerations will need to include natural light; fresh air flow and circulation; safe distancing for workers; break areas with access to exterior spaces and natural air — the list goes on. These are all current requirements for facilities to consider, change, and implement in order to retain and attract talent, minimize spread of COVID-19, and be in compliance with safety guidelines.

How can robotics answer the call on all aspects by solving an important “issue” we currently face with human interaction: fear and risk of contagion? Weidler: Now more than ever, facilities, manufacturing floors, and laboratories will need to be able to accommodate the shift in workforce, be adaptable, and provide safe working conditions. Planners and designers of these spaces must also shift their mentalities to reimagine spaces and workflows in ways that prevent large gatherings; ensure break room areas allow for natural air and light; and re-envision locker rooms, changing areas, and other congregation spaces that may no longer adhere to safety guidelines. The controversial concept of replacing people with robots now looks medically wise, and robot manufacturers are seeing an exponential rise in the demand for this technology. Humans will still need to operate or manage robotics, furthering the need for flexible and safe work environments.

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How has the current pandemic pushed the boundaries and comfort zones of nearly every single industry? Weidler: Previously, the use of robotics was limited by policies, budgets, or square footage that hindered the implementation of these innovative opportunities. As we stand on the brink of a technological revolution, tremendous progress in automation will only become increasingly fast-tracked, reinforcing the need for facilities leaders to be agile and empowered to pivot in an ever-changing landscape. From improving technology to evolutionary floor plans, flexibility and identifying growth opportunities remain essential for success across any industry.

How can robotics be deployed to support the workflow of a reduced on-site workforce? Weidler: For years we’ve heard about “facilities of the future,” the “future of automation,” and other technological advances that will transform our daily lives. Robotics have been and will continue to be deployed to support the workflow that millions of people can’t while working remotely. The workplace of the near future will become a place where robots and humans interact and collaborate seamlessly and efficiently on a daily basis. Repetitive tasks will no longer burden humans in the field but will be moderated by them and performed by a robot.

How will progress in automation accelerate, reinforcing the need for designers to be agile? Weidler: By 2030, robots are expected to replace a third of our U.S. workforce — a figure McKinsey forecasted back in 2017. Now, that number is expected to be much larger, and the shift toward automation to happen much faster. As we embrace this new era, it’s up to those designing facilities of the future to ensure the integration happens seamlessly, and for planners to allow for the human aspect to push and drive the automation of the new reality.

What are key considerations to ensure the success of your facility of the future? Weidler: Flexibility will remain key as facilities need to be able to grow, adjust, and prepare to receive automation at different levels. Collaboration will look different and include the interac-

tion between working machines and robotic ecosystems that mesh with human space. It’s important to ensure environments can support this interaction while fueling productivity and positively impacting employee experiences. Additionally, with robots taking over repetitive tasks, space that was previously allocated for QA, staging, WIP, kitting, etc. may now be seen as redundant, or even disappear altogether from a manufacturing floor.

What is the future of the robotics industry as it relates to design? Weidler: Optimization of a space dictates how facilities can evolve and accommodate different protocols, processes, and tasks. Our job as managers of space is to find the right solution for the client and the correct type of space allowances. The perfect balance is a comfortable and health-driven environment where humans and robots can continue to interact and thrive. With collaboration looking very different in the years to come, we must approach the design of facilities with these considerations in mind, including how technological ecosystems and human spaces will intersect.

Can you give us an example of a project that supports the points above? Weidler: Companies like Rocket Lab, a space systems company, are becoming increasingly reliant on adaptable spaces to accommodate ever-evolving technologies and changing manufacturing needs. When working with Hendy to design their new Long Beach headquarters in 2021, one of Rocket Lab’s primary concerns was incorporating a flexible manufacturing floor that could adopt changing technology and production needs. The resulting space was designed to provide a protean layout with a 3D printing room, cleanroom, assembly area, and a quality control room that can accommodate a variety of equipment and production flow changes over time.

THE ASSIGNMENT With COVID-19 changing the reality of the world’s population, it has undoubtedly affected the way businesses operate. Area Development recently discussed the use of robotics and other automation technologies in response to these changes with Carolina Weidler, leader of Hendy’s Science and Technology Practice Group. AREA DEVELOPMENT | Q1 2022

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2/25/22 3:02 PM

LABOR AVAILABILITY/COSTS

The Labor Challenges of Site Selection A careful evaluation of a site’s labor force is needed to guard against unwelcome surprises. By Greg Chmura, Chief Quality Officer, Chmura Economics & Analytics

ou’re evaluating a new site. It checks all the boxes when it comes to the property, local infrastructure, and business climate. You have one more box to check — labor supply. You’re presented with a hodge-podge of numbers. How can you make sense of it all? And what’s the bottom line?

Understanding Labor Data, Availability Before considering the outside numbers, you first need to understand your own data. You should know how many workers you’ll need by job title as well as the estimated wages you can budget for each. Labor data are typically available by occupation, so you’ll want to translate your job titles into an occupation taxonomy, such as the Bureau of Labor’s Standard Occupational Classification (SOC) System. O*NET OnLine is a useful, free resource that can help you in the title-to-occupation translation process if you need it. Detailed labor data are most frequently found as estimates of current employment by occupation. The Bureau of Labor Statistics publishes these estimates by metropolitan area. Alternatively, you can obtain estimates at other levels of detail from a labor data provider. In any case, when you look at these data, you should be aware of a few factors. First, a metropolitan area is often a fair model for a labor shed, the area from which you are likely to pull the majority of your workers. But this isn’t always the case. Some metro areas are so geographically large, that it is

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not reasonable to expect a typical worker to commute from one end of the region to the other. Other metros are so small, or located near other population centers, that you may reasonably pull workers from outside your metropolitan area of location.

Performing a Drive-Time Analysis You may need to look at the labor availability at a more specific geographic level for more realistic estimates of the supply of workers. A drive-time analysis is the best practice here. For example, suppose that workers are typically willing to drive 45 minutes for some of your positions. Define a 45-minute drive-time perimeter and analyze the availability of workers within that geography. There may be enough skilled workers for your operation in a metropolitan area overall, but if they live too far away, you won’t be able to attract them to your location. A drive-time analysis should also capture any impediments to travel in a region. Travel time analysis during rush-hour is critical for some markets. Some regions also have choke points like bridges or tunnels that will be limiting. Public transportation options may also need to be factored in. Finally, you may want to consider multiple drive-time lengths depending upon the occupation supply you are analyzing. Workers are generally more willing to travel longer distances for higherpaying jobs Another important distinction is

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that the drive-time approach only works if your employment data are defined by where people live as opposed to where they work. If you are only looking at broad geographic data, such as at the metropolitan area level, place-of-work versus place-of-residence employment numbers can often give fairly similar results. Employment patterns at the zip code or block level, however, will typically look very different in terms of at-work versus at-home, and it is these more refined geographies that are needed to properly define a drive-time.

Factoring in Unemployment Statistics Despite the emphasis on employment numbers, don’t forget about the unemployed, who are also an important source of labor. Even when the overall unemployment rate is low, the rate by occupation will vary considerably. For example, the overall unemployment rate (not seasonally adjusted) in the United States was 3.9 percent in November 2021. Among the major groups, however, unemployment varied from as low 0.8 percent for healthcare practitioners and technical occupations to 7.7 percent for food preparation and serving-related occupations. Unemployment rates are typically higher for jobs requiring only short-term on-the-job training, such as construction helpers or packers and packagers.

Demographics, Education, and Training Population demographics can be a helpful proxy for identifying areas with certain types of workers. For example, higher educational attainment is linked with higher income. Areas with higher aggregate educational attainment may be fertile grounds for some of the higher-wage, higher-skilled positions you need to fill. Regardless, don’t forget to also look at the age mix. A region may have a robust supply of the highly educated population you are targeting, for example, but the region may lack the younger workers you expect to hire in your new operation. Another factor that may be important is the education pipeline. This refers to the graduates from local schools. Each occupation has its own typical pipeline. In some cases, this will include high school career and technical program graduates. In other cases, you may be primarily looking at programs and graduates at the community college level. You also may find a significant supply of workers from local colleges and universities. Don’t forget about large universities, such as state schools, that may not be in the immediate vicinity of your potential location. Every region has unique enrollment patterns. You’ll want to understand which schools most feed into the labor supply in your market area. Training can also be an important consideration for labor availability. Many occupations are positioned along active career pathways. When considering the labor supply for such occupations, you’ll also want to look at the supply in related careers. Many of those individuals in related positions may be ready to move up, or willing to move up with additional training — assuming, of course,

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that the wage differential is accommodating for the career change.

Cost of Labor and Living Wages data can be described with a variety of metrics: “mean” or “median” wages as well as specific percentiles. Keep in mind that your offered wage is going to impact the analysis of the availability of labor. For example, suppose the labor market you are considering contains 4,000 welders with a median wage of $25 per hour. If you plan on offering a wage of $25 per hour for these positions, you won’t have access to the full 4,000 workers. By definition of “median,” half the workers earn a higher rate than that. If you plan on offering the median wage, the available labor estimates need to be cut in half. Cost of living is also important to keep in mind. To quantify this, you can look at individual prices such as average rent or home prices, or consider an index that captures overall consumer prices in a region. For example, say you are considering a location where cost of living is 10 percent higher than where you have an already established operation. Suppose you have had success paying $25 per hour for your welders at your current location. Due to the increased consumer costs at your new location, you may have to increase this wage 10 percent, which would take your expected welder wage up to $27.50 per hour.

Looking at the Competition Finally, you’re going to want insights on your competition for labor at your new location. You may have multiple sets of competitors — for example, one set for your production talent and a different set of competitors for your white-collar talent. One way to gauge the competition for local talent is by examining online job ads. Accessing aggregate data is the best way to proceed here. With job ads data, you can break down which companies are hiring for specific positions. You can view trends over time or look at the real-time state of the market. You can compare job requirements, job duties, and sometimes even find information on wages and benefits. Job ads, however, reveal only the desired characteristics of new hires. For a view of the actual characteristics of the incumbent workforce, you can use another online data resource — worker profiles or resumes gathered from the web. In either case, you’ll still only be looking at a sample of all workers and companies, but these data are typically rich in providing a glimpse of the labor market at your potential site. If you’re looking to perform a skills analysis, i.e., examining the supply and demand of labor in terms of specific skills and credentials, job ads and profile data will be a critical source. Defining labor needs by occupation is frequently sufficient, but sometimes the occupation taxonomy can be overly broad and not refined enough to distinguish skill levels that may be critical for your assessment. n for free site information, visit us online at www.areadevelopment.com

2/25/22 3:04 PM

ENERGY/GOVERNMENT POLICY

Biden Energy Plan

100%

carbon pollution-free electricity (CFE) by 2030

2030 100%

zero emissions for all new vehicles

How the Biden Energy Plan Will Impact U.S. Business With the federal government’s commitment to sustainable energy, businesses must act now to not only meet the new guidelines but also to satisfy customers and investors alike. By Mark Crawford

n December 2021, President Biden signed an Executive Order that pledges to tackle the global climate crisis through a host of measures that set new energy standards and invest in clean energy industries and manufacturing. Top goals are:

•

2035

100-percent carbon pollution-free electricity (CFE) by 2030, at least half of which will be locally supplied

• All new vehicles 100 percent zero emissions by 2035, including 100 percent zero emissions for lightduty vehicles by 2027

• A net-zero emissions building portNet-zero emissions building portfolio

2045

Net-zero emissions from federal procurement

2050

folio by 2045, including a 50 percent emissions reduction by 2032

• Net-zero emissions from federal

procurement no later than 2050, including incentives for using construction materials with lower embodied emissions Other parts of the comprehensive energy policy include methane pollution limits for oil and gas operations, $400 billion for clean energy R&D, and requiring public companies to disclose climate-related financial risks and the greenhouse gas emissions from their operations and supply chains.

Impacts to Business These targets are intended to

be part of the U.S. contribution to the international Paris Climate Agreement and will have significant impacts to the operations of U.S. businesses. To ensure a smooth transition to a net-zero business environment, companies should formulate a long-term sustainable energy strategy. By being proactive in this way, organizations will position themselves for regulatory success when they identify and mitigate emission reduction targets and use Internet of Things technologies to monitor, collect, and analyze emissions data and energy consumption. This information is essential for creating a well-defined plan/schedule for implementing periodic net-zero benchmarks to keep these companies on course to meet sustainability goals. “Many major U.S. companies are already aligning their business strategies with net-zero emissions by 2050 or sooner through corporate initiatives like the Business Ambition for 1.5°C campaign, Climate Pledge, and the SME Climate Hub for smalland medium-sized enterprises,” stated Maria Mendiluce, CEO of the We Mean Business coalition, in Harvard Business Review.1 Below are four key impacts for businesses to consider as they wonder how the Biden energy plan will impact their operations: AREA DEVELOPMENT | Q1 2022

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• • 1. Reducing emissions — The federal govern-

ment will likely issue guidance documents that will help companies determine the best approach for developing a long-term, sustainable climate strategy that monitors, collects, records, and analyzes greenhouse gas emissions and prepares that data for disclosure. “An energy and sustainability management platform synced with sustainability reporting frameworks can help companies collect their own energy and emissions data and have the ability to utilize and report it as needed,” states EnergyWatch,2 an energy and sustainability management software provider. To start the process of assessing and managing climate-related risk, “companies can disclose their environmental impacts through CDP or follow the recommendations of the Taskforce on Climate Related Financial Disclosure,” added Mendiluce.

••

2. Losing market share — U.S. businesses that do not take this challenge seriously will rapidly fall behind in the net-zero-emissions quest. Not only are they faced with competitive disadvantages, perhaps more important is the risk of disillusioning once-loyal customers, leading to brand erosion and loss of market share. Also, as Biden’s energy policy moves forward, there will be greater pressure exerted on companies to announce and document their sustainability efforts, which will make any careless or lackluster efforts more visible to the public. Consumer opinion matters — after all, a 2019 study3 showed that 47 percent of U.S. consumers would pay more for a sustainable product, with 35 percent willing to pay 25 percent more for sustainable products.

• • 3. Pleasing investors — Companies that rely

on capital from outside investors for growth must realize that their sustainability efforts are key to securing larger investments in their operations. Nonsustainable businesses are increasingly viewed as high risk. “More financial regulators are making climate risk disclosure mandatory, central banks are stress testing for climate risk, and policymakers around the world are collaborating to achieve common climate goals,” stated BlackRock,4 a major asset manager. “Investors are recognizing that “climate risk is investment risk,” added BlackRock, which is pushing companies in its portfolio to have achieved net-zero by 2050.

• • 4. Using more renewable energy — Net-zero

emissions is all about transitioning from fossil fuels to renewable energy. With the goal of 100 percent clean electricity nationwide by 2030, many businesses have already started the transition to renewable energy through commitments to 100 percent renewable power (RE100) and electric car fleets (EV100). “Energy efficiencies at the building level and wind and solar at the site level — for example, on the roof of

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the facility for solar and on-site for wind — are the best approaches for businesses to cut energy costs and emissions at the same time,” said Bruce Rutherford, international managing director for JLL and leader of its Global Energy Practice group. “Local geothermal solutions are also very doable. This type of decentralized approach to renewables is a good way to get more done faster, for less money.” Companies can also purchase renewable energy credits or join a tariff program.

Energy Companies Eager to Start Expectations are high for solar and wind companies — not only to deploy more solar panels and wind turbines, but to improve existing technologies and expand energy capacity, including battery technology. These companies also have tremendous federal support — for example, $400 billion for R&D — to meet the Biden administration’s ambitious goals. The administration is pushing hard on wind power, having recently announced a plan to develop offshore wind farms along most of the U.S. coastline. The largest project includes a record-breaking wind lease sale off the coast of New York and New Jersey that is expected to generate up to seven gigawatts of clean energy, enough to power two million homes.5 Financial incentives will also be available for wind-turbine materials that are made in the U.S. Solar energy use is on the rise — as of 2021, 2.7 percent of electricity generation in the U.S. came from solar energy.6 In 2021, an additional 7.8 gigawatts of new solar capacity was built by the end of the third quarter — a 235 percent increase from 2019, representing enough new solar capacity to power 1.5 million homes. The Biden administration has released a report7 that shows how the U.S. could produce almost half its electricity needs from the sun by 2050. This would, however, require aggressive, large-scale construction of infrastructure, including trillions of dollars in investments by homeowners, businesses, and the government. The electric grid would have to be almost completely rebuilt with the addition of new technology, batteries, transmission lines, and solar panels. Tax credits will make it more affordable for homes and businesses to purchase solar power systems and long-storage batteries. State regulations can also impact the speed of deployment — for example, California has just modified its construction codes to require solar energy systems in new buildings.

Moving Forward with Energy Sustainability With the federal government’s commitment to sustainable energy, the U.S. has joined nearly 70 percent of the rest of the world in pledging to achieve net-zero emissions at a national level. U.S. companies need to take this goal seriously and create a blueprint for reaching this goal by 2030.

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2/25/22 3:09 PM

COUNT ON IT. • • • • •

RELIABLE SERVICE. LOW RATES. RENEWABLE ENERGY. ENVIRONMENTAL PROTECTION. INVESTMENT IN OUR COMMUNITY.

Our economic development experts strategically facilitate business location and expansion within Nevada. Our dedicated team can assist with energy pricing and renewable tariffs, site visits, and all the critical data necessary to make an informed decision for business investment in Nevada. Count on our team to help manage every step of your site location decision process. Learn more at nvenergy.com/econdev

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YOU CAN COUNT ON US.

5/4/2021 9:49:47 AM

LOGISTICS/DISTRIBUTION

Supply of Warehouse Space Yet to Meet Demand A lack of warehouse space in growth markets — driven by the surge in e-commerce — is being exacerbated by a scarcity of building materials and their skyrocketing costs. By A.J. Washeleski, Business Development, Kirco Manix

e’ve all been affected by the disruptions of global supply chains in some way, especially those of us who operate within the industrial sector of the corporate real estate industry. On paper the industrial market is in an extremely strong place; vacancies are at all-time lows and rents have been growing consistently across the board — with big 30+ percent year-over-year spikes in some coastal port cities. Institutional money is flowing without an end in sight, users continue to fill existing space, and the appetite for new product has never been so large. This is a byproduct of a global virus that accelerated and pulled forward a significant amount of e-commerce demand, therefore dragging along a significant amount of warehouse demand with it. But this momentum is a double-edged sword. As strong as the desire for new product has been, the very factors contributing to this strength are also working to suppress it. The pandemic uncovered a significant amount of previously unseen or unthought-of risk for corporations

across the globe. When supply chains turned upside down, many companies were forced to watch helplessly as their product sat quietly in a steel box stacked halfway to space on a ship the size of a small country. They were forced to make quick reactionary decisions to ensure their shelves were full and their customers were happy. In a typical market cycle this is a perfectly normal dynamic, but when someone pulls the fire alarm and every company floods the market at the same time, many just can’t compete to pay for existing buildings. The larger companies, on the other hand, will always be able to better sidestep the major catastrophic shortfalls, as was proven when we saw record retail sales in Q4 2021. Turns out having a large balance sheet and significant cash on hand allows for such flexibility (who knew) — like giving you the ability to purchase prime real estate near the ports, charter your own ships, use your own trucks, or pay for expanded air freight capacity. Either way, the desire and demand to store goods has soared exponentially.

High Industrial Demand The real theme of the current demand is more of a — fool me once shame on you; fool me twice, shame on me — type of thing. Companies do not want to be caught empty-handed (literally) ever again, and thus pull-ahead orders, bulk-buying, and over-manufacturing will come in vogue over the course of 2022. This will altogether continue to spread the backups farther and farther up the supply chain and keep industrial demand high; this will, of course, only continue to contribute to the massive bullwhip effect fanned by different governments around the world shutting down, re-opening, re-shutting down, and re-re-opening economies at different times and for different periods of time. To the joy of large institutional owners everywhere, space is just flat out not available, and their buildings are all completely full — in fact, they probably could double rents and their buildings would still be

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3/8/22 1:28 PM

most part), and someone somewhere will wind up losing his shirt overbuilding supply in some market and sitting on empty space for a couple of years. Business as usual — it’s the lasting effects of this disruption that will be what to look for. For instance, maybe some companies take the time to realize they depended too much on East Asian companies for their product manufacturing. I think it’s safe to say that some companies may have overestimated their power or ability to control what happens in these countries, which may ultimately lead to more onshoring or near-shoring of capacity. The new USMCA free-trade agreement and Buy-American initiatives will support this strategy — look out for states supporting our neighbors to the south and north. Additionally, maybe companies will realize that they rely too much on the ports of L.A./ Long Beach or NY/NJ and need to devise alternative strategies. This desire for alternative ports, or alternative modes of transportation, will coincide perfectly with the recent passing of the infrastructure bill. Increasing investment to update these facilities will ultimately increase the capacity and operability of those hubs to better compete with the likes of Southern California and Northern New Jersey — keep a keen eye on those locales.

full (wink). For developers and construction companies across the country this would sound like music to their ears, as the next natural thing would be to build more. But those supply chain dislocations aren’t just affecting large consumer goods companies. As a service provider, they’re also affecting your ability to confidently deliver projects on time and within budget, or at least with more variability than in the past.

Skyrocketing Building Costs The cost of building products has skyrocketed. For example, steel in some geographies has gone up by upwards of 30–40 percent, and even the availability of steel is hard to come by (thanks Amazon). Additionally, even if you were able to have product on-site, the availability of labor is a complete unknown, and the talent level of that labor is now probably an even greater unknown variable. The world has once again proven it’s an unpredictable, complex, and fragile place. The whole dynamic is out of whack, there’s massive imbalance in the market, and as I said above, the very factors contributing to the demand are also hindering the supply. Companies may want more space so they don’t run out of product, but you can’t build the product because other companies don’t have enough of their products, and then that mismatch creates pricing variability which delays decisions, and around and around we go.

In Sum Nonetheless, the supply of space has yet to meet demand, and most likely won’t in the near term. Port cities will continue to be the premier locations, especially those in core markets, but will continue to be dominated by larger companies with the ability to afford it. Shifting populations and changing demographics in each state will continue to shake up the landscape, opening up opportunities in perhaps lesser-known areas. There will be winners and losers in the great reshuffling of supply chains, and it will be interesting to see what happens next. n

Congestion at the Ports Luckily, we all know this won’t last forever. The queue of ships lining port cities across the country will normalize. The stacks of containers in staging areas from L.A. to Chicago to New Jersey will subside, and the American supply chain will continue to move forward. Commodity prices will settle, materials will arrive to job sites on time, project schedules and budgets will be met (for the

How the Biden Energy Plan Will Impact U.S. Business – Continued from page 20

Delayed action, advised Mendiluce, is a business risk. “Companies that fail to take climate action soon are risking that their products and services will become unviable,” she said. “As climate regulation is implemented, any business that is not already decarbonizing will begin to lose market share and miss out on the time and opportunity to grow and innovate. It will be far more costly for companies that have to make this transition abruptly rather than taking time now to strategize and prepare.”

If you are uncertain where to start, consult an energy and sustainability management consulting firm to create a balanced sustainability plan. n 1

https://hbr.org/2021/03/what-bidens-sustainability-agenda-means-for-business https://energywatch-inc.com/biden-energy-policy/ https://energywatch-inc.com/sustainability-reporting-in-2020-drivers-and-stakeholders/ 4 https://www.blackrock.com/corporate/investor-relations/2021-blackrock-client-letter 5 https://abcnews.go.com/US/biden-administration-announces-record-breaking-offshorewind-lease/story?id=82228323 6 https://www.novoco.com/notes-from-novogradac/clean-energy-particularly-solar-andwind-energy-experienced-significant-growth-2021 7 https://www.energy.gov/articles/doe-releases-solar-futures-study-providing-blueprintzero-carbon-grid 2 3

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Becoming EV Forward

Those in the A/E/C industry are vying to get involved with nearly every component of the EV and battery total supply chain: EV production facilities, lithium recycling facilities, battery cell production facilities, and raw material processing.

Optimizing

MARKET SHARE IN THE

EV INDUSTRY

With huge growth expected in the EV/battery production market, manufacturers must start their project planning early, taking into account labor, energy, and supply chain needs.

BY BRANDON DARROCH, Principal, Southeast Division Manager and Battery Market Leader; and MATTHEW PATTERSON, Senior Account Executive and Industrial Business Development; SSOE

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rowth projections for the electric vehicle (EV) market are powerful. A Bloomberg New Energy Finance1 study reveals, “By 2025 electric vehicles (EVs) will reach 10 percent of global passenger vehicle sales, growing to 28 percent in 2030 and 58 percent by 2040.” Putting that data in terms of U.S. dollars, Statista.com2 further asserts, “Between 2020 and 2026, the size of the global electric vehicle market is expected to increase over fourfold to reach an estimated global market size of some US$725 billion by 2026.” For EV manufacturers, these growth projections convert to more facilities, increased manpower, and strained supply chains to ultimately produce more vehicles for distribution. At the same time, the EV battery market is also projecting significant growth. According to Business Wire,3 “The global EV batteries market is expected to grow from $22.99 billion in 2021 to $38.32 billion in 2025.” The major factors driving the EV battery market include decreasing battery prices, increasing investment by leading automotive OEMs to secure the battery supply chain for their future electric vehicles, and increasing adoption of EVs worldwide. This rate of growth means EV industry manufacturing leaders are racing to capture market share. In

order to optimize their competitive edge, leaders need to effectively plan their facilities to avoid costly pitfalls and achieve success. Here are key considerations.

Site Selection Greenfield vs. Brownfield — The

Statista.com asserts the size of the global electric vehicle market is expected to reach an estimated US$725 billion by 2026.

first consideration for many new manufacturing facilities is determining whether to select a greenfield or brownfield site, and that includes examining the schedule and cost deltas between the two among other factors. Battery production plants are almost exclusively greenfield sites, while electric vehicle OEMs are more likely to consider brownfield sites, which may have initially been designed for production processes similar to those intended for the plant in question. Thus far, direct foreign investors have been most likely to consider brownfield sites, using operational strategies such as knock-down kitting, micro-factory, and other efficiency strategies to optimize costs and speed to market. Operational target dates set by international startup investors also play a role in brownfield vs. greenfield considerations, as the “race to market” factor takes hold. Yet, owners may have very limited options other than to consider a greenfield, as the supply of available existing facilities with 300,000+ square feet is very limited. A greenfield provides an owner the ability to

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2/28/22 11:55 AM

Becoming EV Forward

fully customize their facility to their process and offers geographic flexibility (you can build it “anywhere”); existing facilities are where they are. Additional factors weigh into the greenfield vs. brownfield decisions in addition to the costs of developing local infrastructure and access to utilities. With a greenfield site, owners must consider flood plains and environmental concerns specific to an area, such as endangered species, potential for natural disasters, and soil conditions that impact the building’s foundation. For brownfield sites, the focus is on suitability and adaptability of the existing facility, including the size and layout, what modifications will be required to adapt it to the new owner’s processes, whether the site is code compliant for the new process and, if not, whether the required upgrades are prohibitive. In one example, a major overhaul of MEP (mechanical, electrical, and plumbing) infrastructure was so expensive and time-consuming that it negated the schedule advantage of buying an existing facility over building new. This example illustrates a general market trend. Generally speaking, major MEP equipment is back ordered to such an extent that owners can practically build a new facility before such equipment is able to be delivered. So if overall costs are similar between new construction and retrofit of existing, but there’s no longer schedule advantage of buying existing, why even do it?

Location — Location is a key factor. Battery producers need to be reasonably proximate to their clients, which may include more than one OEM. Sourcing of raw materials is also critical. Because raw material supply chains for the EV industry are emerging simultaneously with production processes, the raw material factor is dynamic. Business and tax incentives offered by the state also factor into the location equation.

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However, perhaps the most significant factor today on where EV manufacturing companies choose to locate plants is the available labor market. If there is a competing facility that draws local labor and talent, there may not be the workforce volume for another in the same area.

Utilities + Energy — Convenient access to utilities is always important but battery cell manufacturers specifically have above-average needs for water and electricity. Sites with access to aquifers or an opportunity to drill new wells offer the potential for substantial operational savings. In terms of energy, availability is one variable of the equation but lead times to get the energy to the site can prove to be a surprisingly challenging factor. Large utility providers across the country are seeing longer lead times to get major equipment onto sites. Even something as simple as high-voltage cabling to run a new line to a site has longer lead times than ever before, often highlighting such a component as a critical path item. For EV and battery manufacturers, energy availability becomes even more challenging when large percentages of the energy must come from renewable sources. Battery/EV producers often have corporate social responsibility initiatives that revolve around providing a green product and producing it ethically and sustainably. Potential customers will want to know how much of their energy used in the plant comes from renewable sources. Carbon footprint reduction strategies are prevalent in the operating philosophy and public relations messaging for both battery projects and EV OEMs. Indeed, carbon footprint reduction strategies are becoming so important that some owners are willing to prioritize them at any cost. Carbon footprint strategies are such a key consideration from

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TH E R EV O LUT I O N H AS BE G UN .

Building a sustainable future takes vision, commitment, and innovation. Georgia is proud to share these values with a growing number of automotive OEMs, suppliers, and mobility-focused companies, which are helping drive the industry’s future. Come join our adventure.

Georgia.org/EV

Becoming EV Forward Also see Online Exclusive: Auto Giants Race to Build U.S. EV Battery Assembly Plants

the very beginning of projects that large utilities have created or enhanced internal consultancy/ advisory departments to support the carbon footprint strategy needs of these new investors, and state economic development agencies have increased the percentage of renewable sources to attract major investors to their states. State regulated (or unregulated) utilities have become a fundamental consideration for site selection.

Supply Chain Most major components/inputs of the EV and battery total supply chain are emerging simultaneously across the globe to meet OEM production targets, and those in the A/E/C industry are vying to get involved with nearly every component of the supply chain: EV production facilities, lithium recycling facilities, battery cell production facilities, and raw material processing.

Market Forces + Contract Dynamics — These market forces are driving a significant amount of JV (joint venture) strategy between OEMs and suppliers, both foreign and domestic. Direct supply chain contracting is also very dynamic. To meet these challenges, the supply chain itself will need to expand at the same rate as the EV/battery markets, with investments in raw materials, metals, refining, and cathode production. To ensure availability amidst this combination of interrelated factors, many OEMs are bringing production of batteries and semiconductors in-house. Some companies are venturing even further up and down the supply chain, internalizing metals processing and refining, and are now considering controlling even the raw material. On the back end, industry leaders are considering recycling issues as numerous companies are making significant investments in battery recycling facilities. Recycling factors into the geographical aspect

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of site selection because, although battery production is localized, batteries are recycled all over the U.S., so consolidating recycling operations through a reasonable methodology can be a challenge. The supply chain to support all this doesn’t exist right now, and there are opportunities to streamline the supply chain as it grows to support demand.

Tier 1 Targets — Production dates are primary drivers of Tier 1 companies. Individual OEMs have a brief history of setting contracts with specific battery producers. In the past, companies contracted for batteries without any contingencies but are now taking a more permanent ownership role in their own battery supply, with co-located suppliers and battery production as part of an EV assembly campus. Tier 2 to Tier 3: Battery Cell Producer to Battery Materials — Tiers 2 and 3 are comprised of battery cell and battery material producers. Anecdotally, there has been a broad market assumption that raw materials will be available to produce enough batteries to match EV production, but this assumption has yet to be proven true. As a result, many industry insiders are predicting a wave of battery material projects, some with large capital expenditures. The typical project size for battery production and materials projects can exceed 1,000,000 square feet and cost from $500 million to more than $1 billion. This includes everything from various electrolyte blended cathode/anode chemical products to battery grade graphite and nickel, all of which must emerge to support the EV supply chain.

Insight Start Early — Starting early with site selection and project planning is the only way to meet aggressive market demand. This is especially true at present, with historic constraints in not only the supply chain but

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also the construction industry. Lead times have now doubled and tripled, even for items that were widely available in the relatively recent past. The critical path is the availability of materials (or lack thereof) as OEMs and battery cell producers engage in a race to market. Advance planning and coordination is vital. Because of the broader scope of energy use, especially in battery cell production and battery materials projects, advance planning is essential as the industry targets the electrification of the North American auto market. Energy suppliers that have been regionally focused are now creating nationwide coalitions to support EV infrastructure. Raw materials suppliers are realizing that there is no reason to compete with others because the demand is so high that there is more than enough work for everyone. Even in the construction/design industry, firms that were formerly competitors are teaming up to work together on massive projects that no one firm can support alone. One of the surprising silver linings of the supply

chain crunch is that the demands are generating foreign direct investment into the U.S. as European and Asian companies are expanding into North America to meet supply chain needs. Because many of these companies are already at the Tier 2/Tier 3 level, with established project and process definition, they bring a wealth of insight to streamlining production that startups would take years to internally develop. While there have been some logistical challenges resulting from the demand for electric vehicles and the support systems to make them broadly available, there have been lessons learned, process and planning improvements, and positive growth to meet market demand that will change the way the industry does business today and for years to come.

https://about.bnef.com/electric-vehicle-outlook/ https://www.statista.com/statistics/271537/worldwide-revenue-from-electricvehicles-since-2010/ 3 https://www.businesswire.com/news/home/20210819005494/en/Electric-VehicleEV-Batteries-Global-Market-Report-2021-Market-is-Expected-to-Reach-38.32-Billionin-2025---Forecast-to-2030---ResearchAndMarkets.com 2

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Becoming EV Forward

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Driving INTO AN

ELECTRIC VEHICLE

FUTURE

BY STEVE KAELBLE

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t seems like the ultimate goodnews story. The shift toward electric vehicles will greatly improve the long-term climate health of the planet. It’ll improve human health, too, by reducing pollution. It’ll create thousands of jobs in new industries, with new manufacturing operations lifting local economies. What’s not to like? Don’t forget that disruptive technologies are, well, disruptive. One person’s opportunity, one community’s economic development win, quite often means disruption for someone else’s livelihood and some other community’s economy. The story is only starting to unfold, but the transition to electric vehicles, or EVs, is shaping up to be the automotive industry’s most important story going forward.

Powering Up the Changes “Some traditional automotive companies — particularly parts companies dedicated to the internal combustion engine — if they don’t change they aren’t going to survive the EV transition,” according to Dennis Cuneo, who owns DC Strategic Advisors and has years of background as an automotive industry executive, including with Toyota. “Companies that produce engines, engine parts, gas tanks, exhaust systems — those products are eventually going to be phased out. And so will the plants in communities that make

them, unless they are transformed into something else.” “If you are making headliners, sunroofs, and certain interior components, you might be largely unaffected,” agrees Bernard Swiecki, director of research at the Center for Automotive Research in Ann Arbor, Michigan, and director of its Automotive Communities Partnership. “But if you are making powertrain components or fuel tanks, that’s going to impact your bottom line.” Meanwhile, Cuneo says, there’s a world of opportunity out there for companies and communities that are riding EVs into the future. For “plants that make battery packs and motors, inverters, chargers, there will be a lot of opportunities there, a lot of new plants and parts to be made,” he notes. East Asia is presently the dominant location for production of lithium-ion batteries, or LIBs, used in a lot of consumer electronics and increasingly used to power EVs, according to Alexandra Segers, general manager of Tochi Advisors LLC. “Currently, China, Japan, and Korea collectively host over 80 percent of all LIB cell and automotive LIB cell manufacturing capacity,” she says. Production experience and well-developed supply chains may keep it that way for a good while. “However, other regions, including North America, are get-

One community’s economic development win quite often means disruption for someone else’s livelihood and some other community’s economy.

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Becoming EV Forward

ting more competitive in the growing automotive LIB cell market,” she says. Indeed, one recent U.S. Department of Energy report1 cited more than a dozen new U.S. battery cell manufacturing operations that could be operational within the next few years. “Most U.S. cell and battery plants are relatively new, but several are owned by companies which have experience in battery manufacturing,” Segers says. “Almost all U.S.-based LIB manufacturing is targeted to serve the domestic new upcoming EV market.” Battery plants are more likely to spring up as new factories rather than retrofits of existing operations, Swiecki points out. “There is not an existing part of the industry that can be transitioned. You used to make spark plugs and now you’ll make batteries? It really doesn’t work that way.” On the other hand, “there are engine plants adding electric motor production to their product portfolios.”

Locations Old and New Some regions where EVs are on the rise already have a significant automotive history, while some regions are relatively new to auto-related manufacturing. Tesla is an EV player working in both situations. Cuneo points to Tesla’s “Gigafactory” in Nevada — it’s a $6 billion investment worth about 7,000 jobs, making EV batteries in a state that has not traditionally been an automotive powerhouse. On the other hand, Tesla’s assembly plant in Fremont, California, employs some 10,000 people at a facility that opened back in the 1960s to make General Motors vehicles, then became the GM/Toyota New United Motor Manufacturing Inc. operation in the 1980s. Texas has been in the

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automotive business for decades, first with GM in Arlington, then Toyota in San Antonio, and now Tesla is making a big splash in Austin. Or consider Lordstown, Ohio. GM has a long history there, too, making everything from sedans and vans to the Pontiac Firebird. GM sold its assembly facility there to entrepreneurs who have a dream of building EVs — a difficult dream not yet fulfilled, though the latest news is that there could be action on the assembly lines there yet this year.2 In the meantime, though, it’s reported that construction of the GM and LG Energy Solutions plant in Lordstown, which will house an Ultium Cells battery plant worth more than $2 billion and 1,100 jobs, is well under way.3 GM is investing billions in other places, as well. Its broad plans include battery plants in Michigan and Tennessee. The company also picked its Spring Hill plant in Tennessee as a site for EV manufacturing, including the luxury Cadillac Lyriq. And among other developments, GM has announced upgrades at an existing plant near Detroit that has been making the electric Chevy Bolt and will be configured to turn out electric pickup trucks by 2024. Then, of course, comes the huge Ford announcement last September4 of its BlueOval City complex in western Tennessee that will turn out electric F-series pickups along with advanced batteries. A BlueOval SK Battery Park development in central Kentucky will add battery production to power a new line of Ford and Lincoln EVs. Altogether, Ford and its partner, SK Innovations, are investing more than $11 billion in the Tennessee and Kentucky operations. Beyond the GM and Ford activity in Tennessee, the state’s EV business includes Nissan’s

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Battery plants are more likely to spring up as new factories rather than retrofits of existing operations.

Smyrna operation. In 2012, Nissan started battery production there, and the next year began producing its Leaf EV in Tennessee. And, three years ago, Volkswagen announced5 that Chattanooga would be its North American site for making electric vehicles, and it’s also bringing EV engineering to Chattanooga. Georgia is also among the places poised to win in the EV future. SK Innovation’s portfolio includes two battery plants in a state that gained its first major automotive assembly plant, Kia, a bit over a decade ago. And Georgia’s biggest recent announcement came from Rivian Automotive,6 which is planning a $5 billion, 7,500-employee battery and electric truck assembly plant in the Atlanta area. Segers notes that Rivian picked a former Mitsubishi facility in Normal, Illinois, for its first manufacturing plant, and now has planted its flag in the right-to-work Southeast. Arizona, meanwhile, has not traditionally had automotive manufacturing, says Cuneo. But now is home to the Lucid EV plant, the Nikola commercial EV operations, as well as Canada-based ElectraMeccanica. If those last few automakers mentioned above seem like something less than household names, get used to it, Swiecki says. The EV business is full of new entrants, including some from parts of the world that haven’t typically sold cars here before. “VinFast, a Vietnamese company, is planning to start selling their vehicles here in the United States,” he cites as an example. “They are talking about a U.S. plant. In conventional vehicles you’d have a much harder time for a brand-new company from Vietnam to come over and set up shop in the U.S. making vehicles. The EV world makes that possible.”

EV Developments All Over Needless to say, the transition to EV production is happening all over the map, though the same can be said for the way traditional gas-powered vehicle production shifted from its original clusters. “Traditional automotive production locations have been significantly splintered over the last 30 years or so,” says Peter Wells, director of the Centre for Automotive Industry Research at Cardiff University in Wales. “In the U.S., the arrival of the original ‘transplants’ from Japan marked the start of a shift away from Detroit to nontraditional locations.” Similar splintering changed the automotive map in Europe, he says. “The creation of the enlarged EU facilitated a peripheralization of much of the supply industry seeking low-cost locations, again accentuated by the investment in assembly by VW Group and others into these locations.” “In general, the auto production base right now is quite distributed, and I would expect the electrified part of it to also be distributed,” adds Swiecki. “There will be a tendency to try to locate the battery plants within a reasonable shipping range of assembly plants,” he says — not necessarily adjacent, but not a world away, either. “Battery packs are heavy and difficult to transport,” Wells agrees. “In an ideal world, these would not be far from the point of final assembly. This basic issue is evident in much of the current wave of investment in battery manufacturing, especially in the European Union, where the vehicle manufacturers are mostly focused on converting existing plants to an EV focus.” Segers adds that these plants have a significant demand for power and water, so utility supply and cost are high on the list of location consider-

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Becoming EV Forward

ations, along with availability of skilled labor. And companies tend to be in a hurry to get up and running, she says. “Project schedules are nowadays much faster than a couple years ago. Companies want to start construction soon after finding a site location and are looking for fast-track permitting and pro-business state conditions.”

A Bumpy Transition The internal combustion engine has powered the vast majority of vehicles for well over a century. It’s hardly surprising that the transition to EVs will be incredibly disruptive, but the jury is still out on how speedy that transition will be. Segers notes that major automakers have announced ambitious timetables for the transition. GM, for example, expects to be largely electric by 2035, she says, BMW at least half electric by then, and Volvo could be fully electric even a few years earlier. Challenges lie ahead no matter how fast the EV evolution happens. On one hand, a relatively fast transition would be earth-shattering, requiring explosive developments in charging infrastructure and manufacturing alike. On the other hand, a slow transition just drags out the logistical and financial challenges facing the industry. “Right now, a lot of the industry is basically supplying two different product lineups,” Swiecki points out. “As you transition your company, you’re going to continue making decreasing volumes of what goes into conventional vehicles, while simultaneously ramping up electric vehicles.” And that’s a significant challenge for a comparative low-margin business, he says. As companies phase out production of traditional vehicles and the parts that are needed for internal combustion vehicles, “you’re losing economies of scale, but

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at the same time, EVs are not getting economies of scale yet. This is a business where scale is the lifeblood.” A possible solution is diversification, he says — finding ways to share parts and components between more kinds of electric vehicles. “We’re seeing sharing of EV platforms between passenger cars, midsize trucks, full-size trucks. Some of the suppliers are also electrifying agricultural equipment,” Swiecki says. “All of those things are attempts at gaining scale. It’s also risk distribution. If you can serve multiple customers and product sectors simultaneously, you decrease your exposure to a problem in any one area at one time.” “One key new development that is worth a look is the co-location of battery disassembly and battery assembly,” Wells says. “I think probably VW Group is furthest advanced on this, with a pilot facility in Germany designed to form the basis of mass disassembly in the future — thereby closing the materials loop for the next generation of batteries.” The transition to EVs will certainly bring challenges and disruptions, but it’s real and here to stay, says Segers, and the investments will be eye-popping in both dollars and job numbers. “The investment is much higher compared to a standard assembly plant,” she notes, but “we will see many more of those announcements. This is the new era of the automotive industry. All automakers are committed to electrifying their vehicle lineup.”

1 2 3 4 5 6

https://electrek.co/2021/12/27/13-battery-gigafactories-coming-us-2025-ushering-new-era/ https://www.autoevolution.com/news/lordstown-endurance-is-back-on-the-productionline-with-a-lot-of-help-from-foxconn-180830.html https://insideevs.com/news/554044/gm-ultium-cells-plant-november23/ https://media.ford.com/content/fordmedia/fna/us/en/news/2021/09/27/ford-to-leadamericas-shift-to-electric-vehicles.html https://media.vw.com/en-us/releases/1117 https://www.fox5atlanta.com/news/rivian-to-build-electric-truck-plant-in-metro-atlanta

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2/25/22 4:21 PM

LABOR/SITE SELECTION

Locations That Promote Employee Health and Well-Being Coming to the Forefront As workforce location preferences have evolved over decades, one thing has remained constant: individuals want to work and live in locations that foster their physical as well as mental and emotional health. By Peter Miscovich, Managing Director, JLL Strategy + Innovation

he pandemic has been a game-changer for employee and employer attitudes concerning wellness, well-being, safety, health, and hygiene. Many — if not most — organizations are doubling down on wellness in the workplace. Some are going so far as to incorporate health and well-being into their corporate site selection and location criteria. A focus on wellness in the workplace has become not just a “nice to have,” but a necessity to keep employees safe and healthy, and to enhance human performance. Health and well-being are among the new employee priorities that are now equal to — if not more important than — compensation as motivations for working for an organization. What happens inside the office is important — but outdoor air quality, community values, access to nature, and general quality of life are beginning to matter as well for the next generation workforce.

The Broader Meaning of Wellness Health — encompassing physical, social, and mental well-being — has become employees’ third-highest priority in the workplace, according to JLL’s June 2021 Workforce Barometer survey.1 In a September 2021 survey focused on well-being,2 JLL research found respondents are increasingly holding their employers to a higher standard across all areas of wellness, with 75 percent saying they expect to feel safe at work, whether that means employers providing advanced hygiene protocols and flu shots or allowing employees to express their difficulties in managing their workload or other stress. Wellness in all its dimensions has become a critical factor in talent re-

cruitment and retention. The concept of wellness has shifted from a focus on physical well-being, achieved through exercise and nutrition, to something broader and more inclusive of how people think and feel. Wellness encompasses nearly anything that promotes physical, mental, spiritual or emotional health and well-being including happiness — or merely good feelings.

Shifting Location Strategies With the shortage of talent in so many industry sectors, location strategy in recent years has been tilting toward the needs, preferences, and availability of the workforce. Offices have evolved — or should evolve — to more closely address worker needs, desired amenities, and preferences. Location preferences for corporate offices have been shifting as

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once-affordable companies seek Health and well-being are among the new employee areas out of reach to balance the priorities that are now equal to — if not more for many buyers. cost and quality important than — compensation. Rather than of the real estate thinking merely in in a particular terms of migralocation and its tion, workforce loconvenience, cation must account for mobility, with some segment of safety, and proximity to talent, customers, and jobs. In the population relocating temporarily to a vacation home the United States, for example, office location preferencor mountain retreat before returning to the city center or es have shifted from central business districts (CBDs) suburban home base. While this trend is limited to high to the suburbs and then back again over decades, as earners and those in control of their workdays, it nevemployers have responded to demographic change and ertheless has implications for every area of the country lifestyle preferences. and beyond. Earlier in the 20th century, CBDs were the primary These evolving demographic and workforce migration focus for offices. By 1960, the interstate system had trends over the past two years have corresponded with opened the suburbs to urban workers, allowing them the escalating war for talent and the need to choose easy access to affordable and spacious housing, green locations where employees will want to go to live and space, and safety. Suburbia created a compelling value stay. Talent availability and cost continue to be dominant proposition for aspiring families throughout the 1970s factors for corporate site selectors, but, during the past and 1980s. Employers soon followed, establishing cordecade, “quality of life” has been steadily rising in imporate campus settings within easy drives to convenient portance in Area Development’s annual Corporate Survey. suburban locations, often near highway interchanges. In 2021, quality of life was ranked as the fourth most The preference for the suburbs persisted until the important site selection factor in the survey.5 1990s and 2000s, when enterprising mayors and civic organizations revitalized urban areas with 24/7 ameOf course, quality-of-life issues typically have a much nities and a greater sense of safety. Cities and urban greater impact on projects that need to attract certain centers once again became attractive to residents and types of employees, such as highly educated, specialemployees, especially younger generations looking for ized talent and “digital” tech talent. As an example, a dynamic urban environment, cultural amenities, the companies planning information technology, life sciencconvenience of public transportation, and a compact, es, research and development, and corporate headquarhigh-density, live-work-play environment. ters projects tend to rank quality-of-life issues higher on the list of site selection factors than those planning other types of location projects. For companies in need of Quality of Life Rising in Importance in-demand knowledge workers, talent recruitment may as Site Selection Factor be a national endeavor, and quality of life may directly Now, the value equation is shifting again. Urban enviimpact an organization’s recruitment success within a ronments and big gateway cities have grown increasingly given specific geography. When talent can theoretically expensive, with housing costs rising more quickly than work anywhere, employers must provide a draw that not the wages of the average worker. While many predicted only brings people to a company but to a specific work the pandemic would be a death knell for cities, the poplocation. ulation shifts haven’t backed up the rhetoric. More than a few workers left and relocated temporarily from crowded cities and urban centers to work in less Health and Wellness Implications densely populated areas during the past 18 months, but Of course, quality of life or quality of place are subjecworkforce migration overall is more nuanced and comtive, encompassing any number of characteristics. Key plex than the headlines, with implications for all types of attributes for a high quality-of-life ranking include highcommunities — cities, suburbs, and rural. performing schools (public, private, and post-secondary), Only 8 percent of Americans — 26.5 million people affordable housing in a variety of good neighborhoods, — moved from one U.S. home to another between March efficient public transportation, short commute times, 2020 and March 2021, according to data from the Cenlow crime rates, high-quality healthcare, spousal career sus Bureau’s Current Population Survey.3 And though employment opportunities, and competitive childcare costs. A good balance of lifestyle amenities — shopping, a declining share of Americans say they want to live in entertainment, sports, weather, alternative employment cities, fewer people moved out of them last year than in opportunities — is also highly regarded. The cost of the period before the COVID-19 pandemic began.4 Where healthcare may also be an important consideration, given these folks did move from city centers to more rural that healthcare costs nationwide continue to rise more areas, they contributed to rising home prices that make

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quickly than the general cost of living. Quality of life is even more important when some workers theoretically can work from wherever they choose to live — even though many companies prefer hybrid work strategies that bring employees to the office at least some of the time. Some economic development agencies are even offering incentives for companies that create remote jobs in local communities, regardless of whether the corporate headquarters remains located in a distant market.6 Whatever the interpretation, companies increasingly view quality of life and quality of place from the perspective of culture and values. That is, a company that values employee needs and preferences will consider whether current employees would want to relocate to a prospective new community, and whether the community is doing a good job of retaining or expanding its population of talented professionals. In industries with tight labor markets, access to parks, beaches, and mountains and availability of well-being resources, for example, can make a difference to workers and site selectors, too.

How Quality-of-Life Trends Are Playing Out With the combination of the natural aging progression of the giant millennial generation beginning to create new households and families, and the newfound flexibility of remote work and hybrid working, Sun Belt cities and suburban environments are seeing growing popularity. Over the past 18 to 20 months, Sun Belt and suburban markets outperformed traditional CBDs in terms of commercial real estate rents and occupancy during the course of the pandemic. Many of these new growth markets have benefited from demographic tail winds and quality-of-life advantages that suggest they may continue to prosper — unless climate change undermines the desirability of these areas. As the pandemic evolves and climate change impacts continue, it will be important for organizations and site selectors to bear in mind that well-being is dynamic, and the needs of employees are constantly fluctuating because of their life experiences and due to evolving workforce demographic changes over time. As the war for talent becomes ever more competitive thanks to the looming “sansdemic,”7 choosing locations and delivering environments that foster mental, physical, and social well-being will likely become more important in the coming years to attract the workforce of the future. n

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https://www.us.jll.com/en/trends-and-insights/research/worker-preferences-barometer https://www.us.jll.com/en/trends-and-insights/research/regenerative-workplace https://www.pewresearch.org/fact-tank/2021/12/16/in-2020-fewer-americans-movedexodus-from-cities-slowed/ 4 https://www.pewresearch.org/social-trends/2021/12/16/americans-are-less-likely-thanbefore-covid-19-to-want-to-live-in-cities-more-likely-to-prefer-suburbs/ 5 https://www.areadevelopment.com/Corporate-Consultants-Survey-Results/Q1-2021/35thannual-corporate-survey.shtml 6 https://www.areadevelopment.com/workplace-trends/Q4-2020/expanded-incentivessupport-growth-in-remote-work.shtml 7 https://www.economicmodeling.com/demographic-drought 2

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TAXES/INCENTIVES

An Evolving Incentives Environment Remote work is creating challenges for incentive agreements and compliance. By Kathy Mussio, Managing Partner; and Eric Dantzler, Director, Incentive Compliance; Atlas Insight LLC

or nearly two years, the predominant COVID-19 driven incentive compliance issue looming over companies has been the difficulty to achieve and report on headcount performance as part of economic development incentive agreements. The evolving workplace landscape precipitated by the COVID-19 pandemic adds another wrinkle to this process. With the trend toward remote work — whether a hybrid scenario or fully remote — our clients, particularly those with an office-based workforce, are evaluating their long-term footprint needs. Seemingly nothing is off the table with respect to the workplace, including hoteling models, employer choice models, flex-worker models, or pure remote worker strategies. All of the above will have implications for incentive compliance reporting. Many incentive programs are looking toward the future to address the new workforce reality and have already started to formulate policies to address changing workplace dynamics. These policies may help to keep companies in compliance, even if switching to a flex/ remote environment. While some of these policy changes are temporary, others are likely to outlive the COVID-19 pandemic and become permanent. As discussed in this article,

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navigating this transitory period requires case-by-case considerations based on companies’ individual circumstances.

How Have State Agencies Responded? Across the U.S., we have seen states, as well as some local communities, adopt a wide variety of incentive compliance accommodations, including some that are temporary, while others more permanent. Some examples of near-term waivers that do not address longterm workplace changes include:

North Carolina Job Development Investment Grant (JDIG): Allowed companies to push their job creation schedule by one year, but they could not lower their minimum job commitments. Georgia Job Creation Tax Credit: Allowed all companies to use 2019 head counts for the calculation of 2020 and 2021 tax credits, thus nullifying any impacts due to COVID-19 in the near term. Oklahoma Quality Jobs Program: Temporarily waived minimum pay-

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roll requirements, allowing companies to continue receiving benefits when they would otherwise be disqualified. New Jersey GrowNJ Grant: Allowed companies to push their job creation schedule by a year and allowed companies to exclude COVID-19 impacted months from the monthly headcount average. California Competes Tax Credit: Offered a one-year extension to meet job goals, but only for job creation projects in the final year. Some examples of long-term policy changes that do address long-term workplace changes include: Texas Enterprise Fund (TEF): Offered all companies an amendment option to permanently allow for Texas-based residents to count, even if working remotely. New Jersey GrowNJ Grant: Offered companies the option to renegotiate their job creation commitments, and permanently lowered the on-site workplace from 80 percent to 60 percent for all companies. Missouri Works Program: Companies still in the job creation phase can apply to lower their starting headcount level to today’s levels, effectively allowing all job growth to be measured against COVID-19 levels. Kansas PEAK: Companies may now include any remote worker provided they continue to pay state UI Tax and receive direction from the project site. Many states have communicated that they will address COVID-19 compliance issues on a case-by-case basis rather than by adopting blanket policies. With the emergence of the highly transmissible Omicron variant, states that implemented temporary accommodations may choose to extend or adopt new policies for 2022 and beyond. It appears that incentive programs with built-in pro-rata payouts have been overall less likely to adopt long-term policy changes. Local community willingness to work with companies that have been impacted by COVID-19 has been overwhelmingly positive. Most cities and counties understand the importance of helping their local businesses and often have policy flexibility to do so on a situational basis.

HR, Audit and Payroll Considerations Many incentive agreements define a qualifying position as one which is full-time and performed at a defined project site or sites. Other common criteria include specified wage targets as well as that the employee is covered by a health insurance plan and is reported for state SUI or SIT purposes. Most commonly, states use a 50 percent or more test to determine if someone is working at a project

site. This is good news for companies that adopt flexible work policies that require at least three in-person days per week. Some agreements may allow a company to include any new positions created within a particular state/ county/city, which will allow for built-in geographical flexibility, even as people continue to work from home. One recurring incentive compliance issue that many companies are still working through is their HR and payroll policies with respect to the employee’s official work location, particularly since many companies do not yet know if their flex/remote workplace policies will be temporary or permanent. It can be challenging to accurately capture evolving employee worksites in HR or ERP systems. We’ve seen a mixed bag, with most companies continuing to code employees to their legacy worksite, despite having many employees (mainly office workers) working remotely for the past 22 months. Furthermore, many of these employees no longer legally reside in their original state! Some companies have adopted hybrid worksite codes to designate someone as flex/remote but still attached to a specific site, while others will simply classify everyone as remote and unattached to a location. These internal payroll decisions have direct consequences for incentive compliance reporting since the qualifying job requirements are often technical, welldefined, and require tracking. How employees’ locations are coded could have incentive compliance implications since states often validate new jobs against SUI or SIT tax rolls. We’ve already seen some states entirely shift the burden to the company to prove that every reported new job worked on site throughout the year, regardless of the official workplace policy or SUI/SIT data. As flex/ remote workplace becomes more common, companies should be prepared to prove which employees meet the incentive’s on-site work requirement. Beyond immediate incentive compliance concerns, companies need to be prepared to respond to future audits to substantiate their job creation compliance. Atlas Insight routinely works with our clients’ HR and payroll functions to ensure that we create a documentation trail to evidence which employees have worked on site, and for how long. Your company should be prepared to present formal employee communications, adopted workplace policies, and employee logs to help substantiate which individuals continue to meet the requisite on-site requirement for your incentive.

Force Majeure Nationally, we’ve found that about 35 percent of all incentive agreements contain a force majeure clause, or an “out” provision based on industry/economic events outside of the company’s control. Very few of these clauses specifically cite a “pandemic,” but we’ve AREA DEVELOPMENT | Q1 2022

EvolvingIncentives.indd 41

2/28/22 11:59 AM

been successful in leveraging these clauses to navigate through impacts stemming from the implementation of flex/remote workplace policies. Every agreement should be reviewed carefully for discretionary clauses that may allow the administering jurisdiction to provide an accommodation or waiver due to noncompliance that ultimately stems from the existence of the COVID-19 pandemic.

State vs. Local Accommodations State-level incentive programs can sometimes choose to accommodate remote workers who still reside instate, whereas local governments will often find it hard to justify the inclusion of employees who now reside and work at home in other neighboring cities. In the case of the Texas Enterprise Fund program, for example, the state has afforded grantees an election to temporarily or permanently count newly created positions that reside anywhere within Texas, provided they are still associated with the project (e.g., “teleworker”). However, local communities in Texas (as well as in other states) are more restricted in their ability to accommodate the remote worker concept, as only a percentage of newly created positions will inevitably reside in the locality, and incentives are often awarded based on local spending and economic impacts associated with workers commuting to a specific community every day. This benefit will be reduced once companies shift away from a 100 percent on-site work policy. Companies should engage with their communities to understand whether administrative compromises can be worked out. Some examples of compromises may include setting up a lower on-site percentage requirement, utilizing the full-time equivalent (FTE) concept, or if subleasing now-unused space, requesting that the subtenant’s positions count toward performance.

Incentives for 100 Percent Remote Work Projects Traditionally, incentive programs for pure remote work operations have been few and far between. Legislation for existing programs is often centered on specific

project site(s), mainly because the economic impact of a dispersed workforce can be difficult to model, and remote work companies find it challenging to commit to a certain percentage of workforce that will reside within a specific state. Additionally, most state programs require a local incentive match — which is impossible if there’s not a singular community to host the project. Despite the embrace of a company-wide remote work option by some firms, states have been slow to adopt new programs to help grab a larger slice of their employees. There are, however, some exceptions. For example, the Colorado Location Neutral Employment Incentive (LONE) program can provide grants for hiring remote workers in rural communities — but only if they are tied to an instate job creation project at a specific site. At least for now, it seems that job creation projects that are strictly limited to remote workers will mostly be left on the economic development sidelines until states develop new programs to specifically target these types of projects.

Long-Term Outlook Looking ahead toward the rest of the decade — and beyond — we have little doubt that workplace practices will fundamentally shift in the direction of a greater percentage of remote and flex work environments. Only time will tell how significant or permanent this shift will be and whether incentive programs will adapt. For new projects, we expect to see states and communities be more receptive to the idea of a flex workplace model, provided that incentives can be justified and be proportionate to the economic impact delivered by the project. Most states and communities have been sensitive to today’s workplace realities. While a switch to a remote or flexible work environment could result in early termination or recapture, careful attention to incentive compliance issues, along with proactive planning and communication, can lead to a favorable outcome. Bottom-line, companies should consider how workplace policies may impact their existing incentive agreements, as well as the implications they could have on the incentive compliance process. n

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CONSTRUCTION/PROJECT PLANNING

Crunch Time in the Construction Industry Supply chain disruptions spawn creative, and possibly lasting, project solutions. By Anthony Johnson, President, Industrial Business Unit, Clayco

t’s no news that lingering supply chain disruptions and inflationary pressures have forced project teams across the U.S. to shake up their procurement and delivery processes. The projects of today are rife with risk, as supplied materials’ lead times and pricing have proven to be no longer as reliable as in past years. Design-build has become an invaluable resource in the current environment, as earlier designs and contractor “onboarding” have become increasingly vital to keeping cost and time factors under control. Design-build gives project teams the flexibility they need for developing creative solutions and ensures proper alignment between the various members of the team. In that regard, companies like Clayco are utilizing their intellectual capital like never before by thinking further down the road and “futureproofing” the delivery of their projects. By being in complete control of engineering and procurement, they’re able to offer comprehensive, cost-effective options for tackling the unique challenges of today’s projects.

A New Variable For years, the owner-designercontractor conversation around materials was primarily about cost and vendor alignment. Now, there’s another, more urgent, variable — lead time. For most projects, the lead

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time for products is much longer than traditional timelines and can vary significantly between vendors. Therefore, design, procurement, and project team onboarding must occur earlier in a project’s life cycle to ensure there are fewer wrinkles down the line. Some of the more radical approaches have been in procurement, whereby the entirety of a project’s materials and equipment is ordered directly by the project team long before groundbreaking. A project’s steel erection package, for example, would have had an 8–10 week lead time prior to the pandemic. Now,

the lead time for those same products is six to 10 months. While it doesn’t take that long to fabricate the steel, much of the front-end design must be completed earlier to lock in mill pricing and ensure a position in the “queue” for a future rolling slot. For example, Clayco’s integrated model and in-house engineering capabilities enable it to design and procure many components — such as steel, roofing, electrical, and mechanical elements — much earlier in the process. The company can size major equipment, get quotations on lead times, and place orders long

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2/25/22 3:10 PM

Solutions: Warehouse Automation & Modularization The exploding demand for e-commerce and online purchasing has prompted an unprecedented amount of investment capital in the warehousing and distribution sector. As such, automation and robotics in that sector have taken on added importance during the current supply chain crunch, as speed to market is critical. But even as market demands drive the need for more warehouses, material-handling automation companies face some of the same supply constraint issues as con-

Courtesy Clayco

before detailed design is complete and subcontractors are on board. Case in point, at a high-rise project in downtown Phoenix, Clayco brainstormed with its project team to develop a strategy for procuring and storing the entirety of the construction materials for the project — even custom millwork — long before breaking ground. It was a collaborative approach, whereby project executives, designers, subcontractors and owner worked collectively on the means and methods for getting it done. Clayco was able to develop alternative strategies and order from vendors with a domestic supply chain strategy who were not dependent on containers from overseas. And as one of the largest purchasers of roofing materials, bar joists, and deck, electrical, and mechanical systems, Clayco was able to order bulk items of product, lock in prices, and work closely with suppliers to meet all of the projects delivery goals. Being aware of regional market dynamics has been equally important at the Phoenix site. Two mega semiconductor projects are simultaneously under way and at their peak will require over 10,000 craftspeople, in total. That has significantly strained the local workforce, not to mention impacted both wage rates and project costs. This additional variable puts an even higher level of importance on contractors to perform due diligence and to develop mitigation strategies and contingency plans. Beyond the supplier and subcontractor companies, it is important that contractors down to the crew level understand the skillset of the people actually performing the work. In extreme cases, unique labor attraction and/or retention plans may be necessary to ensure the necessary level of skill on the jobsite.

The exploding demand for e-commerce and online purchasing has prompted an unprecedented amount of investment capital in the warehousing and distribution sector.

struction teams, e.g. lead times, delivery issues associated with their products, and a finite amount of available labor doing construction. Owners such as Amazon are selecting sites and requiring contractor input much earlier in the process to stay ahead of the curve. Design-build teams are also turning to modularization as a solution for mitigating craft labor shortages and controlling costs, and designing mechanical, electrical, and other systems in a manner that enables them to build many of these components “off site.” The end result? Accelerated schedules, greater dexterity when sourcing materials, and a heightened level of collaboration among project team members. Off-site modularization was already becoming the rule rather than the exception in the industrial/manufacturing and mission-critical space, but supply chain constraints have served to push project teams further in that direction on other project types. And out of necessity, many specialty contractors are also getting in on the act. Many of the larger mechanical contractors, for example, have developed their own engineering capabilities, built fabrication shops, and thus enhanced their delivery models. Nevertheless, a modular approach must be discussed during the early stages of design for it to be successfully implemented. Modular assemblies must be engineered with the end in mind, such that they are designed with the integral structural components for shipping and installation. Ideally, the end result is greater control over cost and schedule and reduced risk of labor. However, perhaps most significantly, the clean “controlled shop” environment that modularization provides can significantly enhance quality. In the face of unparalleled schedule constraints, a modular approach ensures quality remains an achievable objective. n AREA DEVELOPMENT | Q1 2022

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2/25/22 3:10 PM

ANNUAL

CORPORATE SURVEY A tight labor market, supply chain challenges, and rising costs have resulted in some surprising changes in corporate respondents’ location priorities. by GERALDINE GAMBALE, Editor

s 2021 ended, the global coronavirus pandemic continued to surge with a new variant — once again causing restrictions on personal and business activities. Despite this, as we looked at the year-end economic numbers, we saw surprising growth.

Current operations of respondents:

Respondents’ titles:

Manufacturing — Durable Goods

34%

Manufacturing — Non-Durable Goods

10%

Manufacturing — Other

10%

Distribution / Logistics/Warehousing

19%

CFO, Controller, Financial Officer

V.P., Secretary, or Other Corporate Officer

Data Processing, Software & Other Computer-Related Services

Finance, Insurance, Real Estate

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

Energy Industry

Business Unit Manager or Director

Healthcare / Life Sciences Hospitality Industry

0% 0%

Other

Construction & Trades

8% 10%

Other

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59%

Chairman, President, Partner, CEO, or Owner

10% 7% 11%

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Supply chain bottlenecks are causing manufacturers to rethink their lean strategies.

Primary role in company’s location decisions: Not involved 6% Information gathering 8%

According to the Commerce Department, the U.S. GDP grew at a 5.7 annualized rate in 2021,1 the fastest rate since 1984! This was primarily driven by consumer spending, which was bolstered by stimulus payments and emergency relief during the pandemic. This good news is tempered by the supply chain bottlenecks created by the surge in demand for everything from furniture to appliances to automobiles, and even to household necessities (remember the hoarding of toilet paper?), which is causing manufacturers to rethink their lean manufacturing strategies that minimize inventory. There was also much talk of the Great Resignation,2 as workers quit their jobs during the pandemic because of health concerns, lack of childcare, or the desire for better work/life balance. Yet, despite this, the unemployment rate fell from a high of more than 14 percent in April 2020 to a low of just 4 percent by January of this year,3 exacerbating the labor shortage already faced by businesses pre-pandemic. All these disruptive events have analysts predicting a “new normal” for industry. Consequently, as Area Development prepared to survey our corporate readers, we wondered if

Preliminary recommendation 25%

Final decision 61%

Number of facilities currently operating worldwide: Domestic: Five or more 11% Four 11% One 54%

Three 11% Two 13%

Foreign (of the 27% who operate foreign facilities):

Five or more 32% Four 16%

One 21% Two 32%

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Number of people employed worldwide (all facilities):

1, 000 or more 15% Fewer than 20 18%

500 - 999 5% 100 - 499 42%

20 -49 5%

50 -99 14%

Change in the number of facilities during the past 12 months:

Small to Mid-Size Companies Focus on Costs

Increased number of facilities by 4 or more

10%

Increased number of facilities by 3 or fewer

10%

Number of facilities not changed

74%

Decreased number of facilities by 3 or fewer

Decreased number of facilities by 4 or more

their responses would reflect any drastic changes in their location plans and priorities over the next two years. The survey results follow.

The Corporate Survey Respondents More than half the respondents to our 36th Annual Corporate Survey are with manufacturing firms, and a fifth represent distribution/warehousing/logistics entities. Also, nearly 60 percent are the top C-level executives at their companies, i.e., chairman, CEO, etc., while 8 percent are their firms’ chief financial officers. It therefore follows that about 60 percent of the survey respondents are also making their companies’ final location decisions, with another quarter making a preliminary recommendation on the final site selection. More than half of the Corporate Survey respondents operate only one domestic facility. Slightly

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It’s important to understand who is responding to the Corporate Survey, as the data is vital for EDCs to position their communities. The majority of “projects” in this data set (and in the U.S.) are led by small- to mid-sized growing companies that, more than likely, would not use a site selection consultant to expand. Last year was a “show me the money” or more accurately “solve my problems” year, with cost, taxes, and logistics at the top of the list.

Costs (labor, energy, shipping), accessibility (skilled labor, highway, raw materials) and taxes (corporate tax rate, state/local incentives, tax exemptions) all ranked higher than quality of life in importance to these companies. In fact, even environmental regulations, which are considerably stricter now than ever before, are more important to decision-makers for these projects than quality of life. The takeaway for EDCs is to pivot their talk track with these projects to focus on how their community can ease the cost burden or logistics challenges faced by companies today. Also, the need for site selection consultants is illustrated by company-led project ranking of availability of skilled labor, which is difficult to find anywhere, at #2 compared to training programs/technical schools, which is where labor supply is likely to be found, at a dismal #17. EDCs should understand, for better or worse, what site selectors are looking for versus what companies are looking for. Benton C. Blaine, VP Infrastructure & Economic Development McGuireWoods Consulting LLC

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2/28/22 4:02 PM

How corporate real estate strategy has changed as a result of COVID-19 pandemic:

Closing operations

3% 7%

Reducing operations

ANNUAL

Geographically diversifying operations

17%

CORPORATE Other (relocated a plant; put plans on hold; etc.) SURVEY

69%

No change in operations

Three quarters of the survey respondents also had no change in their number of facilities over the last 12 months, with nearly 70 percent saying they had not changed their corporate real estate strategies as a result

Extent to which supply chain challenges affecting your company: Not at all 8%

Slightly 15%

Severely 21%

Pandemic-Induced Impacts Have Profound Effect on Decision-Makers

Moderately 56%

The last two years have been unprecedented in site selection. COVID-19, supply chain constraints, the Great Resignation, inflation, rising wages, remote work, and shifts in employee priorities have had a profound effect on site selection factors as evidenced by this year’s Corporate Survey. Compared to last year, labor costs, inbound/outbound shipping costs, and raw materials availability, in particular, made significant increases in ranking/priority while more subjective factors, such as quality of life, moved down in this year’s ranking.

Plan to open a new (not relocate an existing) domestic facility within the next two years:

Yes 23% No 77%

Locations being considered for new domestic facilities

(as a percentage of total number to be opened): 4%

New England (CT, MA, ME, NH, RI, VT) Middle Atlantic (DE, MD, NJ, NY, PA)

14%

South Atlantic (NC, SC, VA, WV)

21%

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

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

14%

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

11%

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

11% 7%

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

11%

Southwest (AZ, NM, OK, TX)

West (CA, NV, OR, WA)

Offshore (AK, HI, PR, VI)

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more than a quarter operate foreign facilities as well. Of those, a third operate two foreign facilities and a fifth have just one. More than 40 percent of the respondents are with midsize firms in terms of employment numbers (100–499 employees), with a fifth having fewer than 20 workers and 15 percent employing more than 1,000 people.

Those “age-old” site selection factors, such as available workforce, infrastructure, accessibility, available land/buildings, state and local incentives, etc. continue to appear in the survey results. In the coming months and years, as disruptions caused by COVID-19 persist (or improve), those pandemic-induced impacts may have a permanent or long-term effect on site selection decision-making. Ultimately, site selection factors evolve from issues important to corporate location decisionmakers. Companies are making drastic changes to worker compensation, recruiting strategies, supply chain networks, and their real estate footprint, all in an effort to better compete in the “new normal.” Their efforts to remain competitive will continue to drive location decisions. Azad Khan Principal Parker Poe Consulting

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

ANNUAL

CORPORATE SURVEY 0

Plan to expand a domestic facility footprint within two years:

No 64%

Yes 36%

Plan to relocate an existing facility within two years:

Yes 18% No 82%

of the COVID-19 pandemic. Interestingly, 20 percent of the Corporate Survey respondents did increase their number of facilities over the last 12 months, with 17 percent saying the pandemic caused them to geographically diversify their operations. This may have been brought about by their desire to be closer to suppliers and/or markets because of supply chain disruptions since more than three quarters of the survey respon-

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Manufacturing

35%

Warehouse/ Distribution

25%

Headquarters

10%

Data Center

Back Office/Call Center

Shared Services

R&D

10%

Other

10%

Corporate Sensitivity to Ongoing Operating Costs I find it very telling that three of the top four site selection factors from the corporate survey are cost-related ( labor, energy, and transportation, respectively). This is a drastic reprioritization from the previous year which underscores current corporate anxiety around rising costs, especially as more firms consider domestic investment. Those in the site selection and economic development industry have been looking into their proverbial crystal balls to predict when this unprecedented project activity will slow down. This reported corporate sensitivity to ongoing operating costs just might be the leading indicator we have all been looking for. Josh Bays Partner Site Selection Group

dents say supply chain disruptions are severely or moderately affecting their companies.

Corporate Respondents’ Facilities Plans When asked specifically about their facilities plans over the next two years, fewer than one quarter of the Corporate Survey respondents say they have plans to open a new domestic facility.

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2/28/22 4:05 PM

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

The South Atlantic States will be home to 21 percent of these planned new facilities. The MidAtlantic and South will each garner 14 percent of the new facilities, with 11 percent each going to the Midwest, Plains, and Southwest. These percentages are significantly different from those reported by the respondents to Area Development’s prior year survey, when 30 percent of the respondents had plans for new domestic facilities and, of those, the South Atlantic was only to garner 8 percent of the planned new projects and the Plains, only 5 percent. Thirty-five percent of the planned new facilities will house manufacturing operations, according to the current Corporate Survey respondents, with a quarter representing warehouse/ distribution operations. Headquarters and R&D operations will each account for 10 percent of the planned new facilities.

Very Minor Of No Important Important Consideration Importance

48.3 46.6 5.2 0.0 29.1 32.7 30.9 7.3 30.4 35.7 25.0 8.9 37.5 58.9 1.8 1.8 44.6 21.4 21.4 12.5 51.7 29.3 8.6 10.3

Transportation/Telecommunications Highway accessibility 62.1 31.0 5.2 1.7 Railroad service 12.3 19.3 29.8 38.6 Accessibility to major airport 14.0 33.3 33.3 19.3 Waterway or oceanport accessibility 10.3 15.5 25.9 48.3 Inbound/outbound shipping costs 53.5 39.7 1.7 5.2 Availability of advanced ICT services 7.0 29.8 36.8 26.3 Finance vailability of long-term A financing Corporate tax rate Tax exemptions State and local incentives

16.1 46.4 25.0 12.5 45.6 42.1 8.8 3.5 33.3 49.1 15.8 1.8 32.8 51.7 10.3 5.2

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

29.8 40.4 19.3 10.5 25.0 37.5 19.6 17.9 25.0 57.1 10.7 7.1 19.3 38.6 26.3 15.8 40.4 47.4 5.3 7.0 20.0 32.7 34.6 12.7 56.1 38.6 3.5 1.8 40.4 42.1 17.5 0.0 28.1 49.1 14.0 8.8 25.0 44.6 19.6 10.7 12.7 30.9 40.0 16.4 35.7 46.4 14.3 3.6

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

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Estimation of how long the skilled labor shortage will last: Through 2022

10%

Through 2023

41%

At least five years

22%

This is the new normal

26%

COMBINED RATINGS* CORPORATE SURVEY Site Selection Factors

2021

2020

96.4 94.9 94.7 93.2 93.1 87.8 87.7 84.5 82.5 82.4 82.1 82.1 81.0 77.2 70.2 69.6 66.1 66.0 62.5 62.5 61.8 57.9 52.7 47.3

84.2 (5)* * 91.4 (1) 85.3 (3) 76.8 (10) 88.7 (2) 59.1 (21) 80.0 (7) 77.2 (9) 71.6 (13) 78.6 (8) 84.8 (4) 80.6 (6) 71.8 (11) 71.7 (12) 70.6 (14) 64.2 (17) 63.3 (18) 70.0 (15) 65.2 (16) 59.4 (20) 53.0 (22) 61.8 (19) 50.1 (23) 47.8 (24)

43.6 36.8 31.6 25.8

29.9 (26) 36.9 (25) 24.6 (27T) 24.6 (27T)

Ranking 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11T. 11T. 13. 14. 15. 16. 17. 18. 19T. 19T. 21. 22. 23. 24. 25.

Labor costs Availability of skilled labor Energy availability and costs Inbound/outbound shipping costs Highway accessibility Raw materials availability Corporate tax rate State and local incentives Environmental regulations Tax exemptions Quality-of-life Occupancy or construction costs Right-to-work state Proximity to major markets Available buildings Proximity to suppliers Training programs/technical schools Low union profile Available land Availability of long-term financing Availability of unskilled labor Expedited or “fast-track” permitting Water availability Accessibility to major airport Proximity to innovation commercialization/R&D centers 26. Availability of advanced ICT services 27. Railroad service 28. Waterway or oceanport accessibility

* 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.

Those taking the 36th Annual Corporate Survey were also asked about their expansion plans as well as plans to relocate an existing domestic facility over the next two years. Slightly more than a third of the respondents have plans to expand the footprint of a domestic facility, and just 18 percent say they plan to relocate an existing facility during that time period, similar to what was reported by the prior year’s survey respondents.

Corporate Respondents’ Location Priorities We next asked our Corporate Survey respondents to rate 28 site selection factors as either “very important,” “important,” “minor consideration,” or “of no importance.” By adding the percentages of the “very important” and “important” ratings, we are able to rank the factors in order of importance. As to be expected, the top-ranked factor is labor costs, considered “very important” or “important” by 96.4 percent of the respondents, moving up 12.2 percentage points from the fifth place spot in the prior year’s survey. This factor is followed closely by availability of skilled labor, in the #2 spot with a 94.9 percent combined importance rating. With the economy now close to full employment, workers have been

* * 2020 ranking

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MISSOURI:

AT THE CENTER

OF INNOVATION 1ST IN THE U.S. FOR ON-THE-JOB TRAINING

3RD BEST U.S. CORPORATE TAX INDEX

MI SS O U RIPARTNE RS H IP.CO M

$4.1 BILLION RECENTLY INVESTED IN MISSOURI AUTOMOTIVE FACILITIES

Expanding training initiatives in response to the skilled labor shortage:

Importance of sustainability efforts to your company: Of no importance 9%

No 36% Yes 64%

Corporate diversity, equity and inclusion strategies a consideration when assessing new locations:

Yes 33% No 67%

able to bargain for higher wages, adding to business costs. And, when asked separately about their predictions for how long the skilled labor shortage will last, about 40 percent of the respondents to our 36th Annual Corporate Survey say it will last through 2023, with nearly 50 percent saying it will last at least five years or “this is the new normal.” Even availability of unskilled labor is up 8.8 percentage points in the combined ratings, although just 61.8 percent of the Corporate Survey respondents consider it “very important” or “important,” placing the factor toward the bottom of the rankings at #21, similar to the prior year’s survey. However, in response to a related question, about two thirds of the Corporate Survey respondents say they are expanding training initiatives in response to the labor shortage.

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Somewhat important 42%

Very important 49%

Importance of access to renewable sources of energy to your company: Very Of no important importance 20% 27% Somewhat important 54%

The energy availability and costs factor maintained its third-place ranking, but now has a combined importance rating of 94.7 percent, as compared to the 85.3 percent importance rating it received in the year prior survey. It seems the global pandemic also took a toll on energy supply and demand — as with goods — but the demand has increased faster than the energy supply chain can handle it, resulting in rising costs. In response to a separate energy-related question, three quarters of the respondents to our Corporate Survey say access to renewable sources of energy are very or somewhat important to their companies. And more than 90 percent of the survey respondents also say sustainability efforts are very or somewhat important to their companies.

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

ANNUAL

CORPORATE SURVEY

No 47%

Yes 53%

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

Cash grants

18%

Tax incentives (tax credits, exemptions, etc.)

71%

Other financial incentives (bonds, loans, etc.)

29%

Worker training incentives

42%

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

58%

Consider a location’s history of weather/hazards (flooding, tornadoes, wildfires, etc.)

in the location decision:

No 30% Yes 70%

Importance of a shovel-ready/pre-certified site:

Of no importance 24%

Very important 22%

Somewhat important 55%

With images of containerships waiting to unload clogging the nations ports,4 it’s no surprise that two supply-chain-related location factors took a tremendous jump in the importance ratings and rankings. Inbound/outbound shipping costs jumped from tenth place in the prior year survey to the #4 spot, increasing 16.4 percentage points, and now considered “very important” or “important” by 93.2 percent of the respondents to our 36th Annual Corporate Survey.

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And the largest increase in combined importance rating and ranking goes to raw materials availability. This factor increased an astounding 28.7 percentage points, with a combined importance rating of 87.8 percent, jumping from #21 in the prior year survey to #6 in this year’s rankings. Again, when we think of the shortage of so many goods caused by lack of parts or materials, it’s no surprise that this factor has made an historic leap in importance. The heightened importance of inbound/outbound shipping costs and raw materials availability may seem to have caused the decline in the ranking of highway accessibility. This factor has historically been ranked first or second among the site selection considerations. However, if we just look

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Survey Respondents Take a Conservative Approach With the pandemic now two years old, the survey reflects an office market that remains in suspense. While office absorption increased for the first time in two years during the fourth quarter of 2021, employee behaviors in terms of office use have not returned to what they were in 2019, and it’s not anticipated that they will soon, if ever. Companies, recognizing the importance of employee job satisfaction and well-being, are embracing hybrid workplace concepts and moving very methodically in their transactional decisions. With all that uncertainty, it’s unsurprising that the projected number of new headquarters and back office facilities is low.

at this factor’s “very important” rating, it is still the highest overall at 62.1 percent, but this year it fell from the #2 spot to #5 in the rankings, with 93.1 percent of the Corporate Survey respondents giving it a combined “very important” or “important” rating, which is actually up 4.4 percentage points over the prior year’s survey. For the most part, the financial-related location factors maintained their rankings in the 36th Annual Corporate Survey over the prior year; however, their combined importance ratings did increase slightly. The corporate tax rate factor is still ranked #7, considered “very important” or “important” by 87.7 percent of the respondents, up 7.7 percentage points over the prior year. State and local incentives follows in the #8 spot, now receiving a combined importance rating by 84.5 percent of the survey respondents, up 7.3 percentage points over the prior year. But the tax exemptions factor fell two spots to the #10 position, despite the fact that its combined importance rating of 82.4 percent was up slightly over the prior year. And in a related question, more than 70 percent of the Corporate Survey respondents say they consider tax incentives the most important incentive when making a location decision.

The industrial market — comprised of manufacturing and distribution/logistics — is, on the other hand, very active and extremely hot in certain sectors and geographies. The continued growth of consumer online shopping has driven a need for additional warehouse space, and various trends — on- and re-shoring as the post-COVID supply chain takes shape, industry growth attributable to technological and environmental advances, etc. — explains the much higher projections of domestic expansion in industrial space. Broadly, the factors that are most important to survey respondents are about what you’d expect. Talent-related considerations are first by a distance, as employers continue to face a shortage of skilled workers. As such, they’re offering employees more incentives and improving the quality of their workplaces to attract and retain the talent they need, which in turn has resulted in an increased emphasis on labor costs. Supply chain issues (shipping costs, raw materials availability) have moved sharply up the list — no surprise given the logistics disruptions of the last couple of years. Other high-ranking factors — energy, taxes/incentives, and so on — are more “evergreen.” With an economy that continues to grow at a rapid pace, recovery in the commercial real estate space is expected to continue overall in 2022, and these survey results — while appropriately conservative, given the unprecedented challenges that enterprises have faced over the past two years — will hopefully be outpaced by actual activity in the coming year. Dan Breen, J.D., CPA, LL.M Managing Director, Location Economics Jones Lang LaSalle

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ANNUAL

CORPORATE SURVEY

Use outside consultants when site selecting:

Yes 36% No 64%

Services consultants are providing: 55%

Feasibility Studies

Global Asset Positioning

Location Studies/Comparative Analyses

70%

Incentives Negotiations /Management

30%

Location Decision

35%

Real Estate Transaction

60%

The increasing focus on getting to net-zero emissions for facilities has bumped the environmental regulations factor up to ninth place in the rankings from #13 the prior year. Its combined important rating jumped 10.9 percentage points; 82.5 percent of the Corporate Survey respondents now consider environmental regulations “very important” or “im-

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portant” when making a site selection decision. Interestingly, the quality-of-life factor fell from #4 in the prior year’s survey rankings to #11(tied) this year, although still considered “very important” or “important” by 82.1 percent of the Corporate Survey respondents. Again, other factors are taking precedence. This factor is actually tied for the #11 spot with occupancy or construction costs, which fell from the #6 spot in the prior year’s rankings. With extremely low industrial vacancy rates and delays and rising costs for construction, it was expected that this factor would move up in the rankings, so its middling spot comes as somewhat of a surprise. Other factors receiving middling or lower rankings did not change much year-over-year, although there are some interesting increases in importance ratings. For example, as mentioned, the pandemic has altered employee demands for increased wages and better working conditions. This development may be responsible for the increase in importance of the right-to-work state factor — more than 80 percent of the respondents to the 36th Annual Corporate Survey rate right-to-work state as “very important” or “important” when making a location decision, up from just over 70 percent in the prior year’s survey. The proximity to innovation commercialization/ R&D centers factor, while remaining toward the bottom of the rankings, actually increased 13.7 percentage points in the combined ratings, with 43.6

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2/28/22 4:09 PM

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ANNUAL

CORPORATE SURVEY

percent of the survey respondents deeming it “very important” or “important.” The speed of technology in improving individuals’ health, the health of our planet, and companies’ financial health has resulted in a push for innovation in all industries.

The Year Ahead As we look to the year ahead, there are many unknowns. It is hoped that we will put the global pandemic in the rearview mirror, although cautionary actions will still be in place for what lies ahead in that regard is unknown. As predicted by our survey respondents, labor shortages may still persist, and consumer habits developed during the pandemic that resulted in a rapid surge in e-commerce are here to stay. All of these disruptions will undoubtedly have a bearing on companies’ location plans and priorities during the course of 2022 and beyond. Nonetheless, according to J.P. Morgan’s 2022 Business Leaders Outlook,5 business leaders have stood up to the challenges created by the pandemic over the last two years and are optimistic about the year ahead. Despite tight labor markets, clogged supply chains, and rising costs, nine out of 10 of the mid-size businesses surveyed by the institution expect their businesses to grow and thrive over the next year. n 1

https://www.nbcnews.com/news/us-news/useconomy-grew-57-2021-rebounding-2020-recession-rcna13771 https://www.areadevelopment.com/workplace-trends/workforce-q4-2021/great-resignation-is-impacting-corporate-relocations.shtml 3 https://www.bls.gov/news.release/pdf/empsit.pdf 4 https://www.areadevelopment.com/logisticsinfrastructure/q4-2021/no-easy-fix-for-supplychain-struggles.shtml 5 https://www.jpmorgan.com/commercial-banking/insights/2022-business-leaders-outlook 2

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Labor Costs and Availability Go Hand in Hand Annual surveys are valuable and have a prominent place, but the real value comes from how a company uses the results. Site selection can be a complex, time-consuming process of elimination. The site selection process is about how to eliminate markets, not just the selection of a market. Site selectors assist their clients on how to differentiate markets using both analytical and qualitative techniques so Area Development’s Corporate Survey report is an additional tool we can use to eliminate markets early in the process. The most interesting result on the combined ratings of factors, would be the top two of labor costs and availability of skilled labor. To me, those go “hand in hand.” A recent jobs report shows an increase in the numbers of workers returning to work, but payroll sums are still more than five million shy of pre-pandemic levels. The pandemic shook up what workers want and expect from a job. Lastly, the most overlooked site selection factor would be quality of life (tied for 11th). This will continue to rise, as it not just about what to do in the region, but other factors to look at are healthcare availability and affordability, educational institutions, infrastructure, crime and corrections, and the natural environment. Quality of life may have a minimal impact early in the site selection process, but a major impact in the final short-list stage. By Jeff Pappas Managing Director Mohr Partners

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2/28/22 4:09 PM

ANNUAL

CONSULTANTS SURVEY Supply chain considerations, the shortage of skilled workers, and a lack of industrial space are top of mind for their clients, according to consultants responding to our annual survey. by GERALDINE GAMBALE, Editor

nly slightly more than a third of those responding to our 36th Annual Corporate Survey say they use outside consultants when site selecting. Therefore, we would expect the results of our 18th Annual Consultants Survey to differ considerably from the results of our Corporate Survey. Let’s see if that holds true.

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Respondents worked on projects in the following industries: Manufacturing — Durable Goods Manufacturing — Non-Durable Goods Manufacturing — Other Distribution/Logistics/ Warehousing Data Processing, Software & Other Computer-Related Services Finance, Insurance, Real Estate Energy Industry Hospitality Industry Healthcare/Life Sciences Retail Construction & Trades Other

81% 54% 33% 77% 40% 44% 28% 5% 51% 12% 9% 14%

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3/2/22 12:45 PM

Two thirds say their clients have geographically diversified and/or expanded their operations.

he Consultants Survey T Respondents About 80 percent of the consultants responding to our Annual Consultants Survey are working on projects in the durable goods manufacturing sector. More than three quarters are also working on distribution/logistics/warehousing projects, and half on those in the healthcare/life sciences sector. The primary services provided by nearly 100 percent of these consultants to their clients involve location studies and comparative analyses. Around 90 percent of the survey respondents also assist with incentives negotiation and management, and 89 percent claim to actually make the location decision for their clients. In terms of their employment numbers, the companies utilizing the services of the consultants who responded to our sur-

vey are generally large. In fact, more than 40 percent of the responding consultants service companies with 5,000+ employees, with a third serving those having between 500 and 4,999 workers. None of the responding consultants say they service companies with fewer than 100 employees — a category represented by more than a third of those responding to our 36th Annual Corporate Survey. Two thirds of those responding to our 18th Annual Consultants Survey say their clients have geographically diversified their operations and/or expanded operations as a result of the coronavirus pandemic, while 30 percent also say some of their clients reduced operations in response to the pandemic. These responses are in contrast to those received from the Corporate Survey respondents who represent much smaller

Primary services required by their clients: Feasibility Studies Global Asset Positioning Location Studies/ Comparative Analyses Incentives Negotiations/ Management Location Decision Real Estate Transaction Other

39% 19% 98% 91% 89% 54% 9%

In terms of their employment numbers, companies utilizing consultants’ services are generally: Small (20-99 employees) Mid-size (100-499 employees) Large (500-999 employees) Larger (1,000-4,999) Very large (5,000 or more employees)

0% 23% 16% 18% 44%

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3/2/22 12:45 PM

ANNUAL

CONSULTANTS SURVEY

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

47% 67% 68% 30% 53%

Clients have indicated that they changed their corporate real estate strategies as a result of the COVID-19 pandemic by: Closing operations Reducing operations Geographically diversifying operations Expanding operations Other

11% 30% 66% 64% 23%

firms and nearly 70 percent of whom say their firms did not change their corporate real estate strategies as a result of the COVID-19 pandemic. The Corporate Survey and Consultants Survey respondents do agree somewhat on the extent to which supply chain challenges have affected their operations. While three quarters of the corporate respondents say they’ve been severely or moderately affected by these challenges, 90 percent of the respondents to the 18th Annual Corporate Survey say their clients have been similarly affected.

heir Clients’ Facilities T Plans The extent to which supply chain challenges are affecting clients: Severely Moderately Slightly Not at all

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46% 44% 9% 2%

Obviously, consultants work with clients who have plans, as indicated by the fact that 96 percent of the responding consultants say their clients plan to open a new domestic facility within the next two years.

Most of the projects that consultants say they’re working on for their clients will go to southern regions of the U.S. — 17 percent to the South, 16 percent to the Southwest, 15 percent to the South Atlantic, and 11 percent to the Mid-South region. An additional 14 percent of the total projects are slated for the Midwest States. Whereas the Corporate Survey respondents say 11 percent of their new domestic facilities projects will go to the Plains States, only 4 percent of the projects the responding consultants are working on are slated for that region of the country. Slightly more than a quarter of the new facility projects being worked on by the respondents to our Consultants Survey will house manufacturing operations, fewer than the 35 percent planned by our Corporate Survey respondents over the next two years. However, similar to the corporate responses, 25 per-

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3/2/22 12:46 PM

The #1 ranked factor is proximity to major markets.

cent of the consultants’ clients’ new facilities will house warehouse/distribution operations.

and “important” ratings, we are again able to rank the factors in order of importance.

Nearly all of the respondents to our Annual Consultants Survey (95 percent) say their clients plan to expand a domestic facility footprint over the next two years, and more than 70 percent say their clients plan to relocate a facility during that time period. Again, consultants work on active projects, and roughly just a third and a fifth, respectively, of the Corporate Survey respondents have expansion or relocation plans.

The #1 ranked factor in the Consultants Survey is proximity to major markets, with 98.3 percent of the respondents saying this factor is “very important” or “important” to their clients, up 8.8 percentage points and seven positions from the prior year’s rankings. The surge in e-commerce as well as supply chain challenges being experienced by their clients seem to be top of mind in the consultants’ ranking of this factor. Also, the highway accessibility factor — which is vital to lastmile delivery operatons — maintained its high combined importance rating (94.8 percent) and ranked #3 among the site selection factors.

heir Clients’ Location T Priorities We also asked our Consultants Survey respondents to rate 28 site selection factors as either “very important,” “important,” “minor consideration,” or “of no importance” to their clients. By adding the percentages of the “very important”

Maintaining its #2 position in the consultants’ rankings is availability of skilled labor, with a 98.2 percent combined im-

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

96% 4%

Domestic location projects consultants are working on are slated for the following regions (as a percentage of total number of projects): New England (CT, MA, ME, NH, RI, VT) Middle Atlantic (DE, MD, NJ, NY, PA) South Atlantic (NC, SC, VA, WV) Mid-South (AR, KY, MO, TN) South (AL, FL, GA, LA, MS) Midwest (IL, IN, MI, OH, WI) Plains (IA, KS, MN, NE, ND, SD) Mountain (CO, ID, MT, UT, WY) Southwest (AZ, NM, OK, TX) West (CA, NV, OR, WA) Offshore (AK, HI, PR, VI)

3% 8% 15% 11% 17% 14% 4% 6% 16% 4% 1%

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

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

2021

2020

98.3 98.2 94.8 93.0 93.0 93.0 91.2 89.5 87.5 86.0 86.0 86.0 85.9 79.0 78.9 76.9 76.8 75.4 73.7 73.7 70.2 70.1 63.1

89.5 (8)** 98.3 (2) 98.3 (2T) 93.0 (5) 91.0 (7) 89.4 (9) 94.7 (4) 82.5 (14) 84.2 (13) 91.2 (6) 87.7 (10) 86.0 (11T) 100.0 (1) 65.0 (21T) 71.9 (18T) 71.9 (18T) 65.0 (21T) 70.2 (20) 80.7 (15) 49.1 (25) 86.0 (11T) 77.2 (16) 75.4 (17)

53.6 43.9 42.1 42.1 22.8

54.4 (23) 41.9 (26) 53.6 (24) 35.1 (27) 29.9 (28)

* All figures are percentages and are the total of the “very important”

and “important” ratings of the Area Development Consultants Survey and are rounded to the nearest tenth of a percent.

* * 2020 ranking

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28% 25% 12% 9% 8% 9% 8% 2%

Clients plan to expand a domestic facility’s footprint within two years: Yes No

95% 5%

portance rating; the Corporate Survey respondents also ranked this factor in second place. Interestingly, even availability of unskilled labor increased in importance, according to the responding consultants, with 76.8 percent considering it “very important” or “important” to their clients (11.8 percentage points higher than last year), while ranking this factor only #17 among the others. Training programs/technical schools to get these workers up to speed ranked two positions higher at #15, with a combined importance rating of 78.9 percent. It should also be noted that about two thirds of the respondents to our 18th Annual Consultants Survey say their clients

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Clients plan to relocate an existing domestic facility within two years: Yes No

72% 28%

CONSULTANTS SURVEY* Site Selection Factors

consider diversity, equity, and inclusion strategies when assessing new location — up from 57 percent in the prior year’s Consultants Survey and as compared with only a third of this year’s Corporate Survey respondents who consider DEI strategies in their location decision. Proximity to suppliers also moved up from the #7 spot in the prior year’s survey to #4 (tied) in this year’s rankings by the consultants, with a combined importance rating of 93 percent. A related factor, raw materials availability jumped from the #21 spot in the prior year’s survey to #14 this year, with 79 percent of those responding to our 18th Annual Consultants Survey rating this factor as “very important” or “important,” an increase of 14 percentage points over the prior year’s survey rating. And another related factor — inbound/ outbound shipping costs — is considered “very important” or “important” by 86 percent of those responding to our Annual Consultants Survey and is tied

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

Very Minor Of No Important Important Consideration Importance

87.7 10.5 1.8 0.0 30.4 46.4 23.2 0.0 33.3 45.6 17.5 3.5 52.6 33.3 14.0 0.0 35.1 35.1 24.6 5.3 33.3 36.8 24.6 5.3

Transportation/Telecommunications Highway accessibility 59.7 35.1 3.5 1.8 Railroad service 5.3 38.6 42.1 14.0 Accessibility to major airport 26.3 47.4 24.6 1.8 Waterway or oceanport accessibility 3.5 38.6 45.6 12.3 Inbound/outbound shipping costs 50.9 35.1 10.5 3.5 Availability of advanced ICT services 7.0 35.1 43.9 14.0 Finance vailability of long-term A financing Corporate tax rate Tax exemptions State and local incentives

3.5 19.3 43.9 33.3 26.3 36.8 35.1 1.8 45.6 40.4 12.3 1.8 61.4 31.6 5.3 1.8

57.9 28.1 12.3 1.8 70.2 22.8 1.8 5.3 30.4 57.1 12.5 0.0 49.1 40.4 8.8 1.8 31.6 47.4 17.5 3.5 24.6 49.1 19.3 7.0 54.4 36.8 7.0 1.8 34.0 42.9 17.9 5.3 47.4 50.9 1.8 0.0 47.4 45.6 5.3 1.8 10.7 42.9 44.6 1.8 17.5 57.9 21.1 3.5

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

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3/2/22 12:48 PM

THE HARTFORD REGION: A HUB FOR ACCESSIBILITY, AFFORDABILITY, AND INNOVATION There is a reason why Hartford, CT, is known as the “Insurance Capital of the World.” Connecticut’s capital city is a dynamic hub for insurance and financial services (IFS) and innovation, including advancements in FinTech and InsurTech. With close to $15 billion output, more than 42,000 jobs, and a 4.86 location quotient, the region is powered by ambition, innovation, and human ingenuity. Connecticut’s IFS industry employs more than 100,000 people and the Hartford Region ranks #1 in the United States for insurance employment per capita (Source: EMSI, 2020).

Accessibility The Hartford Region is easily accessible to many parts of the United States — and beyond. The neighboring cities of Boston and New York City (NYC) are a two-hour drive or commute via public transportation. Hartford and the state of Connecticut are Ranked #1 Metro for Millennial Magnets, #7 for Best Cities for Jobs, and in the Top 10 Business Environment.

Affordable A JLL Q3 2021 Office Insights Report ranked Hartford #1 for office lease rates with a $21.15 CBD Class A lease rate. For example, in the Hartford Region, a 20,000-square-foot Class A office user can save over $800,000 per year in combined lease costs and state/local taxes over Boston and over $1,200,0000 annually when compared to NYC (Source: MetroHartford Alliance – CohnReznick Report, 2022).

Breakthrough Innovation From startups to longstanding insurance titans, the Hartford Region is focused on breakthrough innovation and creating digital solutions for the IFS sector. “The Hartford market continues to build on its reputation as a leader of InsurTech excellence,” says Alchemy Crew Co-Founder, Chief Executive Officer & Managing Partner Sabine VanderLinden.

Building the Future The Hartford Region is a thriving gateway to opportunity. Vibrant, innovative, and affordable, it provides access to insurance and technology giants, a skilled workforce, and cuttingedge innovation.

Supplied by Metro Hartford Alliance

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

3/4/22 9:44 AM

ANNUAL

CONSULTANTS SURVEY

Clients believe the skilled labor shortage will last: Through 2022 Through 2023 At least five years This is the new normal

4% 25% 39% 33%

Clients consider diversity, equity and inclusion strategies when assessing new locations: Yes No

65% 35%

Importance of sustainability efforts to your clients: Very important Somewhat important Of no importance

34% 64% 2%

Importance of access to renewable sources of energy to your clients: Very important Somewhat important Of no importance

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23% 68% 9%

with two other factors for a 10th place ranking. Tied for fourth place in the rankings with a 93 percent combined importance rating is available land. If the responding consultants are working on projects where thousands of people will be employed, it stands to reason that they’re looking at large tracts of land for these mega projects (e.g., projects making headlines of late in the EV sector). In response to a related question, 84 percent of the respondents to our Consultants Survey say the availability of a shovel-ready or pre-certified site is very or somewhat important in their clients’ site searches. Speed to market is always important to industrial projects so expedited or fasttrack permitting is ranked #8 by the responding consultants, with an 89.5 percent combined importance rating. Additionally, the available buildings factor maintained its position in the #10 spot (tied), considered “very im-

portant” or “important” by 86 percent of those responding to our Consultants Survey. The e-commerce boom, shifting population densities, and rising transportation costs brought about by the pandemic have all contributed to the strong demand for industrial space.1 In fact, according CBRE, although industrial development was at a record level in the third quarter of 2021, demand for warehouse space still exceeded supply by 41 million square feet.2 And as occupancy costs rise in response to low supply, the occupancy and construction costs factor jumps four positions to the #9 spot in the consultants rankings, with an 87.5 combined importance rating. Also tied for the #4 spot in the rankings with a 93 percent combined importance rating is state and local incentives. This high ranking comes as no surprise since 91 percent of the respondents to our Annual Consultants Survey say they provide incentives negotiation

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3/2/22 1:38 PM

Access to renewables is somewhat or very important to their clients.

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

86% 80% 20% 61% 84%

When a Silicon Valley firm began searching for a place to build a manufacturing facility with a test track for its autonomous delivery vehicles, it found the perfect fit right next door in North Las Vegas, Nevada. At its August announcement Jiajun Zhu, Nuro co-founder and CEO, called the expansion into Nevada a significant moment for his company.

Nuro delivers high-tech industry + jobs to North Las Vegas

RIGHT NEXT DOOR TO THE 5TH LARGEST ECONOMY IN THE WORLD.

“Building on our tremendous momentum — including strategic partnerships with industry leaders such as Domino’s, Kroger, and FedEx and operations in three states — we are now able to invest in the infrastructure to build tens of thousand of robots,” Zhu said. “We greatly appreciate the state’s leadership in working with us to finalize this partnership. The decision to place these facilities in Southern Nevada was an easy one.”

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3/2/22 1:39 PM

ANNUAL

CONSULTANTS SURVEY and management to their clients. Tax exemptions is tied for the #10 spot with an 86 percent combined importance rating. While 80 percent of the consultants say that tax incentives are among those most important to their clients, 86 percent say cash grants are the most important type of incentive.

Importance of a shovel-ready/pre-certified site in clients’ site searches: Very important Somewhat important Of no importance

44% 40% 16%

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

56% 44%

Clients consider a location’s history of weather/hazards (flooding, tornadoes, wildfires, etc.) in the location decision: Yes No

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88% 12%

Many states saw budget surpluses in 2021, and in order to provide pandemic relief, according to the Tax Foundation,3 several reduced individual tax rates for 2021 or going into 2022, with five states actually reducing their corporate tax rates. Nonetheless, somewhat surprising is the lower ranking given to the corporate tax rate factor, which is only ranked 23rd, considered “very important” or “important” by fewer than two thirds of the responding consultants, down from three quarters in the prior year’s survey. Similar to the Corporate Survey respondents, 91.2 percent of those responding to our 18th Annual Consultants Survey rated energy availability and costs as “very important” or “important,” resulting in a #7 ranking for this factor. In fact, more than 90 percent of the responding con-

sultants say sustainability efforts as well as access to renewable sources of energy are somewhat or very important to their clients. Several factors saw wide swings in the responding consultants’ importance ratings and rankings over the prior year’s survey and vary considerably from the Corporate Survey responses this year. For example, the labor costs factor actually dropped from the #1 position in the prior year’s consultants’ rankings to #13 this year, rated as “very important” or “important” by 85.9 percent of the respondents to our 18th Annual Consultants Survey. The respondents to our 36th Annual Corporate Survey actually rank labor costs #1 among the site selection factors. Similarly, the low union profile factor dropped from the #11 spot (tied) in the prior year’s consultants’ rankings to #21 this year, down 15.8 percentage points to a combined importance rating of only 70.2 percent. The only explanation that seems plausible is that the responding consultants realize rising labor costs and increasing unionization drives — in response to an increasing skilled labor shortage and labor’s

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enhanced bargaining position — while still important now take a backseat to finding available land or buildings in a location that gives a company better access to their markets and suppliers as supply chain challenges persist. Finally, water availability had the largest jump in the consultants’ combined importance ratings among the site selection factors — 24.6 percentage points. The responding consultants rank this factor #19 (tied) with a combined importance rating of 73.7 percent. The importance of water availability in all phases of the manufacturing process cannot be overstated, directly affecting the location decision, with climate change resulting in some states becoming more parched.

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And as the nation experiences more extreme weather — from flooding, tornadoes, and wildfires — 88 percent of the responding consultants say extreme weather is another important consideration in their clients’ site selection decision. On this last point, 70 percent of those responding to our Annual Corporate Survey agree. n 1

https://www.areadevelopment.com/portfolio-management/Q1-2021/whats-driving-record-industrial-real-estatedemand.shtml 2 https://www.wealthmanagement.com/industrial/industrial-tenants-renew-leases-far-advance-raise-warehouseroofs-and-more-deal-space 3 https://taxfoundation.org/2021-state-income-tax-cuts/

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Area Development Q1 Issue 2022

Articles inside

Locations That Promote Employee Health and Well-Being Coming to the Forefront

An Evolving Incentives Environment

The Labor Challenges of Site Selection