Area Development Q4 Issue 2017

20 Select Sites 18 Directory

GAUGING MANUFACTURING’S LONG-TERM COMPETITIVENESS

INDUSTRY SEA CHANGES AFFECTING SHIPPING GATEWAYS

AREADEVELOPMENT S I T E

A N D

FA C I L I T Y

P L A N N I N G

Q4/2017

American Manufacturing: Back in the Game?

The Importance of Community Strategic Planning Why Local Geography Still Matters How Millennial Workforce Trends Are Affecting Business Top Mistakes Companies Make During the Location Process Using Incentives to Tip the Corporate Capital Approval Scales The Collaboration Score: The Missing Link

New World of Right to Work Future of Corporate Sustainability Negotiating Clawback Provisions Technological and Other Changes Steering Logistics Is There A Warehouse in Retail Assets’ Future?

Insights into the location decision process 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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CONTENTS

COVER STORY

FEATURES 17 Industry Sea Changes

58 Resiliency Considerations

Damage from recent hurricanes could have a ripple effect across U.S. seaports, underscoring the rising demand for more sophisticated industrial real estate and infrastructure.

Property owners who properly assess, maintain, and upgrade their facilities so that they are resilient to natural disasters — and who have contingency plans in place — will save time and money, and protect the value of their asset, in the long run.

Affecting U.S. Shipping Gateways

19 Utilizing Advanced

Technologies to Evaluate the Location Decision

23 Consultants’ Insights Leading consultants to industry provide insights on the location decision process.

Although manufacturers are using advanced technologies, including artificial intelligence, in their operations, they’ve yet to leverage these advances in the site selection process.

56 What Corporate

Executives Need To Know When Making Location Decisions

14 Gauging the Long-Term Competitiveness of the U.S. Advanced Manufacturing Sector

Although the U.S. ranks highly in terms of its global advanced manufacturing competitiveness, some challenges to this ranking must be addressed.

Companies should look to their landlords or developers of their facilities for several attributes, key among them being reliability, flexibility, and a sense of partnership.

NOW ONLINE...

Exclusive Online Content • In Focus — Anticipating the Workplace Needs of Generation Z • Table Stakes: Business Attraction in the Midwest Post-Foxconn

—Is Your Facility At Risk?

83 The U.S. Is Serious About Life Sciences

The biopharmaceutical and life science industries are recognized as important economic drivers across the nation.

85 Sustainability, Resilience and Wellness: Pulse of the Industry in 2017

A recent survey of the real estate and construction industry reveals that sustainability in the built environment continues to grow year after year, despite real or perceived added costs.

www.areadevelopment.com • Kentucky Is Prime Ground for Logistics and Distribution • Tennessee: A Place to Grow Headquarters Operations • Advanced Manufacturing Drives Iowa’s Economy

Area Development® Site & Facility Planning (USPS 345-510) is published four times per year (Q1, Q2, Q3, and Q4) at Richmond, VA, by Halcyon Business Publications, Inc., 400 Post Ave., Westbury, NY 11590.

Periodicals postage paid at Westbury, NY, and additional offices. Single copies, $10. Yearly subscription U.S. & Canada, $75; foreign, $95.

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

Volume 52 | Number 4 Q4/2017

Quote:

Hiring and promoting talented women is the right thing to do for society — and it’s an economic imperative.

Carlos Ghosn (1954 – ), Chairman and CEO, Renault-Nissan Alliance

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DEPARTMENTS

2018 SELECT SITES

DIRECTORY

4 Editor’s note

Year-End Insights and Information for the Location Decision Process

• Unemployment Numbers Reflect a Recovering Economy • Educational Attainment Can Impact Location Decisions • Manufacturing Jobs: An Economic Driver Contact information for economic development organizations that can help in your next location search is on page 81.

Within the articles in this section, you will find statistical information on each state’s population and unemployment as well as educational attainment levels. States with the most manufacturing jobs are shown, as well as location of primary industry clusters — manufacturing and nonmanufacturing.

6 In Focus

Closing the Digital Gap

For a state-by-state look at Principal Manufacturing Industries share of manufacturing jobs and GRP, go to cdn2.areadevelopment.com/ manufacturing_industries.pdf Also visit FacilityLocations.com, our interactive directory offering Web and e-mail links to economic development organizations, GIS mapping and radius demographic reports, available buildings and sites listings, social media contact information, streaming videos, and more.

6 Front Line

A Federal Attempt to Streamline the Permitting Process

8 Front Line

The Competition for Amazon’s HQ2

10 First Person

Michael Kruklinski, Head of Region Americas, Siemens Real Estate

12 Business Location Tracker 88 Ad Index/Web Directory

Visit for SELECT SITES profiles and links.

Join Our Newsletter areadevelopment.com/newsletter

Online Database Resources www.facilitylocations.com

Follow Us On twitter.com/areadevelopment

www.fastfacility.com

POSTMASTER: Send address changes to Area Development, Circulation Department, 400 Post Ave., Westbury, NY 11590. Subscribers requesting address changes must provide both old and new addresses. © Copyright 2017 by Area Development® magazine. ISSN: 1048-6534. Printed in the U.S.A. Area Development® is a registered trademark of Halcyon Business Publications, Inc.

AREA DEVELOPMENT | Q4/2017

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EDITOR’SNOTE

Q4/2017

Year-End Insights and Information for the Location Decision Process For more than 10 years, Area Development has been organizing and presenting Consultants Forum events where leading consultants to industry share their knowledge on site and facility planning and related issues with economic developers from across North America.

Now, the editors of Area Development have decided that you — our corporate executive reader — would also benefit from the aggregation of “Consultants’ Insights” to the location decision process. With that in mind, in this issue we present a dozen articles from leading consultants at 12 highly regarded organizations who share their views on topics including community collaboration, incentives, logistics, sustainability, workforce attraction, and much more.

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

Also in this our final issue of 2017, we’ve included our 2018 Select Sites directory, which provides contact information for economic development organizations that can help in your next location search. Along with this directory, statistical information is included on each state’s population, labor force, and unemployment rate, as well as educational attainment levels. Manufacturing employment is also highlighted showing the states with the most manufacturing jobs.

DESIGN/PRODUCTION

The articles in the directory section of this issue delve into the nation’s recovering economy and how companies are fulfilling their workforce needs. This is where educational attainment levels impact location decisions. Highly skilled and educated workers are a top consideration in location and expansion decisions. However, oftentimes workers who possess postsecondary vocational and technical training, but not a four-year degree, can better satisfy a manufacturing company’s specific needs.

EXECUTIVE

Although U.S. manufacturing has lost millions of jobs over the last few decades, it still has the highest multiplier effect of any sector — which is why these jobs are highly sought after.

Manufacturing job gains are being driven by growth in the automotive, aerospace, pharma, and food processing sectors among others. This is perhaps why the states with the most manufacturing jobs (California and Texas) are also among the leaders for the most jobs in the IT, financial and business services, logistics and transportation, as well as knowledge creation sectors.

Area Development will continue to track industrial growth in 2018 and provide further advice for your company’s next move. Proposed tax, regulatory, and other legislative changes on the horizon are certain to impact the decision-making process in the year ahead.

Art & Design Patricia Zedalis Production Manager Jessica Whitebook Production Assistant Talea Gormican

Publisher Dennis J. Shea dshea@areadevelopment.com Sydney Russell, Publisher 1965-1986 ADVERTISING SALES William Bakewicz (ext. 202) billbake@areadevelopment.com Valerie Krpata (ext. 218) valerie@areadevelopment.com ONLINE SERVICES Digital Media Manager Justin Shea (ext. 220) jshea@areadevelopment.com Business Development Matthew Shea (ext. 231) mshea@fastfacility.com Web Designer Carmela Emerson Circulation circ@areadevelopment.com EXECUTIVE OFFICES Halcyon Business Publications, Inc.

Editor

President Dennis J. Shea Finance Mary Paulsen finance@areadevelopment.com

2017 Editorial Advisory Board Josh Bays, Principal, Site Selection Group, LLC

Stephen Gray CEO, Gray Construction

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

Minah C. Hall Managing Director, True Partners Consulting LLC

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

Scott Kupperman Founder, Kupperman Location Solutions, LLC

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

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

Brian Corde, Managing Partner, Atlas Insight, LLC

Jamie M. Lominack Real Estate Manager, Michelin North America

Les Cranmer Senior Managing Director, Savills Studley

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

Dennis Cuneo Partner, Fisher & Phillips LLP

Michael McDermott Consulting Manager, Global Business Consulting, Cushman & Wakefield, Inc.

Tim Feemster Managing Principal, Foremost Quality Logistics

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Bradley Migdal Senior Managing Director, Business Incentives Practice, Cushman & Wakefield, Inc. John Morris Leader of Industrial Services for the Americas, Cushman & Wakefield, Inc.

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

Eric Stavriotis Senior Vice President, Advisory & Transaction Services, CBRE

All correspondence to: Area Development Magazine 400 Post Avenue, Westbury, NY 11590

Thomas Stringer Esq., Managing Director & Practice Leader, Site Selection & Business Incentives, BDO Consulting

Phone: Toll Free: Fax:

516.338.0900 800.735.2732 516.338.0100

Dean J. Uminski Executive, Site Selection Consulting, Crowe Horwath LLP Dan White Senior Economist, Moody’s Analytics

MEMBER of

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

IF YOU ASK TO SPEAK TO THE MANAGER, THIS IS WHERE WE TRANSFER YOU. Governor

Some states say they’re serious about economic development. Arkansas is proving it with a dedication that goes all the way to the top. Our governor, Asa Hutchinson, LV DFWLYHO\ LQYROYHG LQ DWWUDFWLQJ DQG NHHSLQJ EXVLQHVV LQ RXU VWDWH 7R ̰ QG RXW PRUH about the sites, incentives and infrastructure that are making Arkansas home to today’s business, go to ArkansasEDC.com/asa or use the LayAr app on your smartphone. Then, let’s get to work.

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INFOCUS BRIAN ZRIMSEK is industry principal for multifamily at MRI Software. He joined MRI in 2014 as Chief Products Officer and has more than 25 years of large-scale enterprise software experience, most recently as an IT vice president at The Irvine Company.

Doing Business Without Talking — Millennials’ Impact on CRE

By Brian Zrimsek, Industry Principal, MRI Software Those involved in corporate real estate are increasingly adopting a digital approach to conducting business.

Most millennials can barely remember a time before the Internet, and for most of their adult lives, they have only needed to reach into their pocket or purse to access it. Social planning, paying bills, dating, shopping — for most experiences, they expect a digital component. But even though we call these pocket devices “smart phones,” for millennials (and increasingly for older generations as well), the part of this device they use the least is the phone app.

By and large, millennials don’t want to talk to people. They want to use an app, a mobile website, texting, Snapchat, or any of a multitude of other means to communicate digitally. And who can blame them? Texting is more efficient. You don’t get put on hold or find yourself trapped in a long, unproductive conversation. While waiting for the other party to respond, you can work on other tasks, and there’s typically a complete record of the conversation saved if you need to refer

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back to it.

What’s more, millennials don’t necessarily need a physical place to experience a connected community. My youngest son (post-millennial Generation Z), for instance, is happy to stay in his bedroom with his headset on and connect with his friends digitally — no hanging out at the mall…no hourslong phone calls with the girlfriend… just a never-ending stream of snaps.

The New Norm Tech over talk is the new norm, and this norm is making its way through commercial real estate as this generation ages and rises in influence and power. It’s already started with student housing, it’s moving into traditional multifamily, and eventually will change how commercial deals will be done.

That’s because millennials’ expectations for a digital experience in their personal lives carries over into the professional sphere, and as they ascend into management, their preferences will come to define the table-stakes for desirable office space and industrial facilities. In fact, on the deal side, we’re just starting to see accelerated technology adoption. And in smaller organizations like medical or law offices, millennials are likely to manage their businesses in a similar way to how they manage their home lives.

So, over time, as bosses, millennials are going to expect to get most real estate business done without jumping onto a conference call.

Impact on Industrial Real Estate Although millennials do not yet comprise a significant portion of upper management, their preferences are already having an impact on industrial real estate. As consumers, they’re shaping the design of these facilities.

For example, millennials’ strong preference to shop online has been like a steroid shot for the growth of the supply chain, and that growth has resulted in much larger distribution centers.

Further, those warehouses are following the millennials back to the city center, as same-day delivery, including automated delivery notifications, is the growing expectation of the city-dwelling millennial. Expect these trends to continue as millennials begin to climb

their version of the corporate ladder and have greater influence on corporate behavior.

By and large, corporate real estate has traditionally been a people-centered business that revolves around personal relationships. While that is not going to change, the channels we use to forge and maintain those relationships and the tools with which we do business are changing fast.

Organizations that don’t adopt a digital approach will find themselves left behind, simply talking when no one is listening. •••

FRONTLINE

A Federal Attempt to Streamline the Permitting Process

By Tom Ewing With the realization that major infrastructure projects are critical to economic development, the federal government is attempting to streamline the environmental permitting process.

Regulatory reform has been a consistent priority for the Trump administration. One particularly important focus is streamlining the environmental permitting process, keeping reviews thorough, but on a schedule that is quicker, predictable, and less costly.

In August, the President moved

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Providing the Necessary Tools

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directly on streamlining, issuing Executive Order (EO) 13807 — “Establishing Discipline and Accountability in the Environmental Review and Permitting Process for Infrastructure Projects.”

The focus is on major infrastructure, i.e., projects reviewed by multiple agencies, requiring an Environmental Impact Statement (EIS).

Some important directives include: Deadlines: Timelines for environmental reviews and processes are to be reduced to “not more than an average of approximately 2 years.” In 2016, EIS completion took an average of 46 months, costing an average of $6 million. Within six months, the Office of Management and Budget (OMB) has to establish programmatic “CAP Goals” for “Infrastructure Permitting Modernization.” CAP goals are “cross-agency priority goals,” formally established in federal statute.

Efficiency: The EO requires a new review process called “One Federal Decision,” making just one federal agency the leader among all agencies involved.

Accountability: Going forward, personnel and agency performance plans must include “performance goals related to the completion of environmental reviews and authorizations.”

Agencies must track their work within a permitting timetable that includes an alert mechanism if deadlines are missed. OMB will review agency performance and determine penalties, if necessary.

Giving the Steering Council More Control The EO links its directives to the work of the Federal Permitting Improvement Steering Council (FPISC), established by Congress in the last federal transportation bill. The council

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has served more like a library, not the control tower. The EO changes that, giving the council leadership activities on a range of tasks and decisionmaking.

The EO-council link is additionally important because it connects friends in high places. Ohio’s Senator Rob Portman, for example, held a hearing — Cutting Through the Red Tape: Oversight of Federal Infrastructure Permitting and the Federal Permitting Improvement Steering Council — on September 7th directly focused on the FPISC and ways to make it work better.1 In opening comments, Senator Portman noted that on a new hydropower project, for example, a “sponsor has to brace itself for a permitting process that could last 10 years.”

First steps towards implementation started September 14th, the date by which the EO directed the Council on Environmental Quality (CEQ) to present an “initial list of actions.” CEQ focused on public involvement, agency leadership, and reliance on prior studies. CEQ will convene an inter-agency working group to identify permitting impediments. It will team up with OMB and the FPISC to develop One Federal Decision. Unfortunately, CEQ does not include a deadline for its initial work.

Streamlining is critical to economic development. Some next steps to watch for are the OMB’s proposed CAP goals, due in February 2018. In addition, there are policy proposals to allow the FPISC to assess project fees, to give the council a working budget.

New fees usually draw congressional attention, presenting another opportunity for economic development officials to interact with decision-makers to help make this critical effort succeed. ••• 1 https://www.hsgac.senate.gov/subcommittees/investigations/ hearings/cutting-through-the-red-tape-oversight-of-federal-infrastructure-permitting-and-the-federal-permitting-improvementsteering-council

FRONTLINE

The Competition for Amazon’s HQ2

By Dan Emerson Like contestants at a beauty pageant, cities across the U.S. and Canada are eagerly awaiting the announcement: where will Amazon decide to build its new $5 billion second headquarters, which will create 50,000 jobs?

On September 7th, Amazon announced plans to open Amazon HQ2, a second company headquarters in North America. Amazon expects to invest over $5 billion in construction and grow this second headquarters to include as many as 50,000 high-paying jobs. The company initially plans to spend $300 million to $600 million for an office tower or complex with 500,000 to one million square feet of space.

Amazon set Thursday, October 19th, as the deadline for proposals.

The company didn’t specify a specific date to announce its decision.

When considering locations and real estate options for HQ2, Amazon said it prefers:

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• Metropolitan areas with more than one million people • A stable and business-friendly environment • Urban or suburban locations with the potential to attract and retain strong technical talent • Communities that think big and creatively Amazon says HQ2 could be, but does not have to be an urban or downtown campus, a similar layout to Amazon’s Seattle campus, or a development-prepped site.

“We expect HQ2 to be a full equal to our Seattle headquarters,” CEO Jeff Bezos said in a statement.1 He indicated that cities would need to offer incentives to the company for it to move there. “Incentives offered by the state/province and local communities to offset initial capital outlay and ongoing operational costs will be significant factors in the decision-making process.”

Without commenting specifically on Amazon, Darin Buelow, a Chicagobased principal with Deloitte Consulting LLP, says, “It’s safe to say nobody really knows what any particular priorities are except for the project team within the company. Ultimately, every client we have had set a different weighting for some of the same factors; even companies in the same industry might weight something differently. So it would be really difficult to say ‘x’ is going to be most important to Amazon. Trying to get into their minds to figure out their priorities is pretty difficult; anybody who claims to know doesn’t really know.”

Buelow says it’s difficult to make generalizations about the incentives states may offer. “Each of the lower 48 states is in a different spot in terms of their willingness to be aggressive on incentives. Some really successful economies that are flourishing don’t need to be so aggressive. Others are exactly the opposite; they’re getting more creative and innovative.”

Throwing Their Hats in the Ring Not all of the HQ2 contenders are emphasizing incentives. The Denver Business Journal reported that, when

Colorado submitted its bid, the proposal emphasized the region’s highly educated workforce, quality of life, and global connectivity through its international airport. It didn’t offer any special financial or tax incentives, according to J.J. Ament, president and CEO of the Metro Denver Economic Development Corp.2 In Maryland, where Amazon already has two facilities and is planning a third, the city of Baltimore planned to pitch Sagamore Development Co.’s 266-acre development in Port Covington as the potential site for Amazon’s HQ2.

In Ohio, leaders from Cincinnati and Northern Kentucky said they planned to submit a joint bid that would also include Dayton in an attempt to encompass all of Southwest Ohio’s population and universities, the Dayton Business Journal reported.3 Of course, the state of Texas has a number of contenders. Two of the smaller cities vying are the Dallas suburb of Arlington — which has a major university, big sports teams, and an amusement park — and Denton, which has two universities and a combined total of more than 50,000 students enrolled in higher education In Arizona, the city of Phoenix pitched a former shopping mall site to attract Amazon. Park Central Mall was the first shopping mall in Phoenix back in the 1950s. Its retail stores are long gone; now it houses offices and data center operations. The cities of Tempe, Mesa, and Tucson also threw their hats in the ring.4 One of the lower-profile Florida cities, Doral, in conjunction with developer Codina Partners, has offered Amazon 47 acres of prime space in downtown Doral for the first phase of its HQ2 expansion. Future growth space for the Amazon project would include part of the 250-acre White golf course, which Codina and Lennar Homes bought in 2016 and had earmarked to use for single-family home development.

“When we looked at Amazon’s request for proposal, we felt like we met all the requirements to be the home of their second headquarters,” Doral Mayor Juan Carlos Bermudez told the

Miami Herald.5 “I may be a little bit biased, but I think Doral is a very good fit.”

In at least one case, the Amazon sweepstakes has brought together entities that are normally rivals, to make a joint proposal. Invest Buffalo Niagara (InBN) — the economic development organization representing the eight counties of Western New York — and Greater Rochester Enterprise (GRE) — the economic development organization representing the nine counties of Greater Rochester — announced a Buffalo-Rochester Metro Corridor pitch. It emphasized a lowcost operating environment; a hightech workforce; the area’s 67 colleges and universities; ease of travel; ties to Canadian businesses, universities, and researchers; and access to leisure activities.6

Rumor Has It… Meanwhile, there has been no shortage of media speculation about who may be ahead in the race. The New York Times suggested that Denver was a strong “finalist,” partly due to access to public transportation services provided by the Regional Transportation District.7 In early October, Bloomberg reported that Boston was among the front-runners, due to its proximity to Harvard and MIT, an airport with good connections to Seattle and Washington, D.C., and a low cost of living. But Amazon squashed the speculation with a tweet: “Bloomberg is incorrect -— there are no front-runners at this point.”8 ••• 1

https://www.washingtonpost.com/news/business/ wp/2017/09/07/amazon-is-looking-for-a-city-to-site-a-second5-billion-headquarters/?utm_term=.6d5c8d4e9334 2 https://www.bizjournals.com/denver/news/2017/10/05/metrodenver-will-push-lifestyle-workforce-over.html 3 https://www.bizjournals.com/dayton/news/2017/10/05/cincinnati-dayton-will-bid-jointly-on-amazon-s.html 4 https://www.bizjournals.com/phoenix/news/2017/10/03/parkcentral-mall-phoenix-s-first-mall-leads-bid.html 5 http://www.miamiherald.com/news/business/real-estate-news/ article176015966.html#storylink=cpy 6 http://www.rochesterbiz.com/News/PressRoomBuffaloRochester-Metro-Regions-Announce-Strategic-Collaborationin-Pursuit-of7 https://www.nytimes.com/interactive/2017/09/09/upshot/whereshould-amazon-new-headquarters-be.html 8 https://www.bloomberg.com/news/articles/2017-09-12/amazon-is-said-to-weigh-boston-in-search-for-second-headquarters

AREA DEVELOPMENT | Q4/2017

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FIRSTPERSON MICHAEL KRUKLINSKI

HEAD OF REGION AMERICAS

What is meant by “intelligent space design”?

Kruklinski: “Intelligent space design” is a space planning technique that allows real estate management professionals to determine the optimal layout of space to maximize utilization and efficiency. The positive impacts range from higher employee satisfaction to monetary savings through energy optimization.

How does the office workspace impact an employee’s performance?

Kruklinski: The physical workspace plays a large role in the well being of a company’s workers. If employees appreciate and enjoy the environments they are in each day, they will be more engaged and productive. According to a recent study by the International Interior Design Association (IIDA),1 half of the 1,206 employees surveyed who were satisfied with their workplace envisioned working at the company in the next year.

Workplace flexibility also leads to greater employee satisfaction. Open-office layouts with a variety of meeting space options, such as in Siemens New Way of Working (NewWow) offices, give employees choices during the workday. Remote working also gives employees work/life balance, and proper change management can ensure that this flexibility leads to productivity.

What is Siemens New Way of Working (NewWow)?

Kruklinski: NewWow was introduced in January 2011. Currently, NewWow has been implemented in more than 120 sites in 35+ countries around the world. It is an open-office configuration that allows for a culture of collaboration and trust. The setup has allowed for an organic rise of cross-functional teams, leading to increased productivity and employee satisfaction. One of the top goals of NewWow was to reach an optimum utilization of space at each location while keeping an open, inviting office environment.

How much input should a company’s employees have in designing their workspace?

Kruklinski: At Siemens, we feel that it is important to allow for managers and employees to have input in the design of their space. It ensures that each employee feels that his or her voice is being heard. While we can’t implement every idea, employees are certainly given the opportunity to express requests and concerns. This reinforces our mission

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SIEMENS REAL ESTATE

that our employees have a sense of ownership in the environment they will be spending a large amount of time in each day.

What other effects does space design have on a company? Its bottom line?

Kruklinski: At Siemens, we are invested in sustainability. The new Siemens headquarters in Munich2 is an example of how sustainability can play a role in building design. The effect on the environment in this project can be best seen in the following results: • The building’s annual CO2 emissions have been reduced to just nine kilograms per square meter.

• The building has 7,400 LED lamps and makes use of daylight and presence sensors, which has helped to reduce power consumption by 25 percent, helping Siemens to continue to meet its goals of having its building run with low operating costs.

• Sustainable building design is also cost-effective, as it allows the building’s systems to run effectively and leaves less opportunity for human error (for example, automated lighting systems prevent high electricity bills from an employee forgetting to flip the switch).

Another area where workspace design plays a role is business continuity. When an emergency situation arises, such as a natural disaster, snowstorm, or fire, the NewWow configuration allows our team members to work remotely from anywhere. Employee safety is our first priority, and no employee ever needs to put himself or herself at risk to travel to work.

A safe and productive day is just as accessible from a remote location or from home.

What about employees working remotely?

Can they be as productive as those who work in the company’s facility?

Kruklinski: Yes, employees that work remotely are just as productive, and sometimes more productive and satisfied, than those working at the office. Occasional remote working allows for a better balance of work and home for

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some employees, therefore, making them happier and working better. Siemens has also refined its change management program to ensure that expectations are properly communicated to employees.

I’ve read that some companies that have allowed employees to work remotely — IBM for instance — are now bringing them back into the office. Do you see this reversal happening and why?

Kruklinski: We have seen it happen at IBM and Yahoo, but Siemens currently doesn’t have plans to eliminate the option.

The privilege of working remotely is certainly dependent on the job function and performance of an employee. The NewWow offices are intended to create a balanced working life between in-office and remote, in which employees can move seamlessly from one to the other.

Anything else you’d like to add?

Kruklinski: One of the tenets of intelligent space management is data. Without knowing how your employees use their

workspace, it’s impossible to know how to properly manage your office. Siemens Real Estate (SRE) is exploring the use of technology in workspaces and conference areas that measures factors such as traffic between buildings, how many people are in meetings, and other information. From these statistics, SRE can determine exactly how much space is needed in the building, what kind of space, reduce its footprint, and ultimately make the workspace more efficient.

1 http://www.iida.org/resources/content/9/5/5/3/documents/Design-Leveraged_Vol2.pdf 2 https://www.siemens.com/press/en/feature/2014/corporate/2014-07-siemens-palais. php?content%5b%5d=Corp

THE ASSIGNMENT Area Development’s editor recently asked Michael Kruklinski about intelligent space management at Siemens and how office configuration can play a role in employee satisfaction and productivity, as well as in sustainability and continuity of operations — all of which ultimately affect the bottom line.

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AREA DEVELOPMENT | Q4/2017

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BUSINESSLOCATIONTRACKER 1 Amazon Plans Calgary Fulfillment Center Ama

2 Am Amazon’s Vancouver, Canada, Operations Center to Create 1,000 Jobs

Amazon will open its seventh Canadian fulfillment center — and the first in ALBERTA — in the Rocky View community of Greater Calgary. The 600,000-square-foot facility expects to hire 750+ full-time associates.

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Amazon has signed a lease for a new office complex in downtown Vancouver, BRITISH COLUMBIA, which will allow the company to double its workforce in the city.

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3

Fa Faurecia Opens Silicon Valley Tech Center

Faurecia, one of the world’s largest automotive equipment suppliers, has opened a new tech center in CALIFORNIA’S Silicon Valley.

The company aims to strengthen its relationships with innovative startups, leading universities, and new actors in the mobility sector.

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Ma Data and Cybersecurity Major Operations Idaho Hubs O

The FBI is building a 100,000-squarefoot data center, in Pocatello, IDAHO, which will create 350 jobs by 2019.

And, Buchanan & Edwards, a national cybersecurity and data management company, plans expansion in the same city and will hire 50–80 people.

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3

7 Au Automated Technology Company Opens in Joplin, Missouri

A startup in building automation, Automated Technology Company, has opened its new operation in Joplin, MISSOURI, where it plans to create 130 new jobs.

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Me MetLife Invests $25 Million to Expand Tampa Operations E

MetLife, Inc., is investing $25 million to expand its operations center at its existing campus in Tampa, FLORIDA, where it plans to add 430 high-wage jobs.

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

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EY Locates Headquarters in New York City

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EY LLP, one of the largest professional services firms in the world, will establish its new U.S. headquarters at One Manhattan West, New York, NEW YORK. The expansion is expected to create up to 1,152 jobs over the next seven years.

Ne Nestlé Dreyer’s Ice Cream Opens Wisconsin Distribution Center

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Nestlé Dreyer’s Ice Cream Company, a division of Nestlé USA, will open a 300,000-square-foot distribution center as part of its expansion in Little Chute, WISCONSIN, creating about 100 jobs.

The Cumberland County Improvement Authority is undertaking a $9.2 million initiative that will result in a Food Specialization Center to be located in Bridgeton, NEW JERSEY, creating 190 jobs and resources for new food production companies.

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New Toledo Axle Manufacturing Plant for Dana Inc.

Dana Inc.’s new high-tech axle production facility in Toledo, OHIO, located along I-75, will support automakers throughout the region and employ more than 350 people by 2020.

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Foo Specialization Center Food Planned in Bridgeton, New Jersey

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10 Hancock, Kentucky, Chosen for New Chemical Manufacturing Plant Ha

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WhiteRock Pigments Inc. will locate a $179 million chemical manufacturing operation in Hancock County, KENTUCKY, in the former 305,000-squarefoot Alcoa building, which has been vacant for nine years. The project is slated to open in April 2020 and is expected to create 124 full-time jobs.

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Shaw Industries Group Upgrades Tennessee Yarn Facility Sha

Floor products manufacturer Shaw Industries Group, Inc., will invest $42 million to upgrade its yarn facility in Decatur, TENNESSEE, creating 75 new jobs.

9 Maj South Carolina Expansion for Harbor Major Freight Tools

Harbor Freight Tools, a national tool retailer, plans a onemillion-square-foot expansion of its East Coast distribution facility in Dillon County, which is projected to create more than 500 new jobs, bringing the company’s total investment in SOUTH CAROLINA to more than $200 million.

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ADVANCED MANUFACTURING

GAUGING THE LONG-TERM COMPETITIVENESS OF THE U.S. ADVANCED MANUFACTURING SECTOR Although the U.S. ranks highly in terms of its global advanced manufacturing competitiveness, some challenges to this ranking must be addressed.

AREA DEVELOPMENT’S EDITOR recently posed some questions to Michelle Drew Rodriguez, Manufacturing Leader for Deloitte’s Center for Industry Insights, about the strengths of the United States’ advanced manufacturing sector and the steps being taken to overcome the challenges it is facing.

AD: How does the U.S. stand today from a North American as well as global perspective when it comes to advanced manufacturing competitiveness?

Rodriguez: The U.S. ranks among the top of the list globally in terms of current manufacturing competitiveness, according to the Global Manufacturing Competitiveness Index study1 that Deloitte conducted in conjunction with the Council on Competitiveness, providing insight from more than 500 manufacturing CEOs and executives around the globe. Moreover, the U.S. is expected to overtake China for the No. 1 position — to become the top country in terms of manufacturing competitiveness — by 2020. The U.S. has consistently improved its ranking on global manufacturing competitiveness over the years 14

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Engineers use a wireless remote control of robotic welding and robot workpiece for smart factory, industry 4.0 concept

— from its 4th position in 2010, to 3rd in 2013, and then to 2nd in 2016.

AD: What are some of the reasons manufacturing executives have continuously increased U.S. rankings on manufacturing competitiveness?

Rodriguez: The reasons include: • Talent — Executives rank talent as the #1 driver of manufacturing competitiveness. The U.S. is home to many of the top universities in the world as well as world-class research institutes — all of which creates a strong pipeline of future talent needed to compete in the global manufacturing landscape.

• Innovation ecosystem and entrepreneurial spirit — Our strong collaborative innovation ecosystem connects people, resources, policies, and organizations to efficiently

translate new ideas into commercialized products and services.

• Technology — The U.S. has strong capabilities and investments (including basic and applied R&D) in developing and commercializing advanced manufacturing technologies like predictive analytics, the Internetof-Things (IoT), and advanced materials, which are seen as critical to future manufacturing competitiveness.

Other factors like a strong and low-cost energy profile (from shale gas reserves/oil fields), favorable policies and infrastructure, and strong dedicated industrial clusters provide strong support for innovation.

AD: What is the projection for the future global competitiveness of this sector?

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Rodriguez: Strong global demand and production growth in manufacturing signals optimism in the global manufacturing sector. The U.S., Japan, Germany, and many other manufacturing powerhouse nations have shown strong manufacturing production activities and steady growth over the last year. The majority of experts project the steady growth to continue and have a favorable outlook on the future competitiveness of manufacturing.

Manufacturing earnings and exports are stimulating economic prosperity causing many nations to increase their strategy focus on developing advanced manufacturing capabilities. These advanced manufacturing capabilities are the fuel for advanced industries (which employ a high percentage of STEM workers and have high R&D intensity) and drive a substantial portion of patents generated, R&D conducted, high-skilled jobs created, and high-technology products exported. Therefore, strengthening advanced manufacturing industries is a critical factor in increasing the future competitiveness and economic prosperity of a nation.

AD: How does today’s U.S. legislative uncertainty with regard to trade agreements, regulations, taxes, etc. fit into the picture?

Rodriguez: An overarching concern expressed by executives is policy, legislative, and regulatory uncertainty. Many suggest that this uncertainty directly impacts both short- and long-term decision-making. When business leaders are developing strategic business plans and making investments with a 10–15-year-plus time horizon — yet are faced with a reality in which policies do not provide enough long-term clarity or stability — it makes it incredibly difficult to make key decisions. Through interviews we have conducted, many executives indicate uncertainty is a huge inhibitor and creates barriers to investment. When uncertainty is high, companies typically delay major decisions and/or investments.

According to our Advanced Technologies Initiative,2 a dramatic increase in the number of regulations has resulted in higher compliance costs, which have grown at a sharper rate than inflation-adjusted GDP and manufacturing output. Manufacturing executives also indicate excessive regulation disproportionately hurts smaller manufacturing firms, hampering their ability to invest in R&D, reducing their profitability, and causing some companies to move their operations abroad.

Free trade agreements (FTAs) do play a role in increasing the manufacturing competitiveness of a nation. For example, Mexico has FTAs with the United States and Canada, but also with 42 other countries. This is significantly higher even when compared to the United States at 20 and China at 18. The presence of such FTAs gives Mexican goods unrestricted access to current and future potential demand markets. However, uncertainty on the future viability of trade agreements can be a downside to companies that are looking forward to invest in new markets and geographies. Uncertainties do eventually rise up with the increase in the number of parties participating in a trade agreement, with each party bringing its own demands to the table. That being said, multinational trade agreements like the Trans-Pacific Partnership (TPP), which the U.S. recently pulled out of, can be beneficial to participating countries, provided the terms and conditions are negotiated properly.

AD: According to the skills gap study conducted by Deloitte and the Manufacturing Institute,3 two million skilled jobs will go unfilled over the next decade. Do you see any progress in closing that gap?

Rodriguez: Good question. In the short-term, many manufacturers are AREA DEVELOPMENT | Q4/2017 AREA0743.indd 1

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indicating the skills gap issue is only becoming more acute and pervasive across their entire operations.

Manufacturers are also well aware of the looming skills gap that is not only affecting their own industry but also other industries and nations. Everyone is competing for top talent. Highskilled technicians, engineers, and workers are in great demand.

According to the skills gap study, it takes an average of 94 days to recruit employees in the engineer /researcher/scientist fields and an average of 70 days to recruit skilled production workers in the U.S. However, in the longer run, due to the increasing proliferation of advanced technologies in manufacturing, there is the potential for technology to help address the gap.

So how do manufacturers address the skills gap we have in the here and now? They will likely need to rethink their talent sourcing and recruiting strategies to attract new employees, improve candidate screening practices, define clear competency models and role-based skills requirements, and invest in internal training and development. U.S. manufacturing would also benefit from more robust public outreach programs to increase the interest in manufacturing — like the newer ads manufacturers are positioning to attract millennials.

These public outreach programs should also inform and educate parents — who are the key career influencers for their children — about how a modern manufacturing job career is high-tech and innovative, and a high-paying alternative to other career options.

Multinational trade agreements can be beneficial to participating countries, provided the terms are negotiated properly .

AD: What impact will women have in closing the skills gap?

Rodriguez: Underrepresented and relatively untapped demographic groups like women have a greater role to play in fixing the skills gap. Women constituted about 47 percent of the U.S. labor force in 2016, but only 29 percent of the manufacturing workforce. If manufacturers can get their fair share of women into the industry, it will go a long way in closing the skills gap.

Research also shows that gender diversity benefits a manufacturing firm through improved ability to innovate, higher return on equity (ROE), and increased profitability.4 So, in addition to helping address the looming skills gap issue, recruiting and retaining women professionals can also be highly beneficial for 16

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manufacturing firms from a bottom-line perspective.

According to our 2017 women in manufacturing5 study, opportunities for challenging assignments, work life balance, and attractive income are often the most important aspects of a women’s career. So manufacturers should pay close attention to these details if they want to plug the skills gap by hiring women professionals.

AD: Are apprenticeship programs making any significant headway?

Rodriguez: According to the U.S. Department of Labor,6 the number of active apprenticeship programs has increased in recent years from 19,260 in 2014 to 21,339 in 2016. There has also been a steady increase in active participants in these programs — from 357,692 in 2011 to 505,371 in 2016.

But compared to other developed nations, the U.S. is challenged in the quality and quantity of these apprenticeship programs. Germany, France, and England have model apprenticeship programs that efficiently fuse formal education with on-the-job training and certification programs. In these nations, the absolute number for apprenticeship starts — the number of individuals who enter an apprenticeship program in a year — is way ahead of the U.S. In fact, on a per capita basis, the U.S. lags far behind in terms of apprenticeship starts. This indicates that apprenticeship programs are highly underutilized in the United States.

AD: How are manufacturers attempting to change perceptions about today’s advanced manufacturing careers?

Rodriguez: Manufacturers are participating in greater numbers in awareness raising programs such as Manufacturing Day in which thousands of manufacturers across the nation open their doors and help students, teachers, and the public see firsthand how cool and interesting modern manufacturing is today. There are also lots of grass root efforts, like supporting and mentoring student led competitions — such as FIRST Robotics and Girls Who Code.

There are also initiatives at the state-level that aim to raise awareness about modern manufacturing. For instance, the Illinois Manufacturers’ Association’s Education Foundation hosted 127 events statewide for students and their parents “to explore manufacturing facilities near their school districts.”7 AD: How does the use of robots and artificial intelligence (AI) fit into the scheme of things?

Will the use of AI in manufacturing eliminate more jobs than it creates?

Rodriguez: The use of robotics and AI is only slated to increase in the future. In fact, they are just one set of a group of technologies we refer to as exponential technologies. These technologies are growing and enabling change at an accelerating pace — an exponential pace — which is difficult to grasp by our linear-thinking for free site information, visit us online at www.areadevelopment.com

human minds. As these technologies become more advanced, the rate of their advancement also increases (speed doubles, costs halve), thus ushering in sudden change and disruption in end-applications and industries.8 The use of such exponential technologies will require a significant number of highly skilled workers. The time traditionally spent on some of most repetitive and manual elements will be replaced by new, value-add elements that are hard for us to predict today. The future of work in manufacturing will be a collaboration between man and machine, not the replacement of one for the other. Totally new jobs will be created with titles like digital twin architect, collaborative robotics specialist, predictive maintenance system specialist, etc.9

AD: What other challenges are faced by today’s advanced manufacturers?

Rodriguez: Talent, technology, and transformation are going to be three huge players in the battleground for the future manufacturing competitiveness landscape. Those companies that attract the best and brightest are responsive and flexible enough to adapt to the changing head winds and strategically use technology to become more agile, and digital will be at the head of the pack. ■ 1

https://www2.deloitte.com/global/en/pages/manufacturing/articles/global-manufacturing-competitiveness-index.html https://www2.deloitte.com/us/en/pages/manufacturing/articles/advanced-manufacturing-technologies-report.html https://www2.deloitte.com/us/en/pages/manufacturing/articles/boiling-point-the-skills-gap-in-us-manufacturing.html 4 https://www2.deloitte.com/global/en/pages/human-capital/articles/diversity-to-inclusion.html 5 https://www2.deloitte.com/us/en/pages/manufacturing/articles/women-in-manufacturing-industrial-products-and-services.html 6 https://doleta.gov/oa/data_statistics.cfm 7 http://dc.medill.northwestern.edu/blog/2017/08/23/a-perception-gap-not-a-skills-gap-may-be-manufacturings-biggest-problemwhen-looking-for-new-hires/#sthash.akxNHX0V.bdoQyKkD.dpbs 8 https://su.org/concepts/ 9 http://www.chicagobusiness.com/article/20170815/NEWS05/170819921/wanna-be-a-digital-twin-architect 2 3

INFRASTRUCTURE/ LOGISTICS

Industry Sea Changes Affecting U.S. Shipping Gateways Damage from recent hurricanes could have a ripple effect across U.S. seaports, underscoring the rising demand for more sophisticated industrial real estate and infrastructure.

By Walter Kemmsies, Managing Director, Economist and Chief Strategist, Port, Airport and Global Infrastructure (PAGI) Group, JLL

W

hen Hurricane Harvey swept through Houston, the short-term effect in and around Port Houston was that cargo was rerouted, trucks were diverted, and railroad connections disrupted. The long-term impact of both hurricanes Harvey and Irma on U.S. seaports remains to be seen,1 but the disruptions already evident help underscore the rising activity in vulnerable seaport communities — as well as the other gateways they work with in the ongoing war for near-instant delivery.

Demand for industrial real estate across the U.S. is stronger than ever, with no small thanks owed to the newly expanded Panama Canal. It’s been just over a year since the major maritime corridor completed its $5 billion expansion project, but its effects are already clear, particularly around East and Gulf Coast ports. The market was more than ready for a new, more efficient way to AREA DEVELOPMENT | Q4/2017 AREA0744.indd 1

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tenants may find they need to become more agile in keeping up with industry change.

3. Larger ships plus fewer port calls? Expect more competition.

More ocean carriers are bringing larger vessels, across all cargo types, to U.S. ports now that the Panama Canal has expanded. Meanwhile, port leaders have also been expanding their own capacity, deploying new cranes, dredging channels, deepening berths, and removing air draft restrictions for some time. With more ports now able to accommodate their massive cargo loads, shipping liners could decide to cut the number of port calls they make, which will only intensify fierce regional port competition.

The Port of Houston

connect people to goods.

Larger ships and greater volumes are making sophisticated shelf space a hot commodity in all 14 of the port markets tracked in JLL’s 2017 Seaport Outlook,2 and developers are doing their part to answer the call for more modern warehouse and logistics space. More than 25 million square feet of industrial real estate is being built in top U.S. ports as we speak, with most (65 percent) of that construction centered around the East and Gulf coasts.

Five Trends Influencing Seaport Real Estate Strategy

1. East and Gulf Coast ports are making waves.

The expanded Panama Canal, increased trade with Asia, and importers’ pursuit of a four-corner strategy throughout the coasts are creating major momentum along the eastern and southern coasts. Recently, mid-Atlantic and southeastern seaports have experienced a 20 percent uptick in trade volumes compared to just 5 percent growth on the West Coast. All this cargo means good space is getting harder to find. For example, over the last two years alone, East Coast ports including New York/ New Jersey and Jacksonville have seen the biggest drop in vacancy rates.

Many shippers have been finding rail is a less expensive and more sustainable option than trucking, with intermodal loads now accounting for more than half of railcar volumes.

2. M&A is changing the players and the map, adding uncertainty.

The four long-standing shipping alliances have become a trio, with now just three alliances masterminding 90 percent of the world’s trade routes. This shift could disrupt control and travel routes in unseen ways. And as carriers work out new ways to stay competitive and reduce costs, industrial real estate

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4. First mile strategy is spurring technology advances — but there’s a catch.

Efficient e-commerce is utterly dependent on efficient trucking, and the trucking industry is responding by ramping up technology strategy, such as incorporating autonomous vehicles into their fleets.3 But technology can’t eliminate congestion on the roads, especially in and around crowded ports. A complex, multi-year infrastructure overhaul is necessary to address these growing snarls, but that would mean slowing down delivery times and driving up operating costs in the meantime.

5. The rail industry is becoming a viable alternative to trucking.

Many shippers have been finding rail is a less expensive and more sustainable option than trucking, with intermodal loads now accounting for more than half of railcar volumes — 10 percent more than it was 10 years ago. And now with road congestion issues on the rise, rail is poised to become even more attractive, as long as it continues to become more nimble.

Leaders at each gateway, and all the stops in between, will experience these industry trends in different ways. But, much like weathering a hurricane or other major disruption, one key way forward will be to lay out a real estate strategy that is resilient enough to sustain long-term growth, while also being nimble enough to handle imminent change. ■

1

http://www.costar.com/News/Article/CoStar-Analysis-More-Than-One-Quarter-of-HoustonsCommercial-Real-Estate-May-Have-Suffered-Flood-Damage/193809 http://www.us.jll.com/united-states/en-us/research/property/ports 3 http://www.businessinsider.com/autonomous-trucks-tesla-uber-google-2017-6 2

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SITE SELECTION

Utilizing Advanced Technologies to Evaluate the Location Decision Although manufacturers are using advanced technologies, including artificial intelligence, in their operations, they’ve yet to leverage these advances in the site selection process.

By Rajiv Jetli, U.S. Industrial Products Operations & Advanced Manufacturing Leader, PwC

M

anufacturing network design, specifically site selection, is an extremely complex and important decision facing industrial manufacturers.

The task of determining where and how to build a manufacturing facility is impacted by a host of variables, none of which is inconsequential.

Moreover, today’s global economy and the increasing digitization of information have further increased the complexity of the decision, even as they open up substantial growth opportunities. Layer in the fact that many industrial manufacturers are facing uncertainty in understanding cyclicality, volatility, and customer order patterns, and you can understand the heightened level of risk involved in the decision-making process.

Within this environment, industrial manufacturers understand they need to develop smarter products that can serve as critical solutions within complex, high-stakes manufacturing supply chains. To drive success and integrate their operations in today’s marketplace, they’re harnessing new technologies, from artificial intelligence (AI) and advanced analytics to robotics and additive manufacturing. The rapid adoption of these advanced technologies is leading to disruption in production processes, cost management, order fulfillment, product life cycles, quality control, hiring and training, among other areas.

Are We There Yet? While advanced technologies are readily being applied within the four walls of manufacturing sites and across supply chains, we’re still not seeing industrial manufacturers leverage advanced technologies to aid in determining network design and site selection. For instance, AI is being embraced in the production environment and in supply chain optimization to capture information about factory performance and predict supply chain disruptions. Yet, there are no packaged AI solutions on the market for optimizing the manufacturing location decision and footprint design.

Companies tend to conduct their own analysis or rely on consulting firms to evaluate the factors important in a site selection decision. Some of this information can be leveraged when planning a new facility or site, but not necessarily when evaluating future site locations. Like IdealSpot, SiteZeus and LLamasoft are bringing together workforce data, traffic analysis, spending information, real estate availability, and machine learning modeling to deliver effective site selection recommendations. Through these products, we’re seeing the emergence of advanced technologies being brought into the site analysis process, but we’re still in the early stages.

Looking at the current model, the process typically includes an analysis of multiple elements spanning operating costs, speed to market, proximity to AREA DEVELOPMENT | Q4/2017 AREA0745.indd 1

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suppliers, access to talent, supply chain continuity, taxes, competitive responses, and access to technology, among other considerations.

These variables, along with considerations on regional macroeconomics, policies, and regulations are included in a robust five-step approach aimed at thoroughly assessing and optimizing complex global manufacturing networks. These steps typically include: 1. Understanding of the current situation and underlying economics 2. Definition of a short list of scenarios 3. Model design and simulation of scenarios 4. Synthesis and business case development 5. Implementation Aggregating and maintaining all of the viable data points across these criteria can be extremely challenging.

It is easy to become overwhelmed with the amount and complexity of data involved when making facility locations decisions. As a result, analyzing these inputs and making accurate and timely decisions has historically been more art than science. To streamline the analysis and make it less complex, simplifying assumptions are often used, which can unwittingly reduce the impact of any particular solution.

Integrating Advanced Technologies Into the Process

AI and machine learning, among other advanced technologies, are not yet being leveraged through any publicly available packaged solutions focused on site selection and design.

As advanced technologies are integrated into the site selection process, the future modeling approach should gradually change, allowing for increased use of data and accelerating decisions, thereby enabling increased benefits. For instance, AI could act as an aggregator of “big data” and enable management teams to make more informed decisions about site selection beyond what a typical analysis might determine. Layering geospatial information with supply/demand patterns,

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cost of distribution, site vulnerability to acts of nature (e.g., earthquakes or flooding), and population densities can lead to new insights on site selection.

Machine learning is a sub-field of AI that uses large amounts of data to discover important patterns. Training the various data inputs is key to making advancements in machine learning, and effective modeling has to be developed to extract the most value from the data on hand. The data exists, but it has not yet been leveraged holistically into a technology-driven platform that can be consistently relied upon to make decisions.

In the case of manufacturing site selection, training data might include current manufacturing footprint inputs spanning locations, square footage, costs, workforce, taxes, and throughput.

Economic development agency data would need to include up-to-date information on available properties, workforce, utilities, state and local taxes, and available incentives. Finally, competitive intelligence data might include what other companies in the region and competitive space are doing.

AI and machine learning, among other advanced technologies, are being increasingly utilized by industrial manufacturers to improve workflows and supply chain economics, as well as to develop more solutions-oriented products. However, these advances are not yet being leveraged through any publicly available packaged solutions focused on site selection and design. There remains a clear opportunity for a homegrown system or other third-party solution to serve this need. Given the pace of technological innovation in the sector, we believe it’s only a matter of time before these advancements are harnessed to aid in this increasingly complex decision-making process. ■

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LEADING CONSULTANTS TO

INDUSTRY

PROVIDE INSIGHTS ON THE LOCATION DECISION PROCESS

• JOSH BAYS | SITE SELECTION GROUP, LLC • JENNIFER CARROLL | TRUE PARTNERS CONSULTING LLC

• BEN CONWELL | CUSHMAN & WAKEFIELD • KATE CROWLEY | BAKER TILLY CAPITAL, LLC • VON HATLEY | JONES WALKER CONSULTING, LLC • BRAD LINDQUIST | GREGG WASSMANSDORF NEWMARK KNIGHT FRANK

• BILL LUTTRELL | WERNER ENTERPRISES, INC. • SETH MARTINDALE | CBRE • TRACY KING SHARP | BOYETTE STRATEGIC ADVISORS

• MARK SWEENEY |

MCCALLUM SWEENEY CONSULTING

• DEAN J. UMINSKI | CROWE HORWATH LLP • LESLIE WAGNER | GINOVUS

•

JOSH BAYS, I Principal, Site Selection Group, LLC

Top Mistakes Companies Make During the Site Selection Process Oftentimes, companies make mistakes in the location decision process that may prove detrimental to their long-term success — Here are the most common ones.

An independent location advisory, economic incentives, and real estate services firm, Site Selection Group completes more than 100 corporate projects per year for a variety of project types including manufacturing plants, distribution centers, headquarters, call centers, and data centers. Although we counsel companies to approach site selection in an objective manner, we have seen companies make mistakes as we guide them through their expansion, consolidation, or relocation projects. As the old saying goes, you learn more from your mistakes than your successes.

In an attempt to save companies from the hardships of their predecessors that we’ve witnessed over the years, we’ve compiled the top five mistakes we routinely see companies make in the location decision process.

Consciously eliminating these mistakes from your next site selection project will result in the most effective location decisions.

1. Assembling an incomplete internal project team

Properly navigating the location decision process can be a complex endeavor that requires a high degree of cooperation and coordination across multiple disciplines. Although most companies understand the need for vendor(s) to possess the skill sets along the entire value chain of site selection, some companies make the critical mistake of not applying the same philosophy when assembling their internal team. Whether it is confidentiality concerns, the overall lack of resources, or siloed business units, we frequently see key stakehold-

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ers missing from our clients’ internal teams.

Based on our experience, a complete project team should include stakeholders from operations, supply chain, finance, human resources, real estate, and tax. In addition, it is imperative that all stakeholders be informed throughout the entire process even though their individual involvement might ebb and flow as the project progresses.

2. Loosely (or incorrectly) defining project specifications

Speed-to-market is a common concern for most site selection projects. Understandably, companies are typically anxious to commence the process, but unfortunately, at times, their hastiness sacrifices the accuracy of their project specifications. Because each site selection process should be highly customized based on the specific project’s technical requirements, starting the process before these are properly defined (or blatantly changing specifications mid-course) can have a costly effect on the ultimate location decision. At a minimum, we recommend spending the proper time and resources to tighten up headcount and capital investment figures, as well as technical real estate and utility requirements prior to starting the search.

3. Letting economic incentives drive the project early in the process

Some companies can become enamored with the topic of economic incentives to a fault. It is natural for companies to enjoy being monetarily rewarded for creating jobs and investing capital into a community (or keeping up with the Jones…or Foxconns).

However, the early stages of the location decision process are not the time to let economic incentives drive decisions. Overtly emphasizing the importance of economic incentives too early can likely have a counterproductive

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effect on the various issuing bodies (municipalities, counties, states, utilities, etc.). In addition, it is the objective of almost all companies to have operations far outlive an economic incentives package. Therefore, there is going to be a time when operations are not subsidized by these incentives.

One of our core philosophies is to find the optimal location that ensures our client’s ongoing operational success, and to only use economic incentives to draw meaningful distinctions between a set of competitive semifinalist locations. There is a delicate balance to maximizing economic incentive opportunities while making sound location decisions.

4. Understating the tightness of the industrial real estate market

Due to a variety of macro factors, most manufacturers have a speed-tomarket concern (as noted earlier). In most cases, the most effective way to shorten the timeline until a project is fully operational is to locate in an existing or retrofitted building. Again, in our experience, most productionoriented projects are not able to find an existing building suitable for their operational needs, and not for lack of effort; rather, these buildings simply do not exist. The market for secondgeneration, quality, production-oriented buildings is as tight as ever.

Due to these conditions, it is not uncommon for projects to be forced to extend timelines to accommodate a build-to-suit scenario. We recommend that companies run an independent, yet parallel search for shovel-ready land sites to mitigate risk. It is cheap insurance against a very competitive real estate market.

5. Internal bias toward locations early in the process

Objectivity should be the most important aspect of corporate site selection. The site selection process is meant to be a top-down approach

where all location options are initially considered, while a series of analyses and filters are applied to pare down the field of candidates. This is a survival-of-the-fittest exercise that ensures companies are only selecting the most competitive locations.

Far too often, companies engage location consultants with preconceived notions that seriously jeopardize objectivity in the search process.

This is typically born from companies doing some level of location due diligence internally prior to selecting their preferred vendor. While we believe this initial research can be a valuable way to evaluate the performance of your vendor and can also introduce helpful market and operational intelligence, we strongly encourage companies heed the advice of their partner and remain objective throughout the process. >< JOSH BAYS is a principal and leads Site Selection Group’s industrial and economic development engagements. Throughout his career, Bays has developed various cutting-edge analytical platforms that have enabled clients to optimize their location decisions. In addition, he is a critical part of the company’s management team and helps provide and implement strategic direction for the firm.

Bays previously worked at Trammell Crow Company in the company’s Corporate Site Selection Group where he managed the company’s GIS databases and researched critical location variables, including economic incentive and real estate conditions for corporate operations. Bays has completed more than 500 projects for global clients, including Adidas, Amazon.com, Bimbo Bakeries, Boeing, Harley-Davidson, Papa John’s, and Ryder. Bays received his bachelor’s degree and his MBA from the University of Texas.

ALSO BY JOSH BAYS: • Navigating Uncharted Waters: 5 Trends Affecting Capital Investment Plans (Q1/2017) • Utility Companies: Powerful Economic Development Partners (2017 Directory) • 2016 Top States for Doing Business Commentary: Power Companies’ Support Helps Top States to Score High (Q3/2016)

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Generation X (those born between 1965 and 1984) and baby-boomers (born 1946–1964). The generation after millennials (now being called Generation Z) includes those born after 2005, who will begin entering the workforce in about 10 years.

GENERAL TREND #1 — URBANIZATION

•

JENNIFER CARROLL | Manager, Credits and Incentives, True Partners Consulting LLC

How Millennial Workforce Trends Are Affecting Business Companies looking to hire millennials need to take into account their lifestyle and workplace preferences, while figuring out how to train them and integrate them into a multigenerational workforce.

The business world continues to puzzle at “the millennial mind” — whether it is conflating their love of avocado toast with financial insecurity, or advocating for unorthodox office arrangements to capture their attention, companies remain perplexed by the youngest generation in the workforce. The simple answer may be that, like the Gen Xers and Boomers before them, there are general trends rather than defining traits. And for those who wish to attract millennial and millennial-minded workers, we will explore those general trends that appear near and dear to millennials’ hearts.

First, to define the parameters of the millennial generation: A 2014 article1 from The Atlantic described millennials as persons born between 1982 and 2004. They are preceded by

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Millennials appear to embrace more of an urban lifestyle — more so than Gen Xers or baby-boomers. The reason behind this urge for “re-urbanization” may vary, from environmental consciousness to financial constraints.

Regardless of the motivators, many millennials abjure the suburban sprawl for smaller abodes, close proximity to mass transit, and an emphasis on walkability.

The business world’s recognition of this re-urbanization was demonstrated by Amazon’s HQ2 Request for Proposal. One of Amazon’s seven core requirements for their second headquarters was access to mass transit routes. While Amazon articulated a number of other factors to be considered, demanding meaningful mass transit access as a core requirement demonstrates the company’s understanding of the younger workforce’s focus on urbanization. The New York Times hypothesized and narrowed down the field to Boston; Washington D.C.; and Denver because of the efficient (and improving) mass transit systems already in place.2 Of course, when Amazon chooses HQ2’s location, we will see just how committed the company is to re-urbanization.

Millennials’ tendency toward an urban lifestyle may be a product of the New Urbanism movement, which is pretty millennial itself. Begun in the early 1980s, New Urbanism strives to reduce car dependency and create interconnectedness among the community. The movement itself is a reaction to the rise of suburbia, and the overtaxing of vehicle infrastruc-

ture systems. New Urbanism promotes environmentally friendly and sustainable communities by creating walkable population centers containing a variety of housing and job types.

The tenets of New Urbanism are (1) walkability, (2) connectivity, (3) mixed use and diversity, and (4) a strong emphasis on community, encouraging a traditional neighborhood structure with open spaces and community gathering areas, as well as the necessity for community life (residential, retail, green space, commercial, etc.).3 New Urbanism’s emphasis on connection and community appears to fall in line with many millennials’ priorities and lifestyle. Many millennials eschew the larger suburban homes and picket fences for urban lifestyles, conveniently located to public spaces, retail operations, and transportation hubs. Companies attempting to attract a large millennial workforce would do well to consider facilities located within mixed-use developments that may fit within their employees’ urban lifestyles.

GENERAL TREND #2 — NEED FOR GENERAL AND SPECIALIZED ON-THE-JOB TRAINING Regardless s of educational background, almost all millennial employees place a high value on onthe-job-training. This need for specific and general training is felt both by the employee and the employer. Today’s clients and consumers demand highly specialized products and services, requiring every company’s workforce to be specialized in each company’s unique business line, and oftentimes its resources and equipment.

Companies looking to hire bluecollar laborers may employ workers with certain vocational training; however, many industrial operations utilize custom equipment, requiring specialized training to operate and repair, which cannot be obtained in a general classroom setting. Further-

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TOP RANKED FOR TALENT AND TRAILBLAZERS. Arizona is among the top 5 states for skilled and available workforce (CNBC’s Best States for Business, 2016). As a result, Arizona companies like Intel, Axon, Honeywell, Raytheon, Silicon Valley Bank, ZipRecruiter and others always have access to the labor force they need.

That’s not all they have access to. Arizona’s abundant sunny days, endless outdoor activities, vibrant nightlife, and easy commutes help attract and retain top talent. Beyond being a place where you can achieve your professional goals, Arizona also provides a lifestyle that allows you to achieve your personal goals. It’s this perfect balance that makes life better here.

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more, finding a candidate with any formal industrial experience is becoming increasingly difficult, as public education is primarily focused on graduating “college-ready” students.

Organized and efficient on-the-job training programs enable industrial companies to hire dependable and intelligent candidates who may not have the desired industrial work experience.

Corporations needing office workers also need robust training programs. New college graduates, whether liberal arts majors or STEM graduates, often arrive out of college knowing how to think, but needing guidance on the particular skills to successfully execute their job functions. Few colleges focus on skillsbased training. Many graduates obtain a degree without proficiency in customer service, spreadsheet manipulation, or technical writing. Companies and workforce development organizations need a plan to train new hires, regardless of experience level, for these general and transferrable skills.

Additionally, like their industrial counterparts use custom machinery, so too do many office functions employ custom and perhaps even proprietary software. One of the biggest challenges companies are facing is how to efficiently and effectively train their employees on their equipment and software. Workforce development organizations that possess the flexibility to support company-specific training will better position themselves to companies needing assistance closing the knowledge gap.

To complement formal on-the-job training curriculum, companies may implement mentorship programs. By pairing less experienced employees with senior workers, the new employees will receive individual attention to achieve their best abilities. A mentorship program allows millennial employees to further their training by focusing on the areas in which they most need development while

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recognizing their strengths. On the flip side, a mentorship program grants millennial employees face time with more senior company members and strengthens internal relationships.

This arrangement may even provide an opportunity for the millennials to provide new ideas or “disruptions” from their perspective and areas of strength. A mentorship program not only offers an opportunity to strengthen multigenerational ties, but it also offers a collaborative atmosphere to complement formal training programs.

GENERAL TREND #3 — FLEXIBILITY As millennials grew up with the advent of the Internet, a common critique of the generation is that their attention is difficult to hold. In more polite terms, millennials excel at multitasking. As such, in order to attract millennial workers, companies must become more flexible, both in workspaces and in schedules.

Many millennial-minded companies eschew cubicles for open workspaces. Not all industries can offer collaborative workspaces, as some job functions require privacy and solo concentration. However, hybrid offices — which include a combination of private offices, cubicles, open floor plans, and public spaces — enable employees to select the workspace that is most effective for them. The backlash from the “cost-effective” cubicle, which felt like a trap to many office workers, now pushes companies to invest in their office layout and workspace. The concern is not just how to efficiently house employees, but also how to create offices where workers want to be.

Millennials, and millennial-minded employees crave not only flexible workspace, but also flexible schedules.

Among innovative companies, there is recognition that individuals’ peak performance times differ, and individuals may have external obligations. The challenge is to balance this recognition with the necessary collaboration

and “face-time” created by traditional work schedules.

IN SUM Millennials have begun rising through the ranks of corporate hierarchies and will soon overtake the baby-boom generation. Companies looking to hire millennial employees and retain those existing in their current workforces will weigh the desires of this generation with the traditional practices. Some companies may need a complete overhaul of their approach to millennials, while others will just tweak their existing practices. Regardless of where a company is on the millennial spectrum, the only thing that is certain is that we will have to undertake a new understanding of the next after-millennial generation …a.k.a. Generation Z. If all indications continue, Generation Z will be larger than either the baby-boomer or millennial generations, really giving us something to puzzle about. >< 1

Bump, Philip, “Here is When Each Generation Begins and Ends, According to the Facts.” The Atlantic, March 25, 2014. https://www.theatlantic.com/national/archive/2014/03/ here-is-when-each-generation-begins-and-ends-according-tofacts/359589/ 2 Badger, Emily, Quoctrung Bui, Claire Cain Miller, “Dear Amazon, We picked Your New Headquarters for You.” The New York Times, Sept. 9, 2017. https://www.nytimes.com/ interactive/2017/09/09/upshot/where-should-amazon-newheadquarters-be.html 3 Briney, Amanda. “New Urbanism.”ThoughtCo.com, February 28, 2017. https://www.thoughtco.com/new-urbanism-urbanplanning-design-movement-1435790

JENNIFER CARROLL is a manager in Credits and Incentives at True Partners Consulting, focusing on negotiating and securing incentives for companies expanding, relocating, consolidating, or making extraordinary investments. Carroll received her Juris Doctor from the University of Notre Dame and her Bachelor of Arts, cum laude, in Politics from the University of Dallas. She is licensed to practice law in Texas.

ALSO FROM TRUE PARTNERS CONSULTING: • The Importance of an Incentives Review Process (2017 Annual Directory) • Investing in Workforce Benefits Employers and Their Communities (Workforce Q4/2015) • The True Value of Economic Development Incentives (2014 Annual Directory)

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their places.

NOT ALL MALLS ARE CREATED EQUAL

•

BEN CONWELL I

Senior Managing Director and Practice Leader, eCommerce and Electronic Fulfillment Specialty Practice Group, Cushman & Wakefield

Is There A Warehouse in Retail Assets’ Future?

Reviving dead malls as warehouses is not as easy as it may seem; they’re more likely to become “lifestyle” destinations or mixed-use complexes.

As you drive past an empty lot, you may come across the sign “Mall Closing.” There have undoubtedly been a slew of mall closures across the country in recent years. In 2006, there were 1,350 malls in the United States; by the end of 2016, that number was estimated to be 1,150.

The dramatic shift in the retail industry, largely due to the growth of ecommerce, has led to predictions that more malls in the U.S. will close in the coming years. In fact, we’ll probably see the figure drop to about 850 malls in the next 10 years, with the biggest hemorrhaging to begin in about two years, and each year after that getting worse and worse. And while the headlines suggest that these closing malls are fit to become distribution centers for e-commerce giants, the death of malls hasn’t exactly led to a sudden spike in warehouse developments in

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Weak malls are getting weaker, and the strong are getting stronger.

The prospects of malls vary widely depending on classification — positioning, space, and location. For example, most class A malls are thriving.

These elite malls — the South Coast Plazas and the Bal Harbour Shops of the world — attract the wealthy. But class B and C malls are struggling to find customers and keep tenants as anchor department stores — JCPenney, Macy’s, and Sears, to name a few — continue to shutter.

Due to industry changes and evolving consumer habits, retailers and property owners have been adjusting their strategies to cater to an increasingly complex retail environment.

And those who do not adjust to the changes do so at their own peril.

Retailers who survive the evolution will be those who think in terms of new-Commerce by providing customers with full-service solutions that combine online shopping and bricksand-mortar environments.

Still, what remains of a retailer’s store fleet matters more than ever.

For example, 59 percent of millennial shoppers say a nearby physical store is important to them when they buy products online. But this desire isn’t limited to millennials. Observation shows that consumers across all age groups attach significant value to the physical linked with the online.

There are 1,150 malls in the country, and class B and C malls are roughly a third of the inventory. The typical mall in the United States is between 800,000 and 1.2 million square feet in size, with corresponding acreage generally falling between 60 and 120 acres, depending on a myriad of factors. You can either attempt to reuse the existing structures, redevelop them, or scrap them.

Imagine the one-million-squarefoot, dead, enclosed suburban mall of today redeveloped as a 400,000-square-foot lifestyle center.

Where the vacant Sears once stood is now a hotel geared toward business travelers. Where the vacant Macy’s anchor spot was is now a six-story office building. An adjoining upscale apartment complex has been added with residences above new street level shops and medical offices. The roof has been removed, and what was once the mall’s main walkway is now a pedestrian thoroughfare, and empty apparel shops have been replaced by unique eateries, experiential boutiques, clicks-to-bricks retail concepts, and — of course — grocery stores.

This is what we will increasingly see happening.

Keep in mind, of the 200 malls that have disappeared over the past decade, about 150 of them are still retail properties — they were just converted to other shopping center types after changing hands for dimes on the dollar and being redeveloped by new owners.

REIMAGINING MALLS So what are these dead malls being turned into? While we’ve witnessed a growth in distribution centers and a decrease in malls across the country, malls are not being converted into distribution centers as the headlines suggest. It’s much more challenging to pull off this transformation than one may think, and less prevalent too.

Let’s consider the factors involved.

The first challenge is that even the dead and dying malls are often located in a city or town’s main commercial path. Take the example of Hawthorne Plaza Shopping Center on Hawthorne Boulevard in the Los Angeles area. The mall went into decline in the 1990s due to competition from other shopping malls as well as job cutbacks in the area, eventually closing in 1997.

It is possible to transform the build-

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ing into a logistics center, but when we think about the neighborhood, that prospect doesn’t seem likely. The whole area is seeing a transformation now that we haven’t seen previously.

With a location on a major boulevard in LA, close to the new NFL stadium, do we really think the community would welcome a distribution facility with semi-trucks loading and unloading throughout? Probably not. And it’s not just in this area. We’ve seen cases across the country of local resistance to giant warehouse developments.

Locals don’t want them on their main commercial path, and our decisionmakers in government aren’t willing to let go of the fantasy sales tax revenue that will again flow from the property.

Lastly, we shouldn’t forget that use restrictions recorded on a property might dictate what can and cannot be developed on the site. So, the next time the media trumpets the idea that dead malls are turning into logistics facilities, dig a little deeper. There’s a chance it may not be possible, and there’s even the possibility that these “malls” weren’t actually retail sites to begin with.

IF NOT A WAREHOUSE, THEN WHAT? We predict about three-quarters of the malls that close in the next decade will re-emerge as some sort of lifestyle center as described above, with living space or mixed-use space. Real estate investment trusts, such as Seritage Growth Properties, are reconsidering use of space, carving many former malls into smaller parcels for retailers that produce more sales per square foot. They have found success by repositioning malls and giving people a reason to come beyond just filling shopping bags.

We will increasingly see some sort of combination of live-work-play. We are also more likely to see indooroutdoor spaces, rather than sterile, old

indoor malls, and mall transformations from traditional retail to office environments. For example, the former Hawthorne Plaza Shopping Center is being marketed as a development opportunity with options to transform the mall into a large, creative office campus, R&D facility, headquarters, or back office.

As part of this mixed-use space, there will likely be a housing element, providing a walkability and convenience factor for millennials and babyboomers alike. It’s all about a lifestyle choice today; we want to walk out the door, go to a café, pick up groceries, and buy a few things from our favorite retailers. As people leave downtown for the suburbs, they still want the excitement and accessibility of living in a dense community.

So, the next time you see an empty lot and a “Mall Closing” sign out front, don’t assume that a full-blown distribution center is moving in. While we believe we will see that conversion becoming more common in the next few years, in the meantime, it is more likely the closed mall will become a lifestyle destination or mixed-use development. ><

BEN CONWELL is senior managing director and practice leader for Cushman & Wakefield’s eCommerce and Electronic Fulfillment Specialty Practice Group for the Americas. As leader of the special practice group, Conwell provides Cushman & Wakefield clients with the most up to date market-leading counsel to effectively plan and execute their supply chain and fulfillment and real estate strategies.

ALSO FROM CUSHMAN & WAKEFIELD: • How Technology Will Overcome Demographics (Q2/2017) • Tackling The Risk Factors of Third-Party Data Centers (Data Centers 2017) • Knockin’ on the Golden Door: Top Real Estate Trends to Beat the Competition (Q1/2017) • Location Strategies in the War for Millennial Talent (Workforce Q4/2016) • E-Commerce Development, Industrial Land Pricing, and the “Amazon Effect” (Q3/2015)

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the same whether we are discussing multibillion-dollar megadeal investments, a $5 million facility expansion, or anything in between. Though entertaining dinner table and cocktailparty topics, the stakes are high for corporate real estate executives to understand how to answer these questions and effectively use government incentives to tip the scales in the capital approval process.

•

THE “BUT FOR” REQUIREMENT

KATE CROWLEY I Principal and

Negotiated Incentives Practice Leader, Baker Tilly Capital, LLC

Using Incentives to Tip the Corporate Capital Approval Scales A company will be better able to pursue and justify the use of incentives in the capital approval process by communicating and illustrating their impact on its investment decision.

In recent months, megadeals are the talk of the economic development community and catching headlines: Foxconn investing $10 billion to locate in Wisconsin; Toyota/Mazda looking to build a $1.6 billion manufacturing facility; and, most recently, Amazon soliciting proposals for HQ2, which is expected to have a total capital outlay of $5 billion.

In the wake of these news stories, those of us working in site selection, economic development, and corporate real estate have undoubtedly had several dinner table and cocktail party conversations about government incentives and their impact on corporate investment decisions: • Do the incentives really matter?

• Do the companies need the money?

•How are taxpayers protected in these megadeals?

The answers to these questions are

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There are an estimated 10,000 government incentives programs in existence across the country and wildly more when considering international programs. With that many incentive programs, there is no one answer to any of the questions surrounding corporate investments. However, of these tens of thousands of incentive programs, there is one commonality among them all: a requirement that program administrators determine the incentive is materially impacting a company’s investment decision.

Stated simply, the administrator must determine that “but for” this incentive the company would not proceed with the investment. This may be called many things: the “but for” requirement, the incentive-impact effect, the material inducement resolution.

Regardless of what the statutes and bylaws call this important requirement, an effective partnership with a government entity hinges on a company’s ability to satisfy it. We’ve all seen companies approach the “but for” incorrectly, e.g., requesting incentives because their neighbor or competitor received some, infeasibility suggests a move across state lines, or a company representative making reference to certain political connections. The possibilities for how to address the requirement the wrong way are perhaps endless.

Addressing the requirement the right way comes down to one simple thing: clear and accurate communica-

tion regarding a company’s investment decision and capital approvals process. For our small or mid-sized clients, this investment decision may be made with a trusted advisor over a cup of coffee. For our larger corporate clients, the decision often requires formal approval from a capital investment committee or board of directors.

Whether it’s a coffee shop or boardroom decision, clear communication of the factors influencing a company’s investment decision are imperative for achieving governmental, community, and taxpayer support for an incentives award.

CAPITAL APPROVAL JUSTIFICATIONS While the capital approval processes vary from client to client, all involve the consideration of important alternatives when making decisions, including alternative locations, project scope, or to do nothing at all. Typically, numerous other considerations create such complexity in the capital approval process that corporate executives are challenged to step back and pinpoint the impact that incentives play in the investment decision.

To create some clarity on this issue, let’s further explore some of the common impacts that we see incentives have on our clients’ capital approval processes.

• Location Determination

Incentive awards have a significant impact on the cost comparison between alternative locations. For companies that have the flexibility to consider multiple locations for a planned investment, the value of incentives to both capital and operating budgets can very often be the deciding factor.

Sometimes this is a consideration of sites thousands of miles apart, where state or foreign governments compete for the investment with significant incentive awards. Occasionally, this is a consideration of two sites on

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opposite sides of a street, where one side qualifies for an incentive and the other side does not.

The evaluation of competing locations is one that elected officials and program administrators know well. Comprehensive costs comparisons — inclusive of labor, utilities, and building costs — aren’t necessarily required to justify an incentive award, but corporate executives should be ready to discuss how these many factors play into their investment decision.

• Project Scope

In a capital approval process, the term “value engineering” may be the most commonly used phrase in discussions among decisionmakers. Can we make due with less space? Is there a more cost-effective way to build the same space? Can we phase our growth? Government incentives can be the catalyst in deciding to go bigger, better, or faster.

Incentive program administrators want to provide the capital that makes your company stronger and more deeply rooted in the community. Corporate executives motivated to enhance the project scope with the use of incentives should be prepared to illustrate the alternative project scopes and commit to the enhanced scope in the incentives agreement.

• Financial Feasibility

Many company representatives are hesitant to discuss their cost of capital or investment returns in the context of an incentives discussion. But, rest assured, most elected officials and program administrators know that you need to make a profit. If your capital approval process includes a requirement for performance metrics such as growth margins or investment returns, don’t shy away from considering the impact of incentives on your

investment decision. As a justification for incentives, careful communication of your performance may be able to make an infeasible project suddenly feasible.

Each client has different drivers in the capital approval process, but we’ve seen that sometimes its location, sometimes it’s cost, and frequently it’s evaluation of performance metrics. Communicating and illustrating the impact of incentives on these investment decisions is a critical role of the corporate executive in pursuing and justifying incentives, while internally defeating the status quo. Those executives undoubtedly tip the scales in their capital approval decisions and allow for bigger, better, and faster investments through partnership with public entities. ><

KATE CROWLEY, principal and leader of the Negotiated Incentives Practice with Baker Tilly Capital, LLC, has been with the firm since 2009 and specializes in providing comprehensive capital solutions for development initiatives and business expansions. These services include strategic planning and impact analysis, tax credit and incentives analysis, and negotiation, development incentive review and implementation, and creative financing and funding solutions.

ALSO FROM BAKER TILLY: • Foxconn: Breaking Down a $3 Billion Incentives Package (Q3/2017) • Proposed U.S. Policy and Tax Changes: What the Foreign Manufacturer Needs to Know (Location USA 2017) • Integrated Planning for Food Processing Facility Expansion (Food Processing - 2015)

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•

VON HATLEY I Managing Director, Jones Walker Consulting, LLC Clawback Provisions: Negotiating Now to Optimize Long-Term Benefit Negotiating a suite of incentives for development projects is about more than striking a positive agreement from the outset; it’s also about ensuring that the financial benefits of the deal are preserved and not reduced over the lifetime of the project.

Clawback provisions are becoming an increasing necessity for state and local development officials.

These provisions are typically linked to job creation or capital investment targets. They are designed to require a company to return money or forgo favorable concessions/abatements if the company fails to demonstrate that it has achieved pre-established goals during the siting process.

On the upside, clawback provisions link businesses and government agencies as shared stakeholders, reinforcing the commitment of both parties to common objectives. For businesses, however, poorly negotiated clawback provisions can create significant downside risk, particularly when markets are cyclical or local economies tend to fluctuate rapidly. What

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local agencies may appear to concede up front, they may recoup down the road by claiming lower than required performance against contractually agreed metrics.

What are some of the key strategies you should use when negotiating clawback provisions? Here are a few: Know the parties with whom you are negotiating, narrow the scope of the proposed provisions, and simplify reporting requirements. In addition, you should embed flexibility, in terms of timeframes and performances measures, into the agreement and, finally, ensure that your deal stands the test of time and changing government administrations.

KNOW THE ECONOMIC DEVELOPMENT NEGOTIATORS’ MINDSET State and local economic development agencies and officials vary significantly in their level of sophistication. Before beginning the negotiation process, do your research. Look at deals that have been negotiated previously, assess agency processes and internal resources, and gain a clear understanding of their primary objectives.

Listen to the questions being asked by top-level leadership, but also pay attention to questions that relate directly to state and local taxable income (or lack thereof ) that are coming from key staff whose task it will be to calculate economic impact and enforce the clawbacks. From the moment the conversation begins, and long before negotiating the details, you can learn a lot about the level of sophistication of your counterparts by the questions they ask.

Identify the source of the funds allocated to the project. A substantial deal is normally negotiated from the office of the secretary of commerce who manages in-house programs.

However, funds may rely on any number of other programs available

through different state agencies or additional local governments. For the most part, you want to avoid clawbacks associated with capital programs or from other public agencies that are not included in the final project performance agreement, especially when those incentives are coming from existing programs that are simply reallocating funds.

Be prepared to negotiate firmly but fairly. Besides inking a deal, your company and the development agency are partners in creating a rewarding, sustainable future. Win-win agreements are almost always better than deals in which there are clear winners and losers or they may be deemed to create an unfair competitive advantage for your project over incumbent companies in the area.

NARROW SCOPE AND SIMPLIFY REPORTING The broader the clawback provisions, and the more complex the metrics to which they are tied, the higher the likelihood that a business may have difficulty attaining the required levels of performance. To lower your risk, negotiate terms that focus on a limited set of measures and require simple, straightforward reporting.

For example, clawbacks should only be for items solely used for the project since you don’t want to obligate your organization into paying money back for things that are shared for public use. In addition, should some type of public infrastructure be offered that will require additional capital investment for the project, ensure that clawback provisions allow for a credit to be applied toward overall clawbacks to offset the capital improvement invested by the company.

Avoid onerous reporting obligations. For example, simplify jobcreation reports by basing them on wages paid, not jobs, and reporting on the same forms that are reported

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to the department of labor. Accounting for capital investments may be somewhat less straightforward than tallying wages paid, but existing financial reporting forms and schedules (and their related metrics) can be used to demonstrate performance of specific obligations. For instance, if the project requires that a facility be built, your initial estimates for construction may be higher than what is ultimately expended simply due to good management by your project team.

In instances such as this, commit to constructing the building, rather than investing a specific amount for the building. In this manner, if the building ultimately comes in at 95 percent of the original cost, you should not be penalized in the form of clawbacks. Tie the overall clawback to either wages paid or order of magnitude of the investment, but not both.

EMBED FLEXIBILITY INTO AGREEMENTS We all know that the only constant is change. So why negotiate deals that assume that today’s economic and business conditions will remain static over the next year, five years, or decade?

Start at the top, by thinking about events that are truly out of your control. Among other things, the recent Caribbean hurricane season and its devastating impact on Texas, Florida, Puerto Rico and elsewhere serves as a good reminder to insert a force majeure clause into any development agreement. You don’t want to be held to performance obligations when unforeseen causes make those goals inadvisable, impractical, or simply impossible.

Market conditions often ebb and flow. For wages paid over a length of time, consider including a reserve option that allows you to count wages paid in excess of the agreed amount, within a specific period, toward future commitments. Another option may

be to create a “bank” of wages from the outset, against which you can borrow during a given timeframe. You may also want to avoid having wage payment commitments for concurrent years of the agreement (i.e., make a wage commitment for full employment within five of the next seven years after ramp-up); wages paid during “off ” years could be applied retroactively or to future reporting periods.

The fact that “there are no straight lines in business” doesn’t always count against a company. Favorable conditions can help accelerate positive results. Get an early-out clause so that the terms of the agreement are fulfilled even if you achieve performance objectives ahead of schedule.

Conversely, it can also be helpful to include a hold clause, enabling you to put the project on hold for a period of time.

For funds needed for project investment, if you anticipate needing more money up front, try negotiating longer-term commitments for the back end of the deal. This will allow for a greater level of financial security during the earlier, ramp-up phases of a project. In addition, even with a new building, each year will require some level of capital maintenance or improvement. Calculate and utilize this lifetime of project investment to your advantage, especially when these additional expenditures are taxable.

WHEN ADMINISTRATIONS CHANGE, YOUR AGREEMENT SHOULD NOT Although some of today’s voters may disagree, election cycles are relatively fast. Sooner than you think, you may find that a city, county, or state is under new leadership that has a new set of political and economic development priorities.

Make every effort to ensure that the commitments made by both parties transcend changes in an adminis-

tration. The rules that applied on day one of the agreement should apply for the full term of the project, and not for the term of the political officials who sign the contract.

Perhaps most important, avoid boxing yourself in such a manner that you are not able to take advantage of other tax-incentive programs in the future. Participation in one economic development initiative with a few government agencies (commerce and an educational institution, for example) should not preclude you from exploring and taking advantage of future opportunities offered by other agencies (such as a transportation department).

In the end, fine-tuning clawback provisions should not be an overly onerous part of the negotiation process or impede agreement on mutually beneficial economic development projects. Done right, clawbacks can help incentivize government agencies and businesses alike to create jobs, improve profitability, and contribute to health of the economy. ><

VON HATLEY works to support clients that are considering expansion, relocation, or consolidation of business operations.

He also provides support to economic development entities seeking to stimulate growth. Hatley has more than 30 years of experience serving as a manufacturing executive, strategic management consultant, university educator, and economic development director under three separate Louisiana governors.

ALSO BY VON HATLEY: • Corporate Executive Survey Commentary: What Should Be Included in the EDO Toolkit? (Q1/2016) • Choosing the Optimal Site for an Aviation-Related Project (2015 Auto/Aero Site Guide) • How Does Economic Development Legislation Affect Your Bottom Line?

(Q4/2013)

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•

BRAD LINDQUIST | GREGG WASSMANSDORF | Senior Managing Directors, Newmark Knight Frank Why Local Geography Still Matters in the Global Location Decision When analyzing the primary cost and quality factors that drive the site selection decision, companies need to be aware of the differences that exist not only regionally but also locally.

As global markets continue to flex with economic and social risks — and globalization itself is under attack from some quarters — companies continue to seek locations around the world where they can grow their business profitability, with an eye on measured risk. Based on its market size, skilled workforce, capacity for innovation, low energy costs, and other factors, the United States continues to be a premier destination for foreign direct investment. For our non-American clients looking at the vast U.S. market and geography, it can be a daunting challenge to consider where to locate new facilities of any type. Our clients acknowledge and recognize that vast differences in operational costs and conditions exist across the country — of course smaller cities in the interior will be cheaper than the tier-one metros of New York and San Francisco — and yet it is generally unknown how much variation also exists within sub-regions of the country.

It is common to hear references made to the business climate of “the Southeast,” “the Midwest”, “the Southwest,” “California” (always California on its own), “the Great Lakes States,” and so on. Yet, generalizations about regions mask a great deal of variation within those regions when one closely examines the things that matter most to business: the presence of workforce and talent; utility quality and cost; infrastructure capacities; availability of economic incentives; and other operating costs and conditions. These site selection factors (“location drivers”) are the details that differentiate locations that may be bad, good, or great for a new corporate investment, and there is often more variation at the local level than people commonly expect. Hence, when companies go global, their success often depends on place characteristics that are highly local and may only be discovered through a comprehensive site selection process.

PRIORITIZING TALENT Recent location consulting work illustrates this general point and is worth relating in detail. Newmark Knight Frank (“Newmark”) partnered in 2016 with a

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European manufacturer to support their global footprint expansion in the United States. Based on general supply chain and customer service requirements, we targeted six states in the Midwest, a region that our client expected was a relatively homogeneous business environment. Their first education in U.S. geography was to learn that this area spanning roughly Kansas City to Louisville included more than 200 counties; 20 potential metros, cities, or towns that met our preliminary screening criteria; and numerous utility service territories.

It’s at this level that the site selectors’ work really begins.

As the global search for talent becomes more challenging, labor market due diligence becomes increasingly important. This requires extensive research to incorporate current state analysis, examination of historical trends, forecasting, and a scan for opportunities where talent can be developed and a workforce pipeline sustained. Businesses can no longer just build a facility and assume that the workforce will come or be readily available.

For our European client, desktop labor analysis revealed that within a single day’s drive across our Midwest search region, wages for targeted occupations and similar skills varied up to 25 percent. Moreover, there was a strong divergence between communities and labor pools that were growing and others that were shrinking. These demographic and workforce dynamics allowed for the elimination of some communities at this stage of analysis, but also highlighted the importance of field research. Interviews with local business leaders, comparable employers, universities, colleges, and other training providers provided greater insight than data alone. Interviews, field research, and collaboration with local economic development organizations provided granular detail on levels of workforce competition, labor

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Equally compelling is the variance

availability, turnover and absenteeism, productivity, and the potential labor pipeline for future skills availability in each market.

FACTORING IN UTILITY, REAL ESTATE, TRANSPORTATION COSTS

in real estate

In tandem with the search for talent, our clients are prioritizing locations with cost-effective utility solutions that ensure both operational reliability and facilitate long-term business growth needs. This was true of our European client.

As shown in the table on page 38, the cost of utilities varied between 24 percent and 60 percent within a one-day driving territory. Our client was again surprised at how many utilities were servicing the region; the diversity of service approaches; public, private, and co-op ownership structures; the various ages and conditions of local infrastructure; the regulatory differences from state to state; and, as a consequence of all of these factors, the costs of service delivery.

Equally compelling is the variance of real estate costs and availability, which serve as a fundamental determinant of a location decision for some projects. In this instance, we observed land prices for 25-acre development parcels range nearly 500 percent, and capital spending requirements vary more than 50 percent in cases where an existing building could be expanded or retrofitted for our client’s requirement.

Real property tax rates also varied dramatically and were more than double in jurisdictions that were just a few hours’ drive from each other. This variation on an annually recurring cost was surprising to our foreign investment client.

Transportation costs were assumed by our client to be a relative well-known factor, costs per mile over the road by truck being the primary consideration. Even here, however, site selection and business acumen suggested that this client might benefit from intermodal transportation options available in the Midwest region. A truck-rail-truck transportation strategy held the opportunity of reducing freight costs by nearly 40 percent for a significant portion of its shipments.

costs and

availability.

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IMPLICATIONS OF INCENTIVES

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After screening for all the aforementioned factors and costs, the final phase of strategic site selection (and perhaps

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loitte Consulting LLP’s strat-

the most sought-after) Selected Business Cost Variances in U.S. egy and operations practice is the implications of based in Chicago.

Midwest Communities Within a 1-Day Drive incentives on the project proforma. Even within the Capital & Location ALSO BY BRAD LINDQUIST: United States, 50 different Operating Costs Variances • The Role of Labor in Advanced Manufacturing states mean there are 50 Property 500% (Advanced Industries 2014) different approaches for • Corporate Executive Survey Property Taxes 120% how to support busiCommentary: Which Location Factors Are ness investments and job Payroll 24% Top of Mind? (Q1/2016) creation. Governments at Payroll Taxes 11% every level offer a great GREGG WASSMANSDORF Electricity variety of tax and non- tax 45% is a senior managing director in Newmark Knight Frank’s financial incentives to Natural Gas 60% Global Corporate Services businesses in return for practice and is responsible Water 24% job, capital, and research for service delivery and process innovation across all serand development investSewer 36% vice lines, with specialization ment. While incentives in the fields of real estate Road vs. Intermodal 38% alone do not drive locaportfolio optimization, business location strategy, facility tion decisions, the modern Incentives 96% site selection, and economic site selection perspective incentives procurement.

Source: Newmark Global Strategy – sample project data, 2017 is that their overall impact He has been an advisor to corporate clients in a wide must be considered in the variety of industries, includcontext of their influence ing aerospace, automotive, on investment and operatadvanced manufacturing, financial and business services, food and ing cost environments. Indeed, most tion continue to reach new heights, beverage, life sciences, and supply chain company boards and executive leadour clients are seeking locations that and distribution, among others. ership expect state and local officials balance their needs for labor markets Wassmansdorf previously founded and led to show support for any significant that meet niche and cross-sector talthe location advisory and incentives pracinvestment or job-creation activity. ent requirements, competitive operattice at another global real estate services In this European FDI example, ing costs, high quality of place, and firm. In that capacity, he worked on the location strategy, site selection, economic among three competing finalist states economic incentives that maximize incentives, or transaction implementation and communities, the total value of value-return to their business. The for projects in the United States, Canada, the incentives packages varied nearly companies that will experience the and abroad. Wassmansdorf graduated from Queen’s University with his Bachelor 100 percent, and their program strucmost success are those that leverage of Arts degree (honors) in Urban and tures were quite different. In the end, and capitalize on the great variations Economic Geography. He then secured a based on financial and other locathat exist regionally and locally within national fellowship and relocated to Los Angeles to earn his master’s degree in tion quality and risk assessments, the the primary cost and quality drivers Geography from the University of Southcommunity with the largest incentives for business location. >< ern California (USC). package was declined in a favor of another location with a more optimal ALSO BY GREGG WASSMANSDORF: BRAD LINDQUIST joined Newmark Knight blend of workforce, real estate, and • Business Taxes in Canada Present Frank Global Corporate Services’ conutility considerations. Understanda Competitive Advantage (Location sulting practice in 2013, bringing broad Canada 2011) ing and reconciling these many and strategic expertise across all asset types and capabilities global in scope. Areas of diverse location factors across a relaspecialization include business location Derek Tokarz, Director, and tively small U.S. region was a fascinatstrategy, facility site selection, economic Asia Lamar, Consultant, ing process for the foreign inbound incentives negotiations, and real estate portfolio optimization. Lindquist has over at NKF Consulting also contributed company management.

17 years of experience assisting corpoto this article.

Successful businesses will continue rations and public agencies in aligning to seek to identify strategic global their business and facility implementation strategies with their corporate objectives locations for the growth and expanand operations. Prior to joining Newmark sion of their corporate footprint. And Knight Frank Global Corporate Services, as economic activity and competiLindquist was a senior manager with De-

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•

BILL LUTTRELL | Senior Locations Strategist, Werner Enterprises, Inc.

Technological and Other Changes Steering Logistics Decisions For manufacturing and distribution…it’s logistics, logistics, logistics, which is revolutionizing the supply chain — including the location decision process.

The mantra of “location, location, location” is still alive and well and used by many to describe the superlative attributes of a location or site being promoted to investors. However, for those investors involved in manufacturing and/or in warehouse/distribution, a much more important mantra should be “logistics, logistics, logistics.” Why? The answer is threefold: 1. Logistics should determine a location — and not locations determine logistics; 2. Logistics is experiencing tremendous technological changes; and 3. Logistics is about to become a lot more expensive.

The stakes are high and understanding and implementing smart logistics will determine future winners and losers.

For the past decade, corporations

have curtailed planned capital investments in new facilities and instead have concentrated on optimizing their entire supply chain to capture savings, increase productivity, and better meet changing consumer demands.

This optimization process included revamping supplier networks, analyzing various transportation options, improving inventory control, upgrading material handling and packaging methods, redefining work forces, and reassessing future location and facility requirements. As a result, American manufacturing has become more lean and mean, and manufacturing has led the way in what has been a slow recovery of the U.S. economy.

Corporate site selectors are seeing an increase in activity not seen since 2004. Capacity utilization rates have almost rebounded to their near normal average of 80 percent, a threshold that typically triggers investment in new facility capacity. Indeed, industrial real estate has become the new choice for institutional investors, as vacancy rates and cap rates have both decreased considerably. It appears that a more sustained U.S. recovery is under way, but this U.S. recovery, along with global influences, will have consequences for logistics.

TRANSPORTATION With new investment in facilities on the rise and the “Amazon effect” unfolding, the main focus on supply chain optimization is moving on from improving and upgrading the systems and activities inside the facilities, to the outside where there is more emphasis on improving the time, efficiencies, and costs associated with transportation, including just-in-time (JIT) supply chains on the inbound side to omni-channel fulfillment and last-mile delivery on the outbound side. On average, transportation accounts for more than 50 percent of all supply chain costs, with inventory costs accounting for 20 percent.

All modes of transportation (trucking, rail, ocean, and air) play a very important role, and each has its own operational and commercial advantages. Most of the transportation costs are associated with trucking, as trucking moves approximately 70 percent of all goods in the U.S. In fact, 80 percent of all of the communities in the U.S. are served by trucks only.

If large loads need to be moved more than 300 miles, rail is probably a better alternative to trucking from a cost standpoint. However, knowing in advance where loading ramps, intermodal facilities, and working spurs are in the system is essential. Keep in mind that not all rail ramps and intermodal facilities are created equal.

For example, only certain intermodal facilities offer truck “trailer-on-flat-car” (TOFC) access.

In today’s world, what is most important is the integrated transportation system (intermodal and multimodal).

To be successful, the integrated transportation system needs to provide a great deal of coordination, flexibility, and complementary features including safety, cost, accessibility, scheduling, reliability, and good service. Even though costs versus time are the most important factors in considering which mode or mode combination is best, other factors such as distance, quantities, weight, dimensions, loading and unloading, service, congestion, and routing are all important to individual shippers. Please note that a good logistics analysis prior to selecting a site should include these logistics considerations as well.

LOGISTICS HUBS Some areas of the country are natural logistics hubs. Many have natural features such as deepwater harbors (San Francisco and New York City) or large navigable rivers (St. Louis and New Orleans) or lakes where ports have developed (Chicago and AREA DEVELOPMENT | Q4/2017

39

Cleveland). Ocean ports are typically gateways to international trade (Los Angeles and Savannah), but from a domestic logistics standpoint they are limited by the water they are backed up against. Port-centric real estate is in high demand and, thus, costly if at all available. This has given rise to more inland ports.

Some logistics hubs are historic rail or highway nodes (Kansas City and Dallas) that continue to grow. Most large logistics hubs are in major metro areas. One thing that the largest metro areas have in common is that they possess many different transportation modes that, in combination, provide the region a robust range of transportation options and services that ensure they have efficiencies and competitive pricing. Other common traits include having large populations

with related workforce and consumer markets. All combined, these metro area logistics hubs attract even more investment across many industries, which helps to diversify the local economies, which in turn helps sustain the region.

However, congestion and higher operating and living costs eventually catch up with the inner-city density, causing sprawl to the suburbs. U.S. suburbs are where the majority of Americans live (51 percent as of 2015).

Suburbs are also the areas where most industrial land and facilities are located and have the heaviest transportation traffic flows. New developments in transportation technology (drones and autonomous vehicles) will occur in these metro areas first, as the technologies strive to deliver better logistics services to the greatest

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Rural areas have had the most difficult time. Rural U.S. population is currently at its lowest point in U.S. history and now accounts for just 16 percent of the nationâ&#x20AC;&#x2122;s population. In comparison, the population share of rural America in 1910 was 72 percent, 50 percent in 1920, and 25 percent by 1980. The outflow has been significant. Historically, there has been little federal government assistance or strategy in place to help address the situation. Rural communities have been on their own, which says volumes about their pioneer spirit and heritage. Quality of life, independence, and lower costs of living are rural areasâ&#x20AC;&#x2122; main appeal.

Currently, the logistics opportunities are dependent upon how remote a particular rural community is from

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metro areas, and more specifically how connected they are to the transportation network. Rural communities typically fall into one of four different classifications: 1. Communities close in to a metro suburban area in which they may eventually become suburbs themselves; 2. Communities that are truly rural, but have access to a good four-lane state highway or close access to an interstate highway, have rail access, or may be a regional retail hub; 3. Rural communities or locations relying on attracting a great deal of tourism; and 4. Rural communities that are just plain “out there,” far from traditional logistics transportation and with no rail.

Can this outbound rural trend

finally stabilize and perhaps reverse?

Quality of life and lower prices are certainly making the rural choice become more attractive. Advancements in IT and communications, a global explosion in world population that needs to be fed, and the technological advancements in such things as 3D printing and autonomous trucking may also help rural areas.

One positive trend of note — global trade has increased significantly from rural America. The emergence of third-party logistics providers (3PLs) in the last 20 years has opened the gates of international trade to numerous small and medium-sized firms, which would have never happened before. In one Midwest state, 82 percent of the companies that export are small and medium-sized enterprises with fewer than 500 employees. This group gener-

ated nearly one quarter (24 percent) of the state’s total exports of merchandise in 2012. Even baled hay is being exported from this state to Asia.

ON THE HORIZON In sum, there are some major events that could affect logistics in the very near future. After decades of neglect, there is fairly wide bipartisan support for a major investment in upgrading and repairing America’s infrastructure. While this is great news, the proof will be in the legislation itself. In addition, America is poised to become not only energyindependent, but also a global leader in energy-related exports — lowering our trade deficit and providing long-

THERE’S A LOT GROWING ON HERE.

Continued on page 42

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BILL LUTTRELL Continued from page 41

term lower energy prices to manufacturing and transportation.

There also exists a more looming situation. We are about to enter a significant capacity shortage situation in trucking. It is already difficult to find enough qualified truck drivers, and this December the federal government will implement regulations mandating that electronic logging devices (ELDs) be installed on all trucks built since 2004. This will force a significant number of small and medium-sized trucking companies and independent truckers out of business, adding to the 70,000 + trucking companies/individuals that have gone out of business over the past 10 years.

A major competing industry to truck driving is construction. There exists the real possibility that there will be an upswing in construction jobs due to the improved economy, the rebuilding following the recent hurricanes and fire devastation, as well as the construction work on the infrastructure. The capacity situation in trucking will most definitely raise logistics cost significantly across all industries. >< BILL LUTTRELL is a senior locations strategist with Werner Enterprise’s Werner Global Logistics division. He has responsibility for Global Location consulting with a specialization in both domestic and cross-border, international projects, particularly in manufacturing and warehouse distribution and related supplychain analysis. Luttrell has managed over 180 site selection projects domestically and overseas. Previous work experience includes positions with the World Bank, Deloitte/Fantus, JLL, and the Texas Department of Commerce, where he ran the Texas State Office in Tokyo, Japan.

ALSO FROM BILL LUTTRELL: • Corporate Executive Survey Commentary: Logistics Still Drives Location for Manufacturers (Q1/2016) • Foreign Investors Connect to the World from Canada (Location Canada 2016) • South Dominates Consultants’ Picks for Top States (Q3/2014)

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SETH MARTINDALE |

Managing Director, Location Incentives & Portfolio Optimization, CBRE

American Manufacturing: Back in the Game?

The U.S. manufacturing sector continues to rebound as a result of pent-up demand for goods and, perhaps, the effect of the Trump administration’s “proAmerica” agenda.

The U.S. economy has seen slow and steady growth since the Great Recession ended in June 2009.1 While many are still suffering the effects of the subprime mortgage crisis, the U.S. economy has actually experienced an unprecedented net-expansion for 100 consecutive months as of September 2017.

Depending on how you measure it, manufacturing makes up between 10 percent and 15 percent of America’s overall economy, accounting for a large portion of overall economic growth. Although the manufacturing rebound hasn’t been as robust as other sectors of the economy, the manufacturing sector has experienced 13 consecutive months of growth and continues to trend upward.2 This trajectory continues despite supplier problems with distribution channel speed and recent

hurricanes causing major delays in supply chain fulfillment.

Two factors have substantially impacted this growth and will likely continue to drive production levels and capital investment into the sector.

First, the country has seen limited manufacturing capacity increases since the end of the recession. Businesses were so negatively impacted by the economic downturn that almost every industry hesitated to invest any kind of capital. At that time, maintaining sufficient liquidity and preventing bankruptcy were paramount, and foreign direct investment in manufacturing almost completely dried up in the United States.3 However, as the economy started to slowly recover, demand for goods over a variety of sectors began to gradually increase as well. Manufacturers were not prepared for continued slow and steady growth for seven-plus years and a DJI value of $23,000+. Limited capital spending on expanded manufacturing capacity combined with continued strong consumer demand led to our current position of demand significantly outpacing supply. Whether goods are purchased online or in physical stores, the demand for consumer goods in the U.S. continues to grow, and manufacturers are struggling to keep pace.

THE “PRO-AMERICA” EFFECT The second and, perhaps, more important factor is the election of a strongly “pro-America” President.

The upward trend in manufacturing might have continued regardless of election results from last November; however, President Trump’s public comments encouraging investment in the manufacturing sector are likely having an impact. Regardless of your political stance or whether you believe the President will be able to pass legislation, his commentary is swaying decision-makers. On one side of the decision, manufacturers

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are keenly aware that the costs to produce goods outside of the U.S. have steadily increased. This is due to a variety of reasons. Rising labor costs and increased utility rates in traditionally low-cost manufacturing countries are the main culprits. As a result, with these new operational considerations at play, the break-even point in manufacturing goods within American borders vs. abroad has been shifting to our benefit.

On the other side, the President has forecasted a more lenient regulatory environment and lower corporate taxes. This — combined with a foreign policy that might lead to increased tariffs — means decisions-makers must take note. While it is still too early to see if President Trump will definitively pass his proposed legislative changes, at this point, it doesn’t matter. Most decision-makers would rather mitigate the potential operational risks by locating inside the U.S. vs. a traditional low-cost manufacturing country, where costs are steadily increasing and a substantial tariff may be around the corner. Nobody yet knows the result of the President’s efforts on this front, but executives will not take the risk when a wrong decision might lead to a failed operation abroad.

PREPPING FOR MANUFACTURING’S REBIRTH The question remains: What can the country do to be ready for the potential rebirth of manufacturing?

One of the simplest efforts is to ensure that there are adequate sites available in lower-cost U.S. markets to support new operations. States and municipalities already have mobilized and invested their own capital in infrastructure (electrical, gas, rail, highways, etc.) to prepare. While “pad-ready” sites for large-scale and advanced manufacturing are somewhat hard to come by, an adequate number of sites available to support the new manufacturing

operations will not be the most challenging issue.

The more critical issue is how to staff the new manufacturing operations. The U.S. has had a diminishing manufacturing presence on the global scene in the past decade. In February 2010, manufacturing jobs in the United States bottomed out at 11.45MM4 — that’s less than 10 percent of the workforce. While this is concerning, the overarching issue is that the future of the U.S. manufacturing is advanced manufacturing, including anything from customized 3-D printing hubs to robotic manufacturing plants using machine learning.5 In these fields, the country has an even weaker labor supply. American workers in the manufacturing sector have not improved their skills and capabilities enough to prepare for the more advanced positions that will replace lower-cost jobs relocated offshore.

Advanced manufacturing jobs have the benefit of paying higher wages — averaging $65,000+/year6 — which increases demand for these positions. However, with higher entrylevel salaries comes the requirement for a significantly more educated and highly trained employee. The new workers require a knowledge of automated manufacturing processes and technology-driven manufacturing techniques.

Exacerbating the issue is the current heavy focus on a bachelor’s degree as the definition of “success,” rather than high-level trade skills. The country needs to quickly adapt the education paradigm and programs to ensure continued competitiveness in an arena where the momentum already favors the U.S. Local economic development agencies have created sophisticated training programs to quickly upskill their workers, yet further emphasis on improving skills will be required to prevent a broadening skills gap further dissuading manufacturers from looking at the U.S. market.

The recent political discourse on immigration is also of concern, given that one of the easier ways to manage the labor gap is bringing talent in from abroad. While a final decision on immigration policy likely won’t be made soon, there is no doubt that companies operating in the U.S. now have a harder time recruiting talent from overseas.

An unexpected economic downturn could shift manufacturing sentiment significantly; however, the fact is that the United States is in a stronger position than it has been in recent memory. Should federal, state, and local economic development officials work together to support this large-scale growth in the sector and cultivate the advanced manufacturing workforce, the country has a prime opportunity to reestablish itself as a worldwide leader in advanced manufacturing. >< 1

http://www.nber.org (National Bureau of Economic Research) https://www.instituteforsupplymanagement.org/ISMReport/ MfgROB.cfm?SSO=1 3 http://esa.gov/sites/default/files/foreign-direct-investmentin-the-united-states-update-2016.pdf (FDI Growth slow in Great Recession) 4 https://www.bls.gov (Bureau of Labor and Statistics) 5 https://www.brookings.edu/blog/techtank/2015/07/15/ new-skills-needed-for-new-manufacturing-technology/ 6 www.nam.org (National Association of Manufacturers) 2

SETH MARTINDALE is a managing director with the Economic Incentives Practice within CBRE Consulting. He has extensive experience in location analyses and economic incentive negotiations engagements. Martindale currently helps clients by acquiring the most advantageous incentives offer through the creation of negotiating leverage utilizing a variety of proven techniques.

His combination of skills and experience, blended with an MBA concentrated in strategy and leadership, provides a unique and very beneficial skill set to clients.

ALSO FROM CBRE: • The C-Suite Perspective on Data Center Location (Data Centers 2016) • The Art and Science of Locating a New Food Plant (Q2/2015) • Corporate Executive Survey Commentary: Midwest, South to Garner Most Projects (Q1/2015)

AREA DEVELOPMENT | Q4/2017

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•

TRACY KING SHARP I

Chief Operating Officer, Boyette Strategic Advisors

The Future of Corporate Sustainability Although U.S. companies are facing less political pressure to continue their sustainability efforts, they will continue to do so in response to workforce and customer demands.

Despite the current political climate, business leaders commitment to corporate sustainability appears to be on track both in the U.S. and globally.

MIT Sloan Management Review and The Boston Consulting Group, which have been tracking developments in corporate sustainability for the past eight years, found in their most recent 2017 survey that 90 percent of companies consider a sustainability strategy important to remaining competitive.1 The question then is what has and will continue to drive that focus with Corporate America with less pressure from the current administration in Washington.

WHAT IS CORPORATE SUSTAINABILITY? Sustainability can have different meanings to different people, but it is often presented as an integration of economic, environmental, and social

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AREA DEVELOPMENT

factors that work together to protect the interests of future generations.

Corporate sustainability is a business approach that embraces opportunities and manages risks derived from those three factors.2 In PwC’s 17th Annual Global CEO Survey, 75 percent agree that “satisfying societal needs (beyond those of investors, customers, and employees) and protecting the interests of future generations is important.”3 The economic component of sustainability focuses on ensuring the business makes a profit, but also that operations don’t create social or environmental issues that could affect long-term company success.4 For the environmental component, which often gets the most attention, the focus is on activities such as a company reducing its carbon footprint by implementing energyefficiency measures, using less water, packaging wastes, recycling, and other similar undertakings. Companies have discovered that significant savings can result from these activities.5 The social component focuses on the role of business in society, including activities related to treating employees fairly and being a good neighbor and community member.6

WHY IS CORPORATE SUSTAINABILITY IMPORTANT? So, why has sustainability become a bigger focus in Corporate America over the last decade? For many corporations, the drive was initially cost savings. To others, it was about doing the right thing for the environment. Those two drivers still exist but another reason that Corporate America continues the focus today is to attract and retain the workforce talent they want and need, as well as to retain and grow their customer base.

According to a 2016 Cone Communications Employee Engagement Study, a company’s social and environmental commitments are key drivers

in recruitment and retention of today’s workforce. Nearly three-quarters of employees say their job is more fulfilling when they are provided with opportunities to make a positive impact on social and environmental issues, and 70 percent would be more loyal to a company that helps them contribute to important issues. In addition, 58 percent consider a company’s social and environmental commitments when deciding where to work, and 51 percent won’t work for a company that doesn’t have strong social or environmental commitments.7 This is especially true with millennials and Generation Z, who generally seek to work for companies striving to fulfill a larger purpose through product innovation, community outreach programs, and employee development programs. A 2015 Morgan Stanley survey confirmed that millennials are three times more likely to seek employment with a company that cares about social and environmental issues.8 The 2016 Cone Communications Study further confirmed this point in that 79 percent of millennials consider a company’s social and environmental commitments when deciding where to work, compared to a 58 percent U.S. average.9 Related to retention and attraction of the customer base, in general, corporate customers and consumers alike want to see a demonstrated commitment to sustainability in the brands they buy. They are making purchasing decisions based on the perceived strength of corporate commitments to sustainability. A 2015 Nielsen Survey found that 66 percent of consumers would pay more for sustainable brands, up from 50 percent in 2013.10 Sustainability has become more mainstream today with the majority of the Fortune 500 viewing sustainability as important, if not central, to their business strategy, allowing them to reduce costs, minimize risks, attract the best talent, retain and at-

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

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tract customers, and drive innovation and overall growth.11 The countries with the biggest share of Global 100 companies on Forbes 2017 “The World’s Most Sustainable Companies” list were the U.S. (19), France (12), UK (11), Canada (6), Germany (6), and the Netherlands (5). U.S. companies in the top 100 included Cisco Systems, Microsoft, Apple, and General Electric to name a few.12 Al Iannuzzi, senior director of Worldwide Environment, Health, Safety & Sustainability for Johnson & Johnson (#8 on the Forbes list for 2017) has stated, “Johnson & Johnson has long been a champion of environmentally friendly business practices, incorporating them into Our Credo as far back as 1943. And with our recently announced Citizenship & Sustainability 2020 Goals, we’re going further than ever before to integrate sustainability into our day-to-day work, while reducing our impact on the earth.”13 Another U.S.-based company that has a major focus on sustainability includes Walmart, which announced earlier this year an initiative to remove one gigaton (equal to one billion tons) of greenhouse gas emissions (GHG) from its supply chain by 2030. This is a major move, as according to the Sustainability Consortium, the supply chain of today is responsible for 60 percent of all GHG emissions, 80 percent of all water use, and 66 percent of tropical deforestation. Other major companies that have made similar commitments include Unilever, Land O’Lakes, Apple, Amazon, Google, PepsiCo, and Smithfield Foods, among others. 14

WILL CORPORATE SUSTAINABILITY CONTINUE TO BE IMPORTANT? Based on the accolades and initiatives described above, sustainability is alive and well in Corporate America.

The question now is will that continue

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based on the current political climate.

According to the GreenBiz 2017 Green Economy survey of more than 400 large companies who answered the question, “What impact will the changes in the U.S. presidency and Congress have on your company’s sustainability strategy?” — the support for sustainability at the corporate level should continue. When answering that question, 60 percent of companies with revenues greater than $1 billion said the current administration will have “no impact” on their sustainability strategy and they will move “full speed ahead,” while 34 percent said, “It will slow us down but not stop us.”15 Furthermore, more than 1,000 companies and investors — including Apple, Blue Cross Blue Shield of Massachusetts, Facebook, Google, HP, Intel, Johnson Controls, Mars Inc., and others — signed a statement calling on President Trump to continue Obama-era climate policies and stay committed to the Paris Agreement, although this did not in the end sway the administration. Those companies and more continue to explore ways to influence the White House to re-think its approach to climate change and clean energy.16 John Weiss, Director of Ceres Corporate Program, was quoted by SustainAbility as saying, “You might think that the shift in the U.S. political landscape is creating an opportunity for companies to back off from their climate goals and related strategies, but there’s no evidence that’s happening. In fact, companies are reaffirming their commitments because they need to be responsive not only to the growing number of investors who understand the bottom-line implications of climate action (or inaction), but also to a global marketplace where climate remains at the top of the agenda.”17 Therefore, the initial indication is that although U.S. companies may face less pressure to be more sustain-

able in the current political climate, the majority will continue their sustainability efforts for more reasons than one, including the fact that the majority of their workforce and global customer base demands it today. ><

1

http://marketing.mitsmr.com/offers/SU2017/58480-MITSMRBCG-Sustainability-Report-2017.pdf http://www.sustainability-indices.com/sustainabilityassessment/corporate-sustainability.jsp 3 https://www.pwc.com/gx/en/services/sustainability/ ceo-views-sustainability-perspective.html 4 http://www.sustainability-indices.com/sustainabilityassessment/corporate-sustainability.jsp 5 http://www.sustainability-indices.com/sustainabilityassessment/corporate-sustainability.jsp 6 http://www.sustainability-indices.com/sustainabilityassessment/corporate-sustainability.jsp 7 http://chiefexecutive.net/ceos-reveal-2017-sustainabilitypriorities-weaknesses/#.WQaripUMwyk.twitter 8 https://www.morganstanley.com/sustainableinvesting/ pdf/Sustainable_Signals.pdf 9 http://chiefexecutive.net/ceos-reveal-2017-sustainabilitypriorities-weaknesses/#.WQaripUMwyk.twitter 10 https://www.nielsen.com/content/dam/nielsenglobal/dk/ docs/global-sustainability-report-oct-2015.pdf 11 http://www.corporateecoforum.com/wp-content/uploads/2015/04/CFO_and_Sustainability_Apr-2015.pdf 12 https://www.forbes.com/sites/jeffkauflin/2017/01/17/theworlds-most-sustainable-companies-2017/#5c1913fe4e9d 13 https://www.jnj.com/innovation/how-johnson-johnson-isleading-the-way-with-sustainable-innovation 14 https://www.greenbiz.com/article/why-walmarts-projectgigaton-corporate-americas-moonshot 15 http://www.triplepundit.com/2017/02/trump-no-impactsustainability/ 16 https://www.bna.com/corporate-america-mayb73014463769/ 17 http://sustainability.com/our-work/insights/corporateshold-keys-climate-leadership-trump/ 2

TRACY KING SHARP, who has been with Boyette Strategic Advisors since 2005, has encompassing experience in incentives negotiation, location analysis, and overall economic development strategy, positioning her as a leading, national economic development consultant.

Prior to joining Boyette, Sharp was a senior manager at Deloitte and worked at KPMG, where she managed location analysis and incentives negotiation projects for a variety of industry sectors. At Boyette, she continues her work with corporate clients, providing strategic services to many name-brand corporations. She also assists economic development organizations across the country with strategic planning.

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

•

MARK SWEENEY I

Senior Principal, McCallum Sweeney Consulting

The New World of Right to Work When making the location decision, companies should be wary of using RTW status as a location requirement and instead dig deeper into regional and local union activity.

One of the dramatic changes in the economic development landscape in recent years is the number of states that have passed right-to-work (RTW) legislation. From the original 17 RTW states that passed relevant legislation in the 1940s and 1950s, the number of RTW states now stands at 28. Six states have become RTW states within the past five years, including traditionally union states such as Michigan, Wisconsin, and Indiana.

Right-to-work legislation establishes that employees do not have to join a union even if one is voted in by the facility workforce. This creates a difficult environment for unions to establish effective union organizations in such states. Many arguments have been presented on both sides of the issue over the years. Proponents of RTW cite the lack of freedom of choice of employees who may be forced to financially support a union that they

did not seek to represent them. Those against RTW note that the net effect of RTW legislation is to create a block of “free riders” — employees who benefit from the collective bargaining of the union but who do not contribute to the union.

The surge of traditionally “rust belt” manufacturing states adopting RTW legislation has sent shock waves through the economic development world. This has many reasons behind it including the general decline in manufacturing employment, the trauma of major contractions in heavy industries that were partly blamed — rightly or wrongly — on union-related costs, and a generational move to a more conservative political environment and electorate.

Through the addition of Oklahoma in 2001, RTW states were generally politically conservative and not characterized by high union presence. As a result, RTW status was often used as a proxy for labor-management climate.

It was not unusual for companies considering locations for new facilities to only consider RTW states. Even before the addition of new states in the past five years, this was always a very blunt instrument, eliminating entire states when the union risk varied greatly

from one part of the state to another (e.g., eastern vs. western Michigan).

As a result, our firm has typically discussed with clients an alternative approach whereby state RTW status is not a requirement for location consideration, but rather a weighted and scored business climate factor.

This enables the client to maintain a broader search region that will meet its labor-management preferences, while accounting for both statewide union legal climate and local union presence and activity.

RTW IN THE LOCATION DECISION So what does this mean for location decisions for expanding companies? First reaction is that RTW status is favorable for a state’s business climate and favorable for companies who prefer to operate in a nonunion environment. States with RTW legislation will see an increase in location projects from companies that are at least willing to consider their state for investment.

One of the challenges for non-RTW states is that it is impossible to know how many opportunities they simply did not receive because of the RTW factor. The RTW screen is typically done at the earliest stages of a project

States With RTW Laws (Year Enacted) NORTH DAKOTA

1947

IDAHO

1985

WYOMING

1963

UTAH

1955

WISCONSIN

1946

1947

KANSAS

INDIANA

2012

MISSOURI

2001

Labor Posture

1993

Right-to-Work State Non-Right-to-Work State

2016

2017

TENNESSEE ARKANSAS

1947

1954

LOUISIANA

1976

VIRGINIA

1947

NORTH CAROLINA

1947

1947

MISSISSIPPI

TEXAS

WEST VIRGINIA

KENTUCKY

2017

OKLAHOMA

1944

2012

IOWA

1958

ARIZONA

MICHIGAN

2015

1946

NEBRASKA

NEVADA

1951

SOUTH DAKOTA

GEORGIA SOUTH CAROLINA

1947

ALABAMA

1954

1953

FLORIDA

1944

Source: National Right to Work Foundation AREA DEVELOPMENT | Q4/2017

47

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to identify the search region, so states not considered for any reason, including RTW status, never know that they were eliminated before the project reaches out to locations.

Companies seek the flexibility a nonunion workforce provides, and the cost of nonunion labor is generally less than union labor. However, companies should be more wary than ever about the use of RTW status as a location requirement.

As noted earlier, while there was a point when RTW status was strongly correlated to a low union risk environment on a statewide basis, this is no longer the case. Union risk can no longer be addressed solely by seeking out RTW states. Deeper dives into regional and local information are required more than ever. Such information would include union presence, union activity, and union election results. And it will be important to gauge what the union avoidance cost would be in a union-heavy area in a RTW state.

To further illustrate the complexity of using RTW solely as a measure of union activity, we examined election activity in the state of Michigan. Over the last 10 years, private-sector union election activity hasn’t changed much in Michigan, and there is no obvious reduction in the number of elections after 2013, which is when the RTW change was made. Election wins, as a percentage of elections, actually peaked in 2014, the first full year of RTW. This may reflect activities that were under way prior to the passage of RTW legislation, as well as a possible surge in union efforts and emotion in reaction to the passage.

Finally, part of this brave new world that is not well understood is the implication for the individual company in a RTW state that, in fact, has a union succeed in getting elected to represent the workforce. The “freerider” argument would predict that many workers would vote for a union

but then will not join and commit to paying dues. How divided will the workforce on the floor become with dues-paying members alongside non-dues-paying members, both of whom will be reaping the benefits of the union’s collective bargaining efforts? How severely will this impact cohesiveness and cooperation and teamwork? Such self-directed, teamorganized work environments are the norm now and desired by most companies. Having a divided workforce would work directly against that operational goal.

In conclusion, companies will find a much broader potential search region when considering RTW states today, but RTW is no longer an effective proxy for union risk statewide.

Understanding local conditions and trends will be critical in gaining a full understanding of labor-management relations in a particular location. And companies should be aware and plan for the implications of having union representation for a workforce with only a percentage of employees joining the union. >< MARK SWEENEY is senior principal and founding partner of McCallum Sweeney Consulting. A recognized site selection consulting veteran, Sweeney has more than 25 years of experience assisting companies in identifying, evaluating, and selecting the optimal location for their capital investments. He also provides consulting services to leading economic development organizations in such areas as site readiness, strategic planning, and incentives strategies.

Sweeney has a master’s degree in Business Administration from Clemson University and a Bachelor of Science from Appalachian State University. In addition, Sweeney was a recipient of a Murphy Fellowship for graduate work in economics at Tulane University.

ALSO FROM MARK SWEENEY: • Leading Locations for 2016 Commentary: Rankings Not Sufficient to Complete the Site Decision (Q2/2016)

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

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•

DEAN J. UMINSKI, CCIP, CEcD I Principal, Crowe Horwath LLP

The Importance of Community Strategic Planning in the Location Decision As the surge in corporate relocation continues, sophisticated organizations are demanding a relatively new — but critical — component for streamlining their site selection process and increasing the likelihood of success.

Communities across the country are clamoring to vie for corporate relocation and expansion projects.

Many come to the negotiating table boasting generous incentives, but incentives alone cannot guarantee a relocation or expansion project will work out as a company hopes. To truly determine whether a community will be a good fit for an existing expansion or a new location project, corporations should require local and regional economic development organizations (EDOs) to provide community strategic plans that identify their main priorities and goals and lay out a road map for achieving them.

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AREA DEVELOPMENT

COMMUNITY STRATEGIC PLANS TAKE CENTER STAGE

WHAT TO LOOK FOR IN A COMMUNITY STRATEGIC PLAN

With the competition for expansion and relocation projects heating up, EDOs increasingly are seeing the value of formulating community strategic plans to entice companies to consider their areas. Strategic plans show that an EDO recognizes the need to do things differently than they were done in the past — the need, in other words, to become efficient and progressive in order to compete in the global marketplace. A strategic plan should provide the foundation for a community’s realistic and cost-effective economic development efforts and reinforces its commitment to achieving and maintaining those efforts. It also is evidence of an EDO’s ability to collaborate and develop consensus to make sound fiscal decisions and enhance community image and branding.

Expecting an EDO to have a strategic plan might not seem important to some companies, but the lack of such a plan can endanger the future of an expansion or relocation project that might have unique workforce needs. For example, incentive packages typically include clawbacks that penalize a company if it fails to live up to its job creation promises. But if a community does not have an adequate pipeline of workers, the best-intentioned business will have problems adding employees. It’s one thing for an EDO to say it will supply the workers a company needs; it’s another for the EDO to have an actual plan for doing so.

Moreover, community strategic plans can help to expedite the site selection process. EDOs usually put their strategic plans online, so a company can use weak or incompatible plans (or the absence of plans) to weed out locations without even putting out feelers to their EDOs.

An effective strategic plan will address several essential elements of economic development, including: • Workforce development — From a company’s perspective, perhaps no element is as vital these days as workforce development. Companies are struggling to find locations with the workforces they require, largely because many of the jobs being “reshored” are highly automated and require different skill sets than associated with earlier manufacturing jobs.

Companies are looking for employees with experience in advanced manufacturing, robotics, and computer-aided design (CAD), but many communities fail to bring key business and educational leaders together to discuss each other’s needs and craft solutions.

If a community does not currently have a pipeline of workers, its strategic plan must include initiatives to develop one. For example, a community in northwest Indiana learned that one of its top employers was importing 60 percent of its labor from other areas. The community tackled the issue by developing a construction trade apprenticeship program for local high school students interested in trade industry careers and by collaborating with vocational schools to develop and implement trade and logistics programming for residents seeking specialized technical careers.

• Business attraction and retention — Does the community have aggressive plans for attracting new businesses and holding onto (and encouraging expansion by) existing businesses? For instance, the community’s strategic plan might include development of a new business park that would satisfy advanced manufacturing businesses’

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

requirements. It also could call for a cluster analysis of certain industries to find opportunities to appeal to companies connected by vertical and horizontal supply chains.

In addition, the plan should include action items related to making annual site visits, providing businesses with the necessary support to thrive, and connecting companies, government, and residents. Concrete plans for such initiatives are a promising sign that an EDO has a documented road map to meet the needs of companies interested in its community.

• Integration with community development — The strategic plan should demonstrate that the community recognizes the vital interplay between community development and economic development. It could include strategies regarding affordable housing, education, healthcare, cultural diversity and social integration, and the environment that involves all stakeholders — residents, community-based organizations, public agencies, and the private sector.

For example, the plan might encompass initiatives to establish a mix of incomes and development activities that can act as a defense during economic swings.

This element also should address infrastructure — roads, utilities, and

the like. Does the community have the necessary infrastructure to bring in (and retain) the diversity of businesses necessary to build a formidable tax base? Is the infrastructure regularly monitored to guard against deterioration? Is it up-to-date from a technological standpoint? For instance, does the community have a fiberoptic network?

• Organization sustainability — Effective EDOs plan not only for the community’s continued growth but also for their own continued viability, including adequate staffing and funding. That might include generating an annual operational plan at the beginning of every fiscal year that outlines the year’s priorities and identifies metrics to hold staff accountable.

Each annual plan would incorporate action items from the strategic plan and report on the progress made on the plan’s objectives. EDOs also should have policies for development of staff and the board of directors, as well as long-term fundraising plans and a formal reserve fund policy.

• Benchmarking — Strategic plans must have specific benchmarks for monitoring and measuring progress.

The EDO for the community in Northwest Indiana with workforce issues, for example, set a benchmark of achiev-

ing local labor force characteristics that are at least equivalent to averages for the state of Indiana, including educational attainment and employment rates, by 2025.

VISION FOR THE FUTURE More and more EDOs are seeing the benefits of developing, implementing, and monitoring community strategic plans. Such plans provide a vision and a vehicle for creating shortand long-term economic growth, but they also provide companies pondering relocations valuable tools for evaluating potential sites. ><

DEAN UMINSKI (CEcD, CCIP) is a principal in tax services at Crowe Horwath LLP, one of the largest public accounting, consulting, and technology firms in the U.S. He has an extensive background in all aspects of state and local taxation and specializes in property tax, site selection, and business incentives and credits consultation. Uminski is a frequent speaker on property tax and site selection and incentives issues for tax professionals, as well as to state and local economic development officials.

ALSO FROM DEAN UMINSKI: • It’s Your Move: Critical Considerations When Relocating Corporate Headquarters (Q1/2017) • States Recognize Need for Workforce Development Programs (Q3/2014) • A Step-by-Step Guide to a More Strategic Site Selection Approach (2013 Directory)

Find the Right Location for Your Next Project.

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

FacilityLocations.com AREA DEVELOPMENT | Q4/2017

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•

LESLIE WAGNER I

Senior Principal, Ginovus

The Collaboration Score: The Missing Link in Site Selection Though qualitative in nature, a community’s “collaboration score” indicates whether or not its stakeholders are fully aligned with respect to business attraction strategies and are committed to working collaboratively with a prospective company to ensure its project comes to fruition.

Location modeling and real estate site selection is a process companies may undertake either through the use

of internal resources or by outsourcing the task to a company that specializes in the field. A qualified site selection professional, or firm, will apply a methodical approach to the process in order to evaluate all factors that are important to a location decision and ultimately reach a conclusion about which site will best serve the needs of the company.

One approach is to construct a matrix built upon analyzing key factors that make a site suitable for business growth. To account for the relative importance of these factors, they can be ranked and weighted to determine the comparative strength of a particular location to another. A typical approach might include the evaluation of standard factors such as human capital, business climate, quality of life, and infrastructure availability.

These factors, while not comprehensive for all projects, are quantifiable and can be ranked. Through various methods of comparison, these ranks can then be used to translate large amounts of data into values that are easy to interpret and considered in the decision-making process. As an example, the accompanying chart shows how data in each category has been ranked resulting in comparable scores that are then color coded — red indicating higher/better scores, green

RANKING SUMMARY Simple Rank – Overall Average

4.86

4.69

6.51

Human Capital

4.18

4.36

6.54

Business Climate

5.63

4.00

6.94

Qualitative Factors

5.80

6.54

5.92

Equalized Average

5.17

4.54

6.64

Weighted Rank - Overall Average

4.68

4.82

6.77

Human Capital

4.17

4.64

6.83

Business Climate

5.08

3.69

7.35

Qualitative Factors

5.48

6.67

5.90

4.84

4.50

6.93

Equalized Average

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AREA DEVELOPMENT

lower scores, etc. in order to highlight the best site in each category and overall. This in turn can be used as the basis for justifying on a quantifiable basis a site selection decision.

WHAT’S THE COMMUNITY’S “COLLABORATION SCORE”?

What may be missing from this approach, but should absolutely be a consideration in the site selection process, is the community “collaboration score.” Though less defined and more qualitative in nature, a collaboration score is the measure of the extent to which the community is fully aligned with its economic development efforts. In other words, a highly collaborative community would be one that has an agreed upon and holistic approach to business attraction and retention. All agencies, public and private, that will be involved in the successful outcome of the project are in sync and understand the project objectives.

As a general rule, communities and regions have economic development professionals and entities tasked with promoting the assets of the area.

These are made up of individuals that serve as the community’s front line for economic development projects and whose primary function is to create jobs, increase the tax base, and improve the quality of life of community residents. In a collaborative community, these professionals are seasoned, fully willing and capable of promoting and “selling” the assets of their region, and able to navigate projects with the vision of successfully winning or keeping the business. This front line approach works extremely well when the community and its stakeholders are fully aligned with respect to business attraction strategies and are committed to working collaboratively with the prospective company and its representatives to ensure the project comes to fruition.

The challenge and true risk to the

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site selection process is the realization, sometimes too late in the game, that a community is not well aligned, that they do not work collaboratively, or worse, that the community is divided and at odds with their approach to business attraction and economic development strategies. Site selection decision-makers, whether internal or external to the company, seeking a new location should beware, as this non-collaborative spirit within a community and its leadership can have devastating short- and longterm impacts on a project. Negative results — such as delayed operational timelines, increased project costs, and compromised objectives — can occur as a result.

Having been in the site selection business for 15+ years, our firm has observed and navigated projects within both types of communities.

We have seen strong job-creation and investment projects, which were focused on a particular site, shift focus quickly when it became apparent that there was a lack of cohesion among community stakeholders. Once confidence in project success is shaken, and it becomes known that the collaboration score is low, our recommendation — and the general instincts of those clients that we represent — is to move on to the next available site being considered as a way to mitigate risk and increase the likelihood of success.

HOW CAN THE “COLLABORATION SCORE” BE MEASURED? How can a community’s true collaboration score be known before a project moves too far down the road?

As a firm, our practice is to constantly be doing our homework at the state, regional, and local levels. Reading local publications, reviewing council and commission meeting minutes, attending school board meetings, and interacting with the regional economic development professionals

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AREA DEVELOPMENT

Communities that work together score high on the collaboration meter. can all be very telling sources for how those involved in the process interact, support, and treat new and existing business growth opportunities.

Of particular interest is understanding the level of collaboration in securing economic development incentives that have a meaningful financial impact by offsetting project costs. State and local Incentive tools are oftentimes available to companies that are competitively evaluating where to locate new investment and create new quality jobs. If such tools are available to support a project, understanding the administrative and approval processes and the collaboration score for those entities involved in project review and approvals becomes vitally important. If a project were to move forward with reliance on the value of a particular incentive benefit, such as real estate tax expense offset, only to learn that those responsible for approving are not in favor of utilizing the incentive tool as a means to attract investment, that could result in a devastating financial impact for the company.

In contrast, communities that work together and are successful at instilling confidence score high on the collaboration meter. Confidence that there are no hidden agendas,

that all requests will be handled with the utmost professionalism, and when — not if — problems arise, that they will be worked through in a positive manner and within efficient time lines is paramount to a successful project. Site selectors, both internal and external, should be in the practice of seeking out those communities that assist the location process by moving forward in a timely manner, with minimal delays in approval processes, so long as the company is doing its part. Our experience indicates that businesses are much more willing to invest for the long term and grow in a community that demonstrates it can work collaboratively, is financially stable, and has strong community leadership. With a strong collaboration score evidenced by these practices and priorities, along with great communication and total transparency, all involved can have peace of mind that the project will result in success. ><

LESLIE WAGNER, senior principal for Ginovus, leads clients through the site selection, location modeling, and incentive procurement and management process.

Her work includes managing new facility development, expansion, consolidation and relocation for Fortune 500, life sciences, manufacturing, distribution, technology, and data center clients.

Wagner has successfully closed transactions resulting in over $570 million of capital investment and over 8,000 new jobs. Her expertise at negotiating and coordinating initiatives with economic development organizations, while synchronizing activities with governmental agencies, provides a significant advantage to Ginovus clients completing extensive site selection projects across multiple states.

ALSO BY LESLIE WAGNER: • The Importance of FDI to the U.S. Economy (Location USA 2017) • Canada to Widen It’s Channels of Trade (Location Canada 2014) • Infrastructure Lessons for Economic Growth and Business Success (Summer 2012)

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

The power to grow.

As a utility delivering reliable energy to businesses in Illinois and Missouri, Ameren is also focused on helping businesses throughout the entire development process. From site selection to energy infrastructure assessments and beyond, the expertise offered by Amerenâ&#x20AC;&#x2122;s Economic Development team gives businesses the power to grow.

Weâ&#x20AC;&#x2122;re focused on the success of your business, today and for the future.

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SITE SELECTION

What Corporate Executives Need To Know When Making Location Decisions Companies should look to their landlords or developers of their facilities for several attributes, key among them being reliability, flexibility, and a sense of partnership.

By Donald F. Smith, Jr., Ph.D., President, RIDC of Southwestern Pennsylvania

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mazon’s consideration of locations for a second headquarters has set local and regional governmental entities, as well as private property owners, scrambling to develop proposals highlighting the attributes of their sites and everything they have to offer. While companies like Amazon don’t come along every day, in every region across the country, large and growing companies are always conducting searches for new locations. They’re looking for properties that meet their present and future needs and a variety of other attributes and enticements.

My experience with the Regional Industrial Development Corporation of Southwestern Pennsylvania (RIDC), a Pittsburgh-based, private, nonprofit developer, has been largely in transforming abandoned, obsolete industrial sites into the sorts of properties that attract companies that can create jobs and provide benefits to their communities and the region’s overall economy. Ever since the closing of the steel mills, the key to revitalizing southwestern Pennsylvania has lain in taking a mission-driven, community-oriented approach to redevelopment; such considerations are also vital to making good corporate expansion and relocation decisions.

From the conversations I’ve had with local and global executives, seeking space for everything from large manufacturing facilities to small robotics labs, there are

a number of issues that arise time after time and should be on every CEO’s and real estate professional’s checklist: • Talent Magnets A company as large and well known as Amazon creates its own center of gravity and can be its own magnet for talent. But for most companies, attracting talent is a constant issue. They want to know what the labor pool looks like —– now and in the future — and whether academic institutions in the region are producing a sufficient supply of the type of skilled employees they need. But they also want to know whether there are other, similar companies in close proximity.

It may be difficult for any individual company to become a beacon for job seekers, but when there is a critical mass of companies in a particular field in a certain region, talented people around the country and around the world will take notice and gravitate toward it.

• Opportunities for Industry Synergies Does the specific property or campus a company is looking at include other occupants in similar industries?

Will they find synergies or other advantages in this proximity? We’ve had many tenants tell us how valuable they find it to be able to walk across the street or across the hall to conduct business meetings and how vital it is for employees to be able to feel the energy of others in their fields working on different, but equally exciting projects.

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

• Community Buy-In Is the community going to consider your location in this facility beneficial? Will they welcome you? Can the developer or property owner help you integrate into civic life?

We’ve all seen examples of public announcements made with great fanfare, only to find out later that the proper groundwork hadn’t been laid, community members were caught off guard and, in fact, had serious reservations about the proposed plans.

• Developer’s Reputation for Positive Community Relations If the project involves land-use or zoning issues, how is the developer perceived by local government officials?

Having a reputation for working well with the communities where they build better enables the developer to navigate the approval process as the project moves forward. Furthermore, local officials will know from the outset that the developer and the tenant company are going to consider community input seriously and address any concerns their constituents may have.

• Ability to Deliver in the Face of Obstacles If the project involves new construction and the substantial renovation of old buildings, can the developer deliver or will government, community relations, or financial issues pose obstacles? You want a developer who is able to deal with issues related to environmental remediation, transportation, and infrastructure. The history of real estate development is littered with projects that sounded great at the outset — breathing new life into old buildings, attracting new jobs, transforming a local economy — that stalled as soon as they began to hit obstacles. Real estate development and successful service to tenants requires commitment, fortitude, and the depth of resources to make it through any roadblocks.

• Flexibility Does the developer have flexibility across their entire portfolio of property? This is certainly important for earlystage companies that might multiply in size over the course of a standard lease, but it’s also valuable to larger, more established companies that may have expansion needs in the future or require additional space for spinoffs. If the developer has sufficient capacity to allow a tenant to relocate should their needs change midstream, you’ll want to keep them at the top of your list. Should you find yourself in a

position of growth and a need to relocate three years into a five- or 10-year lease, you’ll want the property owner to be able to accommodate you within one of their own buildings.

Additionally, is the developer willing and able to make short-term compromises for long-term benefits? For example, can they accommodate a tenant that is a good fit for the property and for the community, but that requires a costly buildout and lacks the balance sheet or revenues to justify it? A developer can only make such decisions when risk is spread over a large portfolio and more speculative projects are balanced with more mature and successful ones. Oftentimes tenants may lack a financial track record, but fit well into the vision for a particular site.

• Intangible Attributes Many developers market their properties on the basis of attributes that are well known and that exist in all new construction — things like large floor areas, power and water supply, capacity for technology, access to transportation, etc. Others market on the basis of their communities’ assets: taxes and other occupancy costs, housing prices, cultural attraction, and quality of life. But intangible qualities can also be a major differentiator.

Essentially, once companies identify locations where they feel confident in their ability to attract sufficient talent, they should look to their landlords or developers of their facilities for several attributes, key among them being reliability, flexibility, and a sense of partnership. They need to know they can count on the space they need being delivered on time and according to specifications. They also need to know they’ll have flexibility as their businesses grow and evolve.

And, perhaps most important, they need to know they’ll have a partner in dealing with both real estate and community issues as they move forward together. ■ DONALD F. SMITH, JR., PH.D. has been president of RIDC of Southwestern Pennsylvania since 2009. He is a nationally recognized expert in regional economic development, with a wide variety of work experience at the local, regional, state, and national levels.

With a unique blend of academic and practitioner experience, Dr. Smith’s work has focused on how regions can leverage and complement their innovation institutions. He also held the nationally unique role of VP of Economic Development for both Carnegie Mellon University and the University of Pittsburgh — the first such collaboration between unaffiliated universities to advance regional economic development.

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ASSET MANAGEMENT

Resiliency Considerations — Is Your Facility At Risk?

Property owners who properly assess, maintain, and upgrade their facilities so that they are resilient to natural disasters — and who have contingency plans in place — will save time and money, and protect the value of their asset, in the long run.

By Bob Geiger, Principal, Partner Engineering and Science

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pproximately 40 percent of the U.S. population lives and works in coastal zones,1 vulnerable to highly destructive natural events such as storms, hurricanes, and earthquakes. Nevertheless, robust coastal commercial real estate development has remained steady,2 lending urgency to building resiliency and preparedness. Long-term considerations about the infrastructure risk natural disasters pose to assets include ways to mitigate secondary post-storm damage and how to implement safer, more resilient, commercially cost-effective building design in the future. Investors have begun using resiliency metrics in addition to yields and interest rates for long-term asset planning in their portfolios.3 For investors, owners, and occupants of current properties, wholesale resiliency involves assessing and implementing building reinforcements, proactive advanced preparedness and planning, and having plans to expedite post-disaster recovery strategies.

Industrial structures require particular attention to big-ticket items, such as the roof and exposed HVAC roof-top units, and any building components necessary for maintaining continuity in business operations, asset revenue, and occupancy.

Understanding Risk Fundamentals for Resiliency Are you carefully considering what your property’s risk of loss would be

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in the event of a disaster? Have you taken measures to assess and minimize these losses through proactive retrofits and structural fortifications?

Even prior to Hurricanes Irma, Harvey, and Maria, 15 of the 30 costliest hurricanes in history all occurred between 2004 and 2013. Hurricanes and tropical storms can cause damage from high wind forces and secondary windblown debris. Predictive wind loss estimates should properly incorporate factors beyond lateral wind forces, such as the exposure to wind-blown debris from nearby structures, or parapets of adequate height to effectively

reduce uplift pressure. Consult the American Society for Civil Engineers updates to high-risk wind zone maps.

Check whether your property conforms to Uniform Building Code requirements in vulnerable states such as Florida, many of which have updated their wind codes. Does the building have clip design or retrofit solutions where roof systems are tied into the foundation anchorage? For industrial buildings, which often have a large roof surface area vulnerable to wind damage, could you reinforce the seams, panels, or flashings to minimize tears or breakaway elements? Or, is

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

your aggregate, ballasted roof system prone to blow-off?

For properties in earthquake zones, a thorough, non-invasive seismic risk assessment and probable maximum loss estimate is an essential starting point. Understanding your engineer’s retrofit design experience and expertise specific to the building type, like a tilt-up industrial property, or unreinforced masonry multifamily property, is key to executing a proper retrofit. For tilt-up industrial construction, retrofitting is now a very seasoned and straightforward practice of tying in the walls with anchors to the floor and roof systems and preventing or significantly limiting the likelihood of the structure folding like a house of cards during a seismic event.

Consider potential for damage from storm surge and flooding, which can be far more detrimental and difficult to remediate. Evaluate whether properties are in a flood zone, and the nature of the flood risk. Federal Emergency Management Agency flood zone base elevation maps4 are a good start, but can be unreliable.5 Land surveys by professional civil engineers can issue a much more accurate elevation certificate. These assessments provide a three-dimensional topographical correlation of your property relative to a flood

elevation area, and the potential geotechnical issues that could arise due to flooding (landslides, subsidence, surficial soil erosion).

Proactive Planning and Protocol Management Evaluating critical mechanical and engineering systems is important for a variety of industries and property types.

Are there any essential operations at or near ground surface or that face disruption with a loss of electricity or one foot of flooding? Can these operations be moved? Storm surge and flooding can pose additional resiliency considerations for properties that work with hazardous materials.

Are you meeting or up to date on a Spill Prevention Control and Countermeasures Plan that applies based on the gallons of storage capacity thresholds? Your spill prevention planning and secondary containment features should consider the anchorage and spill protection features necessary to handle high water events. Keeping storage vessels intact and in place can save you significantly in restoration and cleanup from tanks that break loose, rupture, or overflow. Property owners should assess whether they would be in immediate risk zones for exposure or damage and contact their insur-

Cape Coral, Florida: Strategic Location for Regional Business

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

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

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

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

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

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ance provider to make sure they are covered.

Is your property pre-programmed to automatically or even manually adjust to an emergency operation mode? Proactively maintaining emergency generator systems (many of which can operate on solar energy) and upgrading them to handle sustained periods of operation following a natural disaster is one of the most important considerations, especially for industrial businesses. Prolonged utility loss disrupts everything from cellular service to basic retail (gas, groceries) and residential life. Does your planning consider safety concerns such as carbon monoxide exposure related to prolonged emergency or portable generator operations?

A camera system designed to allow basic observation and assessment in times of need can be critical when the property is physically inaccessible or poses too great of a safety concern. Getting a pair of expert eyes or a video assessment of your property may not be a viable option. Drones cannot legally fly when federal and local authorities ban private use without proper FAA authorization while rescue operations are under way. Satellite imagery can be limited in resolution without clear skies. Damage assessment for structural or moisture-related inspection services can be the best option from firms equipped and experienced in mobilizing resources to the area, but it’s typically a few days or even a week until these services can be safely and reasonably executed.

Finally, consider a contingency plan6 for maintaining accessibility and operation of brick-and-mortar systems infrastructure. Address IT security and cyber vulnerability, which peaks after disaster events, with a cybersecurity disaster plan7 and training.

damage as well as determining the water migration. Industrial properties with docks or dock bays should prioritize a rapid pump out of water damage to restore function. Water impacted properties create indoor air quality concerns that may need ongoing monitoring for tenant or resident health considerations.

Moisture mapping can track the progress of material drying, which is essential in monitoring mold and the need to remove materials. This is important for restoration efforts and as documentation for the owner and its insurance company.

Do you have a readily available, detailed asbestos or lead-based paint operations and maintenance plan? Clearly assessing what materials are “hot” (asbestos-containing) can save substantial money and time associated with delays in a scenario where impacted materials need to be removed and disposed of.

This is critical for buildings with substantial roof area, as roofing materials can contain high levels of asbestos. To confirm materials as asbestos-containing in a disaster response scenario, be sure your triplicate sampling and homogeneous material assumptions are sound before letting the remediation contractor loose, and cover yourself with oversight documentation of the remediation contractor’s work. Before hiring asbestos and moisture mapping assessment professionals, don’t forget that states have differing licensing requirements for who is qualified to perform the assessment.

If your property handles or works with chemicals or hazardous materials, and you fear a spill may have occurred onto your (or neighboring) properties, it may be wise to engage a due diligence professional for a Phase I Environmental Site Assessment and/or Phase II Subsurface Investigation to evaluate for potential remediation needs.

Does your property have a formal storm contingency plan? In addition to the asbestos mapping, cybersecurity, and fuel/chemical storage issues discussed above, these should include basic protocols discussing drinking water risks, safety precautions for any industrial machine operations, preparation of safety kits and cash on hand, and readily available insurance paperwork and procedures to file claims as quickly as possible.

Investing time and resources into upgrading properties, maintaining structural and engineering resiliency, and implementing contingency plans can save property owners substantial funds and asset value in the long term. ■

Is your property programmed to automatically or manually adjust to an emergency operation mode?

Post-Disaster Recovery Essentials The heavy, multi-directional rains and storm surges of natural disasters present a multitude of concerns. Roofing system elements and roof penetrations need to be secure and properly sealed to handle heavy lateral rains, especially on pitched roofs. Building envelope and window systems on vulnerable sides of the building need proper fortification, thickness, and sealant to withstand moisture making a direct hit and intruding in areas typically safe from vertical rain events. Detailed surveys where foundation and site elevations are confirmed can be instrumental in flood plain exposure and defending flood insurance claims.

Water from storm surge or heavy rain gets in your building and finds its way through new angles and crevices and into wall cavities and other internal areas that you wouldn’t expect or easily investigate. Finding it all can be more of an art than an emergency response skill for the moisture intrusion investigator. The first step in a response protocol should be to fully ascertain which areas are most affected by water

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1 2 3 4 5 6 7

https://www.washingtonpost.com/news/wonk/wp/2015/09/03/how-so-many-of-the-worlds-peoplelive-in-so-little-of-its-space/?utm_term=.97843e19edb7 http://www.spokesman.com/stories/2017/sep/17/us-coastal-growth-continues-despite-lessons-of-pas/ https://cities-today.com/industry/commercial-real-estate-investors-looking-resilience-rather-yields/ https://www.fema.gov/base-flood-elevation http://www.slate.com/articles/health_and_science/science/2017/09/here_s_why_fema_s_flood_ maps_are_so_terrible.html https://www.intel.com/content/www/us/en/smart-buildings/security-practices-smart-buildings-brief. html https://lunarline.com/blog/2017/06/why-you-need-a-cybersecurity-disaster-response-plan-now/

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

2 018 select sites directory

For a state-by-state look at Principal Manufacturing Industries’ share of manufacturing jobs and GRP, GO TO cdn2.areadevelopment.com/manufacturing_industries.pdf

2108 ANNUAL

DIRECTORY

Visit for SELECT SITES profiles and links.

• Unemployment Numbers Reflect a Recovering Economy • Educational Attainment Can Impact Location Decisions • Manufacturing Jobs: An Economic Driver • 2018 Select Sites Directory

Within the articles in this section, you will find statistical information on each state’s population, labor force, and unemployment rates, as well as educational attainment levels. States with the most manufacturing jobs are shown, as well as location of primary industry clusters — manufacturing and nonmanufacturing. Contact information for economic development organizations that can help in your next location search is on page 81.

Also visit FacilityLocations.com, our interactive directory offering Web and e-mail links to economic development organizations, GIS mapping and radius demographic reports, available buildings and sites listings, social media contact information, streaming videos, and more.

Every effort has been made to include the most active economic development organizations so that www.FacilityLocations.com will be a useful source of information on all areas of the United States as well as Canada, Mexico, and other nations around the globe.

Listings for location consultants are also provided in our online directory — www.FacilityLocations.com. All of these organizations can help with your site selection needs.

Note: If you are an economic developer and your organization is not listed on FacilityLocations.com, contact mshea@areadevelopment.com.

The charts on the following pages of our Annual Directory issue contain data supplied by Emsi. Emsi is a labor market and economic analytics firm based in Moscow, Idaho. It supplies data via software and consulting to hundreds of economic development organizations, workforce agencies, educational institutions, and companies in the U.S., UK, and Canada. For more, visit economicmodeling.com

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2 018 select sites directory

UNEMPLOYMENT NUMBERS REFLECT A RECOVERING

ECONOMY

As the U.S. economy has rebounded from the Great Recession and added jobs, unemployment has fallen to record lows in many states, creating worker shortages that need to be addressed.

Articles in this section written by Mark Crawford

SINCE the end of the Great Recession eight years ago, the American economy has rebounded to create nearly 16 million new jobs. As of August 2017, the national unemployment rate (which hit 10 percent in 2009) stood at 4.4 percent. Non-seasonally adjusted unemployment varied widely from state to state — from a low of 2.1 percent in North Dakota to 6.4 percent in New Mexico.

According to the Bureau of Labor Statistics (BLS), employment in the U.S. increased by 156,000 in August 2017.1 The biggest gain

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was seen in manufacturing (36,000 new jobs), led by the continued strong performance of the automotive industry. In fact, manufacturing has added 155,000 new jobs to the U.S. economy since November 2016.

Further, in August 2017 manufacturing activity was at its strongest in six years.

The Institute for Supply Management’s manufacturing index climbed from 56.3 percent in July to 58.8 percent in August — its highest reading since April 2011.2 Other industries that created jobs and reduced

unemployment rates across the country in August were construction employment (28,000 new jobs), professional and technical services (22,000), computer systems and related services (8,000), and healthcare employment (20,000). Healthcare gains represent an ongoing expansion of jobs in that sector. Despite uncertainties with the Affordable Care Act and insurance coverage, healthcare has added 328,000 jobs in 2017 as of September.

A good example is New Jersey — for the first nine

months of 2017, education and healthcare added 4,200 jobs — almost 20 percent of the 20,500 jobs created that year in the state. Similarly, in North Carolina, the largest employment gains in August 2017 were in education and health services, with 5,400 new jobs created, and Virginia is also seeing strong healthcare growth, especially in the Richmond area, where healthcare and social assistance programs have thrived, creating about 1,200 jobs year-over-year through the second quarter of 2017.

Hiring in other key economic sectors was more subdued or negative.

Employment in food services, wholesale trade, retail trade, transportation and warehousing, information technology, financial services, and the public sector was fairly flat in August 2017.

High Unemployment States States with the highest non-seasonally adjusted unemployment rates as of August 2017 are New Mexico (6.4 percent), Alaska (6.3 percent), Louisiana (5.6 percent), West Virginia (5.4 percent), Ohio (5.3 percent), Illinois (5.2 percent), and Kentucky (5.2 percent).

Numerous economic factors impact unemployment rates,

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Population/Labor Force State Name Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming

2017 Total Population

August 2017 Labor Force

4,877,979 746,002 7,017,212 2,999,777 39,575,607 5,618,947 3,578,636 960,982 20,886,469 10,407,735 1,440,382 1,700,077 12,805,789 6,658,081 3,148,463 2,916,401 4,452,722 4,706,619 1,332,075 6,055,165 6,851,759 9,934,360 5,552,137 2,992,261 6,112,831 1,050,569 1,918,991 2,981,760 1,337,677 8,969,613 2,086,527 19,803,765 10,241,028 772,728 11,628,254 3,952,410 4,129,378 12,801,319 1,056,892 5,012,822 872,972 6,697,613 28,289,157 3,092,935 624,761 8,478,696 7,366,582 1,829,464 5,795,388 590,009

2,162,768 369,982 3,304,258 1,371,780 19,293,497 3,009,751 1,919,376 481,515 10,127,466 5,057,573 687,142 827,899 6,460,360 3,355,775 1,687,993 1,481,458 2,054,263 2,091,226 721,388 3,264,773 3,712,208 4,883,829 3,082,329 1,276,299 3,069,421 532,869 1,010,473 1,449,767 757,798 4,553,480 924,413 9,730,139 4,904,622 422,505 5,790,834 1,821,272 2,142,125 6,443,254 560,511 2,339,433 462,682 3,193,952 13,406,779 1,575,635 349,081 4,331,940 3,743,407 782,243 3,185,750 296,602

August 2017 Unemployment Rate * 4.3% 6.3% 5.1% 3.5% 5.4% 2.2% 4.6% 5.1% 4.2% 4.8% 2.4% 2.6% 5.2% 4.0% 3.3% 4.2% 5.2% 5.6% 3.1% 4.0% 3.7% 4.6% 3.6% 5.1% 4.2% 3.4% 2.8% 5.0% 2.6% 4.8% 6.4% 4.9% 4.5% 2.1% 5.3% 4.7% 4.5% 5.1% 4.2% 4.5% 3.4% 3.6% 4.5% 3.5% 3.0% 3.8% 4.5% 5.4% 3.4% 3.5%

including diversity of the economy, key industries, worker education, and government-supported jobcreating programs. For example, both the New Mexico and Alaska economies are impacted by volatility in the oil and gas sector, seasonal work, and a heavy dependence on federal spending.

The August non-seasonally adjusted unemployment rate in Illinois was 5.2 percent, just slightly more than the previous month and representative of the state’s uneven economy, which overall lost about 3,500 jobs that month. Best job growth occurred in trade, transportation and utilities, education and health services, and construction; these gains were, however, offset by losses in leisure and hospitality, professional and business services, and manufacturing.

Kentucky is in a similar situation. With an August 2017 non-seasonally adjusted unemployment rate of 5.2 percent, the state’s job gains in construction, education and health, leisure and hospitality, trade, transportation and utilities, and manufacturing were countered by losses in retail, information technology, mining, and logging.

Low Unemployment States Having a low unemployment rate is a top goal of every state economic development department. The states with the lowest non-seasonally adjusted unemployment rates in August 2017 — North Dakota (2.1 percent), Colorado (2.2 percent), Hawaii (2.4 percent), Idaho (2.6

* Unemployment numbers are non-seasonally adjusted.

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

percent), New Hampshire (2.6 percent), and Nebraska (2.8 percent) — tend to have diversified economies with some high-performing sectors and strong educational systems. In fact, two of these states — North Dakota and Idaho — reached their lowest-ever (seasonally adjusted) unemployment levels that month since the state unemployment data series began in January 1976.3 Although these ultra-low rates are the envy of other states, they can actually hurt economic growth because there are very few available workers for new jobs. For example, Colorado’s adjusted

seasonal unemployment rate dropped to a record-low 2.3 percent in April 2017, a mark that has only been achieved four other times by any state in recent U.S. history. “When we get to unemployment rates this low, you can’t sustain the pace of job growth,” Ryan Gedney, senior economist with the Colorado Department of Labor and Employment, told The Denver Post.4 Wisconsin has the same problem. Its seasonally adjusted unemployment rate was 3.2 percent in May 2017, the lowest unemployment rate the state has had in 17 years — down from

the peak of 9.2 percent late in 2009 during the Great Recession.5 “The bottom line is Wisconsin’s economy is growing and adding jobs, and our biggest challenge now is finding enough skilled talent to fill openings employers have available,” states Workforce Development Secretary Ray Allen.

Not having enough workers is still a problem for states that are closer to the national average of 4.4 percent unemployment. In Massachusetts, for example, the seasonally adjusted unemployment rate was 4.3 percent in July (3.7 percent non-seasonally adjusted in

August). Even as one of the most-educated states in the country, Massachusetts does not have enough qualified workers to fill the job openings that are currently available, especially for the skilled positions in many of the high-tech sectors, such as medical devices and healthcare. “Although the unemployment rate remains low, we continue to see persistent gaps between the skill sets of available workers and the qualifications needed for in-demand jobs,” Massachusetts Labor and Workforce Development Secretary Rosalin Acosta told The Boston Globe.6

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Right-to-Work States Another factor impacting a state’s economic performance, job growth, and unemployment rate is its right-to-work status — this is especially true for strong manufacturing states, such as the entire Southeast U.S. In January 2017, Kentucky became the 27th right-towork state; in February, Missouri became the 28th state to pass right-to-work legislation.

In an April 2017 study entitled “The Impact of Right-to-Work Laws on Labor Market Outcomes in Three Midwest States: Evidence from Indiana, Michigan, and Wisconsin (2010–2016),” author Frank Manzo IV, policy director for the Illinois Economic Policy Institute, wrote that “while right-to-work laws have statistically reduced both the unionization rate and average worker wages, they have also been correlated with lower unemployment rates in the Midwest.” Comparing these right-to-work Midwest States to their three collective bargaining counterparts, Manzo notes that the unemployment rate has fallen by between 0.5 percent and 2.2 percent more in right-towork states. Michigan stands out in particular, with an unemployment rate that has dropped by 4.8 percent since Michigan’s right-to-work law took effect.7 Other studies also confirm that right-to-work states have lower unemployment rates than non-right-to-work states. “Economists have been studying the economic effects of right-to-work laws for more than four decades,

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and while it is inherently difficult to isolate the effects of a single policy on economic performance, the weight of the evidence strongly and increasingly suggests that right-to-work laws improve economic performance overall,” writes Jeffrey A. Eisenach, adjunct professor at George Mason University Law School in a white paper for NERA Economic Consulting. “Right-to-work states have had lower average annual unemployment in every year from 2001 to 2014 compared to non-right-towork states. On average, the annual unemployment rate in right-to-work states was 0.5 percent lower than in non-right-to-work states.”8 However, the complex nature of the economic factors at play is demonstrated by the lack of a direct correlation between rightto-work status and overall unemployment rate. For the 28 right-to-work states, the non-seasonally adjusted unemployment rate ranges from 2.1 percent in North Dakota to 5.6 percent in Louisiana.

More Workers Needed As noted, the overall low unemployment rate makes it more difficult to find qualified workers for current job openings, as well as planned expansions. Proactive states are devising more creative initiatives to create well-educated and highly trained workforces.

Without them, growth will stall and companies will look elsewhere for their location and expansion projects.

Virginia (3.8 percent nonseasonally adjusted unemployment rate in August)

is among those states that have created programs for reducing unemployment.

And the Virginia Board of Workforce Development continues to work on longerterm programs and incentives designed to improve the state’s overall workforce quality. For example, its “FastForward” workforce credential grant program, carried out through Virginia’s community colleges, provides workers with short-term training programs that prepare them for high-demand career opportunities. The Virginia Workforce System Report Card tracks the progress of the state’s jobs initiatives, including the attainment of STEM-H (science, technology, engineering, math, and health) workforce credentials and degrees. The goal is to produce 50,000 STEM-H credentialed workers and become the top state in the U.S. by 2030 for workforce credential and degree attainment. Early results look good: industry certifications awarded to Virginia high school students rose significantly in 2016, with nearly 100,000 certifications awarded since 2011.9 Another major educational effort is under way in Tennessee. In August 2017, the seasonally adjusted unemployment rate for Tennessee was 3.3 percent — the lowest for the state over the last 40 years. As in other states, this achievement has created job shortages across the state. In response, Tennessee launched several initiatives to improve the skills of its workforce.

“By 2025 at least half the jobs in Tennessee will require a college degree or

certificate,” says Tennessee governor Bill Haslam. “In response, we’ve created innovative workforce partnerships and education reforms for skills in high demand.

The result is a steady pipeline of qualified candidates for companies doing business in our state.”10 One of these is “Drive to 55,” which aims to bring the percentage of Tennesseans with college degrees or certificates to 55 percent by the year 2025. Another is “Tennessee Promise,” an initiative within Drive to 55 that offers high school seniors tuition-free attendance at one of Tennessee’s 13 community colleges or 27 colleges of applied technology. “Overall, since the launch of Tennessee Promise in 2013, first-time freshman enrollment has grown by 13 percent,” adds Haslam. “The first class of Tennessee Promise students entered school and the workforce training pipeline in the fall of 2015.

While this is certainly a mission for higher education, it’s also a mission for workforce and economic development.”

•

1 https://www.bls.gov/news.release/archives/ jec_09012017.htm1 2 https://www.marketwatch.com/story/ismmanufacturing-index-jumps-to-six-year-highin-august-2017-09-01 3 https://www.bls.gov/opub/ted/2017/threestates-at-historically-low-unemployment-ratesin-august-2017.htm 4 http://www.denverpost.com/2017/05/19/ colorado-unemployment-rate-record-low 5 http://www.jsonline.com/story/money/2017/05/18/wisconsins-unemployment-ratedrops-17-year-low/330992001/ 6 https://eastbostonecon.wordpress. com/2017/08/17/at-4-3-massachusetts-unemployment-rate-now-matches-the-u-s-rate-stateloses-200-jobs-in-july/ 7 https://ler.illinois.edu/wp-content/uploads/2017/03/RTW-in-the-Midwest-2010-2016. pdf 8 http://www.nera.com/content/dam/nera/ publications/2015/PUB_Right_to_Work_ Laws_0615.pdf 9 http://vaperforms.virginia.gov/indicators/ economy/unemployment.php 10 https://www.cnbc.com/2017/07/11/tennessees-novel-plan-to-tie-education-to-jobs-govbill-haslam.html

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2 018 select sites directory

EDUCATIONAL ATTAINMENT CAN IMPACT LOCATION

rate for those who had not finished high school (48 percent).”1 There are exceptions, of course, for states that have blue-collar sectors that provide high wages, such as oil and gas. For example, in Alaska, 17 percent of the workforce has a bachelor’s degree, according to Emsi data. However, according to the 24/7WallSt.com 2017 ranking of most educated states, the “typical bachelor’s degree holder in Alaska earns just $19,600 more than the typical high school graduate, less than the $21,700 average difference nationwide. One reason for this may be the state’s large oil industry, which can provide high-paying jobs to workers with lower levels of educational attainment.”2

DECISIONS

Companies looking for workers with advanced skill sets can look to states with college educated workforces, but oftentimes workers with postsecondary vocational and technical training can help to fulfill companies’ needs.

Articles in this section written by Mark Crawford

The Highest Educated States HIGHLY skilled and educated workers are a top labor consideration for any company, making educational attainment a key site selection factor in location/ expansion decisions. With an increasingly diversified economy and tech-oriented job needs, level of education helps HR departments determine qualifications and certifications, as well as the motivation of potential candidates. Overall, educational attainment can also be

a measure of how intelligent or multidimensional a regional workforce can be.

And for many workers, who seek higher wages in highertech industries, a bachelor’s degree is often needed for career advancement.

Adults with a bachelor’s degree generally earn higher incomes, are less susceptible to serious financial hardships, and are more desirable candidates for employers. Also, according to the National Center for Educa-

tion Statistics, in 2016 the employment rate was higher for those with higher levels of educational attainment.

For example, the center indicates “the employment rate was highest for young adults with a bachelor’s or higher degree (88 percent). The employment rate for young adults with some college (77 percent) was higher than the rate for those who had completed high school (69 percent), which was, in turn, higher than the employment

In fourteen states — Colorado, Connecticut, Hawaii, Maryland, Massachusetts, Minnesota, Montana, New Hampshire, New Jersey, North Dakota, Utah, Vermont, Virginia, and Washington — at least 20 percent of the 25 yearsand-older population holds a bachelor’s degree. These higher-educated workers tend to work in professional, technical, and management fields.

Several surveys rank Mas-

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2017 Educational Attainment State Name

68

Less Than 9th Grade

9th Grade to 12th Grade

High School Diploma

Some College

Associateâ&#x20AC;&#x2122;s Degree

Bachelorâ&#x20AC;&#x2122;s Degree

Graduate Degree and Higher

Alabama

5.5%

11.1%

31.1%

21.4%

7.6%

14.7%

8.6%

Alaska

3.4%

5.2%

27.8%

28.1%

8.1%

17.8%

9.7%

Arizona

7.3%

7.4%

24.5%

25.5%

8.3%

17.0%

10.0%

Arkansas

6.5%

9.7%

34.6%

22.0%

6.3%

13.5%

7.4%

California

11.3%

7.7%

21.0%

21.4%

7.6%

19.6%

11.4%

Colorado

4.6%

5.3%

22.2%

22.0%

8.1%

24.0%

13.9%

Connecticut

4.8%

6.3%

27.6%

17.2%

7.3%

20.6%

16.2%

Delaware

4.3%

7.8%

31.2%

19.7%

7.7%

17.4%

12.0%

Florida

5.9%

7.8%

29.4%

20.4%

9.3%

17.2%

10.0%

Georgia

5.9%

9.2%

28.3%

20.5%

7.1%

18.3%

10.8%

Hawaii

4.1%

5.2%

28.6%

21.7%

10.4%

20.0%

10.1%

Idaho

5.2%

5.8%

27.6%

26.6%

9.1%

17.5%

8.2%

Illinois

6.1%

6.6%

26.9%

20.8%

7.6%

19.7%

12.3%

Indiana

4.4%

8.4%

34.6%

20.4%

8.0%

15.5%

8.7%

Iowa

4.0%

5.4%

32.5%

21.2%

10.5%

17.9%

8.5%

Kansas

4.6%

5.8%

27.3%

23.5%

7.8%

19.9%

11.1%

Kentucky

7.1%

9.5%

33.6%

20.3%

7.3%

13.1%

9.2%

Louisiana

6.0%

11.3%

34.0%

20.8%

5.4%

14.8%

7.8%

Maine

3.3%

5.7%

33.2%

19.5%

9.3%

18.8%

10.2%

Maryland

4.6%

6.8%

25.4%

19.3%

6.4%

20.4%

17.1%

Massachusetts

5.1%

5.9%

25.4%

15.9%

7.6%

22.4%

17.7%

Michigan

3.3%

7.4%

30.0%

23.5%

8.8%

16.5%

10.5%

Minnesota

3.6%

4.7%

26.1%

21.7%

10.5%

22.2%

11.2%

Mississippi

6.5%

11.9%

30.3%

22.2%

8.4%

12.9%

7.7%

Missouri

4.1%

8.2%

31.3%

22.3%

7.2%

16.8%

10.2%

Montana

2.5%

5.3%

30.8%

23.6%

8.1%

20.2%

9.6%

Nebraska

5.0%

4.9%

27.6%

23.6%

9.5%

19.7%

9.7%

Nevada

7.6%

8.0%

28.4%

25.5%

7.6%

15.1%

7.8%

New Hampshire

2.6%

5.4%

28.7%

19.1%

9.5%

21.6%

13.0%

New Jersey

5.7%

6.4%

28.6%

16.7%

6.2%

22.5%

13.8%

New Mexico

7.7%

9.2%

26.8%

23.0%

7.6%

14.5%

11.2%

New York

7.0%

8.2%

26.9%

16.0%

8.3%

19.1%

14.6% 10.0%

North Carolina

5.8%

8.8%

26.7%

21.2%

8.9%

18.5%

North Dakota

4.4%

4.6%

27.3%

23.2%

12.8%

20.2%

7.4%

Ohio

3.2%

8.1%

34.3%

20.4%

8.0%

16.3%

9.7%

Oklahoma

5.2%

8.6%

31.7%

23.5%

7.1%

15.9%

8.0%

Oregon

5.1%

5.9%

24.3%

25.7%

8.4%

19.3%

11.4%

Pennsylvania

3.8%

7.8%

36.3%

16.0%

7.8%

17.2%

11.0%

Rhode Island

6.5%

8.3%

27.8%

18.1%

8.0%

18.7%

12.6%

South Carolina

5.1%

9.8%

30.0%

20.4%

8.9%

16.6%

9.3% 8.1%

South Dakota

4.3%

5.5%

31.1%

21.6%

10.4%

19.0%

Tennessee

6.0%

9.2%

32.9%

20.6%

6.4%

15.8%

8.9%

Texas

10.4%

8.5%

25.1%

21.9%

6.7%

18.1%

9.3%

Utah

3.7%

5.4%

23.8%

26.9%

9.4%

20.7%

10.2%

Vermont

3.1%

5.7%

30.3%

17.4%

8.2%

21.3%

14.1%

Virginia

5.2%

7.1%

24.8%

19.6%

7.2%

20.8%

15.3%

Washington

4.8%

5.2%

23.4%

24.2%

9.6%

20.9%

11.8%

West Virginia

5.5%

10.3%

40.7%

18.2%

6.4%

11.5%

7.4%

Wisconsin

3.5%

6.1%

32.2%

21.0%

9.7%

18.3%

9.2%

Wyoming

2.7%

5.8%

29.6%

26.3%

10.2%

16.8%

8.7%

AREA DEVELOPMENT

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

sachusetts first for the most-educated workforce in the country. Over 40 percent of residents 25 and older have either four-year or advanced college degrees. According to 24/7WallSt.com, the share of college educated adults in Massachusetts climbed by 1.2 percent between 2015 and 2016, the fifthhighest increase among all states. Median income for those with a degree is $60,503; the state also had one of the lowest unemployment rates in 2016 at 3.7 percent.

States with tech-oriented economies that require highly skilled workers tend to pay higher wages. According to the Massachusetts Budget and Policy Center, this does, however, widen the wage gap in the state, with the college educated earning on average 99 percent — or nearly double — the wages of those in the labor force with only a high school education.3 This difference, often referred to as the “college wage premium,” was 56.6 percent across the entire nation in 2016.

As another example, in Maryland (20.4 percent of the adult population holds a bachelor’s degree), median earnings for bachelor’s degree holders in 2016 were $61,049 (third-highest in the U.S.); the state unemployment rate was 4.3 percent. “In Maryland,” writes 24/7WallSt.com, “15.6 percent of the labor force is employed in the professional, scientific, and management sectors — the largest such share of any state. High employment in such highly skilled industries would likely not be possible in many states with a smaller share of college educated adults.”

The Least Educated States The states with the lowest percentages of bachelor degrees are Alabama, Arkansas, Indiana, Kentucky, Louisiana, Mississippi, Nevada, New Mexico, and West Virginia. Even though their educational attainment levels are less, this does not mean their unemploy-

ment rates are necessarily higher. For example, even though only 15.5 percent of adults in Indiana have bachelor’s degrees, according to Emsi data, Indiana ranks 7th for the number of workers employed in manufacturing, which typically does not require a four-year degree. The state’s strong manufacturing sector keeps unemployment in the 3.8 percent range (seasonally adjusted), well below the national average of 4.1 percent in October 2017.

Other lower-ranked states do, however, struggle with unemployment. In Ohio, 16.3 percent of the adult population holds a bachelor’s degree. “The typical high school graduate in Ohio earns only about $30,000 a year,” reports 24/7WallSt.com. “Meanwhile, the median income among college graduates in the state is over $50,000 a year.” However, the unemployment rate of about 5.3 percent (non-seasonally adjusted for August 2017) in Ohio was far higher than the national average. Louisiana is similar, with a bachelor’s degree percentage of 14.8 and an unemployment rate of 5.6 percent (non-seasonally adjusted for August 2017).

The lowest-ranked state is West Virginia, where only 11.5 percent of adults have bachelor degrees and the state unemployment rate in August was 5.4 percent. West Virginia, however, continues to work hard to bring in more business investment, especially manufacturing. Very recently the West Virginia Department of Commerce announced that China Energy Investment Corporation Limited plans to invest $83.7 billion in shale gas development and chemical manufacturing projects in the state.

How Much Educational Attainment Is Really Necessary?

Higher education benefits workers, businesses, and state economies.

However, with the high cost of postsecondary education (and associated

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Unemployment rates and earnings by educational attainment, 2016 Unemployment rate (%)

Median usual weekly earnings ($)

Doctoral degree

1.6

1,664

Professional degree

1.6

1,745

Master’s degree

2.4

1,380

Bachelor’s degree

2.7

1,156

Associate’s degree

3.6

819

Some college, no degree

4.4

756

High school diploma

5.2

692

Less than high school diploma

7.4

504 Total: 4%

All workers: $885

NOTE: Data are for persons age 25 and over. Earnings are for full-time wage and salary workers.

Source U.S. Bureau of Labor Statistics, Current Population Survey

student debt), some question the value in obtaining a four-year degree. Yet, in 2016, 33.4 percent of the adult population held a bachelor’s degree or higher — an increase from less than 30 percent in 2010 and 28 percent in 2006, according to Census Bureau data.4 Educational attainment, however, does not just mean bachelor’s degrees. Many “middle-skill jobs” that require education beyond high school, but not a four-year college degree, comprise a large portion of current labor market needs — especially for STEM (science, technology, engineering, and mathematics) positions. Two-year associate degrees can usually provide these skills and get workers into these jobs more quickly than four-year college programs.

“The four-year degree is no longer a necessity for individuals entering today’s workforce,” states Susan Kryczka, assistant vice president of the division

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of Extended Education for Excelsior College in Boston.

“Institutions need to do more to ensure their offerings are in demand both by students and employers.

A recent study by Northeastern University predicts that most job openings in Massachusetts over the next seven years will not require a four-year college degree, and that the vocational education system in the state will be unable to train enough people to fill the expected job vacancies. Three out of five job openings will require employees with less than a bachelor’s degree, and many will need vocational training, postsecondary certificates, and associate degrees.”5 Kryczka indicates that many local community colleges and vocational schools are finding it difficult to keep pace with the demand for skilled workers. “The study warns that critical labor shortages in healthcare, manufacturing, and other key industries could result as the

economy expands and more baby-boomers retire, creating some 1.2 million job openings by 2022,” she adds.

Building a Skilled Workforce The evolving U.S. economy does require increasing levels of postsecondary educational attainment. A recent study by Georgetown University’s Center on Education and the Workforce predicts a shortfall of five million workers with postsecondary degrees in the U.S. by 2020. In addition, about 65 percent of all jobs in 2020 will require a bachelor’s or associate’s degree, or some other post-high school training, especially for STEM, healthcare, and community service occupations.6 According to Emsi data, states with the highest percentage rates of associate degrees are Hawaii, Iowa, Minnesota, North Dakota, South Dakota, and Wyoming. States with high rates of both associate degrees

and four-year degrees reflect a highly skilled and diversified workforce that appeals to a variety of industries.

With the pressing need for more middle-skill workers, states are also creating more opportunities for workers to obtain associate degrees and certifications. For example, Georgia colleges and universities are making degrees more affordable and attainable. The state guarantees 90 percent tuition scholarships for high-performing students to attend Georgia Tech, the University of Georgia, and 30 other colleges and universities, with 100 percent tuition paid for the very best students. The HOPE Scholarship pays college costs at any public institution for the highest achievers.

Alabama is streamlining and improving its overall workforce development program. New initiatives include AlabamaWorks, which brings together key components of the K-12 and two-year college systems, state workforce training and placement services, and industry. The program makes it easier to connect businesses and workers and develop career and job-training opportunities.

To help meet current workforce demands, Indiana recently announced several new grant programs geared toward high-demand, highwage jobs. The Workforce Ready Grant and the Employer Training Grant will help offset the costs to employers when they train new employees. The grants provide more than $20 million over the next two years to fund training and certifi-

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

cations. With the state’s low unemployment rate, and nearly 100,000 job openings, the Next Level Jobs program covers full tuition costs for adult learners to earn career certificates in high-growth sectors of Indiana’s economy, especially advanced manufacturing, building and construction, health and life sciences, IT and business services, and transportation and logistics.

With the increasingly high-tech, billion-dollar-plus capital investment announcements coming out of Nevada, the state is busy developing a more educated and skilled workforce. For

example, the LEAP (Learn and Earn Advanced Career Pathway) Initiative for advanced manufacturing is a pilot program for developing a fully integrated, long-term manufacturing career. LEAP works through the community college system to deliver two-year degrees for advanced manufacturing technician, with opportunities to move into degreed programs in mechanical engineering, diversified industry engineering, and management. The program also offers work-based learning through apprenticeships and internships.

Kryczka stresses much

more needs to be done to build the workforce of the future. “There’s a lesson for each of our institutions, no matter how traditionally focused, to recognize our responsibility to not only educate our students, but also to offer them the skills that provide flexibility in their career path.”

Not all students will seek or require a four-year degree to succeed. Some may want certifications and licenses beyond academic credit or instead of a degree. “We need to expand what we offer and be flexible in defining our mission to educate for the future,” Kryczka adds. “We

should talk to economists, our state governments, and regional industries to look into the future. And while states should continue to support our higher education institutions, we all need to acknowledge the importance of vocational and technical training for a skilled workforce.”

•

1

https://nces.ed.gov/programs/coe/indicator_cbc.asp http://247wallst.com/special-report/2017/09/23/americas-most-and-leasteducated-states-2/9/ 3 http://boston.cbslocal.com/2017/08/23/massachusetts-bachelors-degrees-half-workforcemost-educated/ 4 https://www.census.gov/newsroom/pressreleases/2017/cb17-51.html 5 https://evolllution.com/revenue-streams/ workforce_development/many-future-jobswill-not-require-a-bachelors-degree-wheredoes-that-leave-higher-education/ 6 https://cew.georgetown.edu/wp-content/uploads/2014/11/Recovery2020.Press-Release.pdf 2

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MANUFACTURING JOBS: AN ECONOMIC

DRIVER

Although U.S. manufacturing has lost millions of jobs over the last few decades, it still has the highest multiplier effect of any sector, with each manufacturing job generating four elsewhere in the economy.

Articles in this section written by Mark Crawford

ACCORDING to the National Association of Manufacturers (NAM), manufacturers contributed $2.18 trillion to the U.S. economy in 2016, accounting for nearly 12 percent of the national GDP. There are nearly 12.5 million manufacturing workers in the United States, accounting for 8.5 percent of the workforce, says NAM, and since the end of the Great Recession, manufacturers have hired more than one million workers.1 California has the greatest number of total manufacturing jobs in the U.S. in 2017, with nearly 1.3 million workers (over the last four years, from 2013 to 2017, manufacturing jobs

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AREA DEVELOPMENT

in California increased at a rate of 3 percent). Texas is in second place with a total of more than 851,000 manufacturing jobs in 2017; however, between 2013 and 2017 Texas manufacturing jobs actually fell by 3 percent (negative growth in oil and gas, aerospace, agricultural and heavy equipment, and semiconductor manufacturing jobs).

States with the highest rates of growth in manufacturing jobs from 2013 to 2017 are Florida (12 percent) and Idaho (11 percent), followed by Michigan, Georgia, Kentucky, and Colorado (all at 10 percent). In addition to Texas, 16 other states showed overall job losses

from 2013 to 2017 across their combined manufacturing sectors. The largest decrease was in New Mexico, where manufacturing jobs fell 8 percent, followed by Vermont and Connecticut, both experiencing 6 percent declines.

States With Manufacturing Job Gains One of the biggest economic drivers among the states adding manufacturing jobs is automotive and automotive parts manufacturing. For

total jobs in the overall automotive manufacturing sector in 2017, Michigan is ranked first with 186,237 employees (14,039 of these were added in 2013–2017). As the state rebounded from the Great Recession, nearly one out of eight new Michigan jobs was in the automotive industry, including automotive parts manufacturing.2 Following Michigan for total number of automotive jobs are Ohio, Indiana, Tennessee, and Kentucky. These states have strong histories in automotive manufacturing, hundreds of facilities, experienced workers, and right-to-work status. Kentucky has gained automotive manufacturing jobs at a torrid pace — its 2017 total is 65,134, with 14,969 of them coming in 2013–2017 — a 23 percent growth rate. The state is home to more than 500 auto-related facilities.

Kentucky produced more than 1.3 million vehicles last year, ranking the state third in light vehicle production and first on a per capita basis.3 Recent announcements include Ford Motor Company’s plans to invest $900 million in its Louisville, Kentucky, Truck Plant and Toyota Motor Manufactur-

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Manufacturing Jobs State Name California

ing Kentucky’s $1.33 billion upgrade to its Georgetown facility.

Specifically, automotive parts manufacturing is also booming. Where automobile manufacturing plants locate, auto parts manufacturers and suppliers soon follow.

From 2013–2017 motor vehicle parts manufacturing jobs grew by 16 percent in Michigan, 19 percent in Kentucky, and 38 percent in Georgia. For example, German-based LINDE + WIEMANN GmbH KG, a global manufacturer of complex structural steel systems for automotive OEMs, recently opened a $35 million assembly operation in Hart County, Georgia, to supply nearby customers, including BMW and Daimler. In Kentucky, Logan Aluminum recently announced plans for a $248 million expansion of an existing operation to produce lightweight components for the automakers. Braidy Industries also plans to construct a $1.3 billion aluminum rolling mill in Greenup County in eastern Kentucky to produce sheet and plate for automakers that include Ford and Toyota.

Other states showing manufacturing job gains — Colorado, Florida, and Idaho — have strong manufacturing sectors in aerospace, medical devices, plastics, food and beverage,

agriculture and dairy, wood products, and some oil- and gas-related manufacturing. In aerospace products and parts manufacturing jobs, both Florida (9 percent growth in 2013–2017) and Colorado (11 percent growth in 2013–2017) have performed well. Aerospacerelated companies in Florida provide a variety of products and services, including aircraft parts and assembly, intelligence, surveillance, reconnaissance, and even missile systems. Florida is home to the “Space Coast” and Cape Canaveral.

With more than 400 aerospace companies and over 25,000 private aerospace workers, Colorado ranks just behind California in terms of its aerospace economy, according to CNBC.4 It provides research and development, design, and manufacture of guided missiles, space vehicles, satellites and communications equipment, and navigation and detection instruments, as well as planetary spacecraft and launch systems. Colorado also supports innovation and commercial space opportunities, including the development of Spaceport Colorado.

For example, in June 2017, Colorado-based United Launch Alliance beat out SpaceX for an Air Force satellite launch contract worth $191 million.

2017 Jobs

2013 - 2017 % Change

1,288,417

3%

Texas

851,395

(3%)

Ohio

687,911

4%

Michigan

607,732

10%

Illinois

569,330

(2%)

Pennsylvania

556,820

(1%)

Indiana

529,520

8%

North Carolina

469,672

6%

Wisconsin

464,136

2%

New York

444,375

(2%)

Georgia

391,534

10%

Florida

359,196

12%

Tennessee

348,741

9%

Minnesota

318,631

4%

Washington

289,224

2%

Missouri

268,015

6%

Alabama

264,781

6%

Kentucky

251,268

10%

South Carolina

243,241

8%

Massachusetts

241,778

(3%)

New Jersey

238,936

(1%)

Virginia

233,612

1%

Iowa

216,605

1%

Oregon

189,455

8%

Kansas

161,186

(1%)

Arizona

159,003

3%

Arkansas

155,449

2%

Connecticut

154,294

(6%)

Colorado

145,550

10%

Mississippi

144,121

5%

Louisiana

137,636

(4%)

Oklahoma

130,240

(4%)

Utah

127,680

8%

Maryland

104,654

(2%)

Nebraska

97,940

2%

New Hampshire Idaho

68,153

3%

65,644

11%

Maine

50,548

0%

West Virginia

46,597

(4%)

Nevada

44,198

9%

South Dakota

42,996

4%

Rhode Island

40,105

0%

Vermont

29,945

(6%)

New Mexico

26,721

(8%)

Delaware

25,802

2%

North Dakota

24,809

(2%)

Montana

20,046

9%

Hawaii

14,141

4%

Alaska

13,692

(4%)

9,366

(1%)

Wyoming

AREA DEVELOPMENT | 2018 Select Sites Directory

73

Automotive State Name

Food Processing & Manufacturing 2017 Jobs

2013-2017 Job Change

2017 Jobs

2013-2017 Job Change

Michigan

186,237

14,039

California

168,803

19,140

Ohio

115,310

11,359

Illinois

62,837

5,543

Indiana

92,557

9,710

Texas

57,566

8,061

Tennessee

71,154

14,976

Pennsylvania

54,246

4,336

Kentucky

65,134

14,969

Ohio

53,350

4,181

Alabama

48,835

7,358

Wisconsin

49,626

4,922

Illinois

42,880

2,140

New York

41,191

3,992

Texas

38,253

1,935

Minnesota

37,324

2,298

California

34,269

7,620

Michigan

32,826

4,192

South Carolina

29,976

5,775

Iowa

32,210

2,640 4,818

Missouri

29,154

11,387

Indiana

31,775

Wisconsin

28,660

-2,111

Washington

31,309

5,139

North Carolina

27,914

3,433

Georgia

30,129

3,414

Georgia

27,557

6,427

Oregon

29,545

5,457

Pennsylvania

25,874

982

Florida

29,526

2,860

Aerospace Vehicles State Name

2017 Jobs

Agricultural Input & Services 2013-2017 Job Change

State Name

2017 Jobs

2013-2017 Job Change

California

101,428

-975

California

430,512

18,326

Washington

93,566

-4,124

Washington

104,517

11,585

Texas

48,515

-5,938

Florida

95,126

-2,307

Arizona

30,634

-3,035

Texas

78,194

4,138

Florida

30,303

2,350

Oregon

42,045

324

Kansas

29,227

-3,322

Michigan

33,504

3,785

Connecticut

27,700

-1,978

North Carolina

32,246

-175

Georgia

21,285

-510

Wisconsin

30,476

4,094

Ohio

20,221

2,537

New York

28,178

2,192

Missouri

16,482

-1,353

Pennsylvania

27,856

1,313

Massachusetts

14,496

-2,172

Idaho

26,224

2,281

New York

13,825

-1,014

Arizona

25,360

565

Alabama

13,799

409

Iowa

25,336

2,187

Maryland

11,233

-3,552

Georgia

25,057

1,539

Pennsylvania

11,177

-2,415

Minnesota

23,609

1,365

Food and beverage is a strong manufacturing sector for these states as well.

Colorado ranks section in the nation for craft beer sales and production, with approximately 334 craft breweries in the state, according to the Brewers Association.5 Thus, it is no surprise that beverage manufacturing jobs increased 36 percent from

74

State Name

AREA DEVELOPMENT

2013 to 2017.

Idaho is known for a variety of food products, including a wide range of crops, seeds, dairy products, cattle and other livestock, wine, and beer. Over the last four years dairy product manufacturing jobs in the state have increased by 20 percent. For example, cheese producer Glanbia Foods plans for an

$82 million expansion of its manufacturing plants in south-central Idaho to meet the increasing demand for whey â&#x20AC;&#x201D; a byproduct from making cheese.

States With Manufacturing Job Losses Negative growth in manufacturing jobs from 2013

to 2017 occurred in several states including New Mexico (-8 percent), Vermont (-6 percent), Connecticut (-6 percent), Louisiana (-4 percent), Oklahoma (-4 percent), West Virginia (-4 percent), Alaska (-4 percent), Massachusetts (-3 percent), and Texas (-3 percent), among others with 2 percent declines.

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Some of these declines are related to volatility in the oil and gas markets. Even though prices are on the upswing and more rigs are back to work, downward trends in 2013–2017 job numbers reflect the hardship this sector has caused.

For example, although the oil and gas sector in Texas currently employs approximately 294,000 workers, it has lost 85,148 jobs over the last four years; Louisiana is next at nearly 54,000 workers (-19,302 workers, 2013–2017); Oklahoma at more than 53,600 (-18,719 workers 2013–2017).

North Dakota, Alaska, West Virginia, Illinois, and Mississippi are among other states that have also experienced oil and gas employment declines over the same

time period. This reduction in exploration and production activity has also impacted heavy equipment manufacturers — employment in this key manufacturing sector is down by 30 percent in Texas, 25 percent in Louisiana, and 28 percent in Oklahoma.

States are also weighed down by other nonproductive sectors: metal fabrication; ship and boatbuilding; structural metal manufacturing; boilers, tanks, and containers; rubber; iron and steel manufacturing; machine shops; and semiconductors and electronic components also show job reductions from 2013 to 2017.

A bright spot for many states is plastics. The percentage of job gains in the plastics products sector over the last four years includes

HOT

or

29 percent in Alabama; 20 percent in Tennessee; 19 percent in Nevada and North Carolina; 18 percent in Michigan; 17 percent in Colorado; 16 percent in New Jersey; 15 percent in Iowa; 13 percent in Georgia, Kentucky, and Missouri; 11 percent in Kansas, Maine, Utah, and Virginia; and 10 percent in Indiana, among smaller gains in several other states. Production is up thanks to increased substitution of plastics for other materials such as metal and easy access to shale gas feedstocks.

According to a January 2017 report in Plastics News,

employment in plastics manufacturing rose 1.4 percent to 954,000 in 2015 (the most recent figures available) with U.S. production approaching $420 billion, making plastics the third-largest manufacturing sector behind oil and gas extraction and automobiles.6 The report also noted more than 500 investments in expansion or new locations were announced that year, with many located in the Midwest and Texas.

Texas is home to an abundance of plastics manufacturers that employ about 75,000 workers — the largest plastics workforce in the nation. Texas’ plastics prod-

For a state-by-state look at Principal Manufacturing Industries’ share of manufacturing jobs and GRP, GO TO cdn2.areadevelopment.com/manufacturing_industries.pdf

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AREA DEVELOPMENT | 2018 Select Sites Directory

75

Oil & Gas State Name

Biopharma 2017 Jobs

2013-2017 Job Change

2017 Jobs

2013-2017 Job Change

Texas

294,606

-85,148

California

51,718

6,533

Louisiana

53,958

-19,302

New Jersey

21,700

-5,020

Oklahoma

53,619

-18,719

North Carolina

21,174

-455

California

30,274

-9,589

Illinois

20,243

2,312

Colorado

23,748

-4,014

New York

19,626

-292

Pennsylvania

22,031

-5,943

Indiana

18,060

240

New Mexico

17,327

-4,088

Pennsylvania

17,349

-587

North Dakota

15,472

-9,535

Texas

12,015

1,870

Alaska

12,939

-2,484

Massachusetts

10,583

1,261

Wyoming

11,825

-6,994

Michigan

8,401

220

Ohio

11,557

1,836

Maryland

7,591

696

West Virginia

8,429

-1,800

Utah

6,930

1,505

Kansas

8,062

-3,944

Florida

5,886

1,414

Illinois

6,401

-716

Missouri

5,679

207

Mississippi

6,070

-2,541

Ohio

4,935

-806

Info Tech & Analytical State Name

2017 Jobs

Financial Services

2013-2017 Job Change

State Name

2017 Jobs

2013-2017 Job Change

California

302,594

34,037

New York

263,983

8,699

Texas

96,160

1,269

California

220,307

12,508

Massachusetts

79,045

785

Texas

193,859

13,991

Washington

77,469

6,513

Florida

120,745

7,127

New York

56,464

4,444

Illinois

95,517

-2,620

Oregon

49,621

3,550

Pennsylvania

70,093

2,260

Minnesota

47,467

682

New Jersey

67,983

-2,564

North Carolina

45,998

6,524

Massachusetts

67,192

-1,566

Florida

41,187

4,031

Arizona

66,955

8,010

Wisconsin

32,026

4,762

Ohio

58,357

-1,809

Pennsylvania

31,842

487

Virginia

57,462

5,613

Illinois

31,073

1,865

Georgia

55,605

6,175

Colorado

29,561

12

Colorado

46,723

4,938

Arizona

28,626

-3,122

North Carolina

46,642

4,779

Ohio

24,702

2,497

Michigan

42,042

-379

ucts manufacturing workforce grew by 3 percent from 2013 to 2017. Texas also has easy access to abundant raw materials and an excellent petrochemical infrastructure, especially along the Gulf Coast.

Other manufacturing categories are helping stabilize uneven state economies.

76

State Name

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For example, Massachusetts experienced a 3 percent drop in overall manufacturing employment from 2013 to 2017. Significant losses occurred in semiconductors, computers and peripheral equipment, printing and related support activities, and aerospace products and parts, as well as smaller

losses in other sectors. Bright spots in the economy include pharmaceutical and medicine manufacturing, where jobs grew 14 percent over the four-year period. Massachusetts is also experiencing growth in the beverage industry, where jobs have grown 43 percent.7 In New Mexico, manu-

facturing job losses from 2013 to 2017 have occurred in semiconductors and electronic components, instruments, and some other manufacturing sectors. In contrast, the strongest job gains over that time period have been fruit and vegetable preserving and specialty food manufactur-

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

ing (+44 percent) and other food manufacturing (+18 percent).

Specialty foods from New Mexico are in high demand around the world, especially its chile varieties. Planted chile acreage in 2016 totaled about 9,200 acres, producing 69,000 tons of product valued at about $50.6 million. Luna and Doña Ana counties lead New Mexico in chile production.8 Reflective of the increased demand for specialty foods, El Pinto Foods announced in January 2017 plans for a $7 million expansion of its Albuquerque facility. Its salsa manufacturing division currently produces 25,000 salsa and chile jars per shift and has the capacity to make three to four million jars annually. The expansion is needed to meet growing demands for individual-sized portion cups for private-label customers.

education and knowledge creation, and is second in transportation and logistics and financial services.

NAM reports that manufacturers in California account for about 12 percent of the state’s total output and employ nearly 8 percent

of the workforce. Total output from manufacturing in California was about $280 billion in 2015.9 Much of this vitality and success of manufacturing is due in part to the attractiveness of California for foreign direct investment (FDI). According

to the U.S. Department of Commerce, the U.S. is the world’s largest recipient of FDI ($373 billion in 2016); California attracts roughly one third of this total, the most FDI of any state.10 In 2015, nearly 70 percent of FDI flows, and more than

Diversity Is Essential for Growth A state that develops and supports multiple manufacturing clusters has a much better chance of successfully riding out economic ups and downs, as well as employing its workforce in good-paying jobs, keeping unemployment rates low. A good example is California, whose manufacturing job numbers increased by 3 percent from 2013 to 2017, bringing its current total to nearly 1.3 million.

California shows diverse economic strength through all of its key sectors. It has the greatest number of jobs in aerospace vehicle manufacturing, biopharmaceuticals, information technology and analytics, agricultural input and services, food manufacturing and processing, business services, and

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one third of jobs created at U.S. majority-owned affiliates of foreign entities, were in a manufacturing venture, with the largest proportions going toward automotive, chemicals, plastics, pharma, and medicines.

It’s projected that over the next decade, nearly 3.5 million manufacturing jobs will be created — two million of which will go unfilled because employers won’t be able to find workers with the required skills.11 This is actually happening now: according to Deloitte and the Manufacturing Institute, 80 percent of manufacturers report a moderate or serious shortage of qualified ap-

plicants for skilled and highly skilled production positions.

If national and state governments and their manufacturers want to remain competitive, domestically and globally, they must work collaboratively with each other and with educational institutions to provide future workers with the critical skills they need to fill these positions. A strong and capable workforce is a critical asset for any company and for any location, especially those that may have other weaknesses or trouble spots.

In Connecticut, for example, from 2013 to 2017, manufacturing jobs dropped in aerospace products and

Business Services State Name

2017 Jobs

2013-2017 Job Change

California

1,078,684

81,880

Texas

754,098

143,967

Florida

543,962

100,093

New York

505,351

50,221

Virginia

416,605

25,666

Illinois

377,937

26,244

Pennsylvania

354,946

28,865

Ohio

322,752

15,979

Georgia

298,511

45,499

New Jersey

287,791

17,659

North Carolina

282,732

30,934

Michigan

263,849

23,923

Massachusetts

257,108

27,465

Arizona

217,051

25,756

Colorado

205,824

24,630

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AREA DEVELOPMENT

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

Transportation & Logistics State Name

2017 Jobs

2013-2017 Job Change

Education & Knowledge Creation State Name

2017 Jobs

2013-2017 Job Change 45,271

Texas

221,411

16,831

California

815,340

California

171,313

22,011

New York

531,965

38,051

Illinois

117,199

4,876

Texas

461,375

72,587

Florida

116,649

15,943

Pennsylvania

317,048

10,726

Georgia

94,468

6,824

Massachusetts

294,926

31,101

New York

92,090

9,672

Illinois

276,131

5,149

Ohio

68,000

4,763

Florida

265,096

26,745

Pennsylvania

64,721

4,007

Ohio

252,009

13,838

Tennessee

57,915

352

Michigan

218,976

13,945

New Jersey

55,287

5,140

North Carolina

213,784

4,762

Indiana

51,797

-2,944

Virginia

181,727

5,698

Michigan

50,154

5,096

New Jersey

175,763

8,568

North Carolina

49,147

5,196

Maryland

170,820

7,334

Washington

45,732

6,821

Georgia

162,668

4,791

Missouri

45,652

1,741

Washington

147,014

10,973

CALIFOR NIA 951.413.3460 | www.morenovalleybusiness.com | edteam@morenovalleybusiness.com

21st

14,000

JOBS created in 4 years

209,826

MILES

20-mile radius population

2,325,591

Moreno Valley Population 2017

Inland Empire ONE OF THE FASTEST GROWING REGIONS

IN THE US

TRANSPORTATION

SERVED BY

AREA0768.indd 1

square

largest city in CALIFORNIA

5.58% annual growth

RATE

Home to numerous

Fortune 500

AND INTERNATIONAL COMPANIES

CALIFORNIA STATE ROUTE 60 | INTERSTATE 215 METROLINK CHARTER & CARGO FLIGHTS FROM MARCH INLAND PORT AIRPORT INTERNATIONAL FLIGHTS FROM ONTARIO AIRPORT

23/11/17 5:35 PM

AREA DEVELOPMENT | 2018 Select Sites Directory

79

Seymour-Jackson County, Indiana Available Spec Building

Access & Advantage One of Indiana’s fastest-growing areas, Seymour-Jackson County is ideal for logistics, manufacturing and more: • On I-65, midway (1 hour) between Indianapolis, IN and Louisville, KY • 566,000+ workers within laborshed • Over 30% of workforce employed in manufacturing • 110 million consumers within a day’s drive • Shovel-ready sites • 70,000 SF Spec building I\TERHEFPI Ψ IEZI LIMKLX

parts (-6 percent), machining (-1 percent), instruments (-12 percent), and medical equipment and supplies (-14 percent). So far, however, most of Connecticut’s 4,000 manufacturers are hanging tough, employing about 155,000 workers. State government is providing high-value incentive packages, including financial aid and workforce training, to keep critical manufacturers like Sikorsky Aircraft and Pratt & Whitney from finding better deals elsewhere.

State-sponsored incentives include Connecticut’s Small Business Express program for smaller companies, which provides more accessible capital and screening, hiring, and training programs for employees.

States that already have robust high-tech sectors and skilled labor pools are at a competitive advantage to win more big projects and grow their clusters, but they must also push relentlessly to develop their workers for the future.

For example, because of California’s vibrant and diverse technology sectors, “California is in a unique position to prepare its workforce to attract those 21st century jobs, but we have to make the necessary investments now,” says U.S. Senator Dianne Feinstein in a recent op-ed in the Huffington Post.12 California is already home to two federally supported manufacturing institutes, which foster partnerships between the public, private, and education sectors to advance manufacturing and promote long-term sustainable research and development, as well as develop a highly qualified future workforce.

Federal programs, Feinstein adds, such as Hollings Manufacturing Extension Partnership (MEP), are critical for maintaining U.S. global leadership in manufacturing. MEP, part of the National Institute of Standards and Technology, works with U.S. manufacturers to help them create and retain jobs, increase profits, and save time and money. As a nationwide network, MEP centers are located in every state and provide a variety of services, from innovation strategies to process improvements to green manufacturing.

“MEP facilitates partnerships between federal, state, and local stakeholders to help manufacturers reach untapped markets, embrace groundbreaking technology, and increase the value of their products,” says Feinstein. “In 2016 alone, MEP contributed to more than $9 billion in sales and facilitated $3.5 billion in new investment for manufacturers across the country. It’s vital that we continue to support manufacturers and manufacturing workers by promoting collaborative partnerships across multiple sectors and supporting robust federal investments in programs like MEP.”

•

1

INDIANAPOLIS

http://www.nam.org/Newsroom/Top-20-Facts-About-Manufacturing/ http://thehill.com/blogs/pundits-blog/economy-budget/332075-for-a-happy-story-about-manufacturing-look-no-further-than http://kyautoindustry.com/ky-auto-industry-facts/ 4 https://www.cnbc.com/2017/07/11/colorado-is-cashing-in-on-multibillion-dollar-space-race.html 5 https://www.brewersassociation.org/statistics/by-state/?state=CO 6 http://www.plasticsnews.com/article/20170112/NEWS/170119952/report-us-plastics-industry-seeing-growth-in-employmentplant-expansions# 7 https://www.bisnow.com/boston/news/industrial/massachusetts-manufacturing-isnt-dead-its-different-71704?utm_ source=CopyShare&utm_medium=Browser 8 http://www.dave-dewitt.com/2017/03/03/new-mexico-chile-production-bounces-back/ 9 http://www.nam.org/Data-and-Reports/State-Manufacturing-Data/State-Manufacturing-Data/April-2017/ManufacturingFacts---California/ 10 http://advocacy.calchamber.com/international/trade/foreign-direct-investment/ 11 http://www.themanufacturinginstitute.org/~/media/827DBC76533942679A15EF7067A704CD.ashx 12 https://www.huffingtonpost.com/entry/supporting-california-manufacturing-is-key-to-middle_ us_59d7e9c8e4b0cf2548b336fe 2 3

CINCINNATI

SEYMOUR JACKSON COUNTY

LOUISVILLE

MEMBER OF

For a state-by-state look at Principal Manufacturing Industries’ share of manufacturing jobs and GRP, GO TO cdn2.areadevelopment.com/manufacturing_industries.pdf

Jim Plump, CEcD, FM

+1 812-522-4951 Learn more at jcidc.com 80

AREA DEVELOPMENT

AREA0762.indd 1

for free site information, visit us online at www.areadevelopment.com 16/11/17 6:15 PM

2 018 select sites directory

DIRECTORY OF SELECT SITES

ARIZONA

Kevin Sullivan Senior Vice President, Business Attraction and Expansion Arizona Commerce Authority 118 N. 7th Ave., Suite 400 Phoenix, AZ 85007 602-845-1261 www.azcommerce.com kevins@AZcommerce.com

CONTACTS

ARKANSAS

Jeff Moore Executive Vice President, Marketing & Communications Arkansas Economic Development Commission 900 West Capitol Avenue, Suite 400 Little Rock, AR 72201 501-682-7317 Cell: 501-353-3883 Fax: 501-682-7499 ArkansasEDC.com JMoore@arkansasedc.com

David Coddington Vice President, Business Development Greater Fort Lauderdale Alliance 110 E. Broward Blvd., Ste. 1990 Fort Lauderdale, FL 33301 954-627-0123 Fax: 954-524-3167 www.gflalliance.org dcoddington@gflalliance.org

IDAHO

Mike Lee Economic Development Director City of Moreno Valley 14177 Frederick St. Moreno Valley, CA 92552-0805 951-413-3460 Fax: 951-413-3478 www.morenovalleybusiness.com mikel@moval.org

Jan Rogers CEO Regional Economic Development for Eastern Idaho 901 Pier View Drive, Suite 204 P.O. Box 51564 Idaho Falls, ID 83405-1564 208-534-1318 Easternidaho.org info@easternidaho.org

CONNECTICUT

ILLINOIS

CALIFORNIA

Gerald Sitko Economic Development Coordinator Town of Cheshire 84 South Main Street Cheshire, CT 06410 203-271-6670 Fax: 203-271-6688 www.cheshirect.org jsitko@cheshirect.org

FLORIDA

Dana Brunett Economic Development Manager City of Cape Coral 1015 Cultural Park Blvd.

Cape Coral, FL 33990 239-574-0444 www.bizcapecoral.com ecodev@capecoral.net

Michael S. Kearney Director, Economic Development Ameren Services P.O. Box 66149 MC 350 St. Louis, MO 63166-6149 800-981-9409 www.Ameren.com/EcDev mkearney@ameren.com Harold Gutzwiller Hoosier Energy P.O. Box 908 Bloomington, IN 47402 812-876-0294 www.HoosierSites.com hgutzwiller@HEPN.com

INDIANA

Harold Gutzwiller Hoosier Energy P.O. Box 908 Bloomington, IN 47402 812-876-0294 www.HoosierSites.com hgutzwiller@HEPN.com Mark Wickersham Executive Director Huntington County Economic Development 8 West Market Street Huntington, IN 46750 260-356-5688 Cell: 260-388-3939 www.hcued.com mark@hcued.com Bryan Brackemyre Director of Marketing and Economic Development Indiana Municipal Power Agency 11610 N. College Ave. Carmel, IN, 46032 317-573-9955 Fax: 317-575-3372 www.impa.com bryanb@impa.com Jim Plump Executive Director, CEcD, FM Jackson County Industrial Development Corporation 301 N. Chestnut St. Seymour, IN 47274 812-522-4951 Fax: 812-522-1235 www.jcidc.com jimplump@jcidc.com

AREA DEVELOPMENT | 2018 Select Sites Directory

81

IOWA

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

KENTUCKY

Gina Greathouse Executive Vice President, Economic Development Commerce Lexington Inc. 330 East Main Street, Suite 205 Lexington, KY 40507 859-225-5005 www.locateinlexington.com ggreathouse@commercelexington.com John Bevington Commissioner for Business Development Kentucky Cabinet for Economic Development Old Capitol Annex 300 West Broadway Frankfort, KY 40601 800-626-2930 www.ThinkKentucky.com John.Bevington@ky.gov

LOUISIANA

Donald Pierson Jr. Secretary of Economic Development Louisiana Economic Development 617 North Third Street Baton Rouge, LA 70802-5239 800-450-8115 225-342-3000 www.OpportunityLouisiana.com

MARYLAND

John Henry King Economic Development Director City of Bowie 15901 Excalibur Road Bowie, MD 20716 301-809-3042 Fax: 301-809-2315 www.cityofbowie.org jhking@cityofbowie.org

MICHIGAN

Nicole Whitehead Director, Sales & Service Operations Michigan Economic Development Corporation 300 N. Washington Square Lansing, MI 48913 517-719-3157 www.michiganbusiness.org/AD whiteheadn@michigan.org

82

AREA DEVELOPMENT

MISSISSIPPI

SOUTH CAROLINA

MISSOURI

TENNESSEE

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

Michael S. Kearney Director, Economic Development Ameren Services P.O. Box 66149 MC 350 St. Louis, MO 63166-6149 800-981-9409 www.Ameren.com/EcDev mkearney@ameren.com

Allen Borden Deputy Commissioner of Business, Community and Rural Development Tennessee Department of Economic and Community Development 312 Rosa L. Parks Ave. Nashville, TN 37243 615-741-1888 or 615-624-2185 www.TNECD.com MasteredInTN.com allen.borden@TN.gov

NEBRASKA

Mary Plettner CEcD, Economic Development Manager Nebraska Public Power District 1414 15th Street P.O. Box 499 Columbus, NE 68602-0499 402-563-5534 Fax: 402-563-5090 econdev.nppd.com econdev@nppd.com

NEW HAMPSHIRE

Karen Pollard CecD, EDP, Economic Development Manager City of Rochester, Office of Economic Development 33 Wakefield Street Rochester, NH 03867 603-335-7522 Fax: 603-330-0027 www.RochesterEDC.com Karen.Pollard@rochesternh.net

NORTH CAROLINA

Brenda Daniels Manager, Economic Development ElectriCities of North Carolina 1427 Meadow Wood Blvd., Raleigh, NC 27604 919-760-6363 www.electricities.com bdaniels@electricities.org Robert E. Leak, Jr. President Winston-Salem Business Inc. 1080 W. Fourth Street Winston-Salem, NC 27101 336-723-8955 www.wsbusinessinc.com www.whitakerpark.net rleak@wsbusinessinc.com

Susan Pretulak VP, Economic Development readySC™ – A Program of the SC Technical College System 111 Executive Center Drive Columbia, SC 29210 803-896-5276 www.readysc.org pretulaks@sctechsystem.edu

TEXAS

Dr. Lou Menk BNSF Railway 2650 Lou Menk Dr. Ft. Worth, TX 76131 800-795-2673 www.bnsf.com Danielle Scheiner Interim Director Conroe Economic Development Council 505 W Davis Street Conroe, TX 77301 936-522-3529 Fax: 936-756-6162 www.gcedc.org scheiner@gcedc.org Kelly Violette Executive Director Tomball Economic Development Corporation 29201 Quinn Road, Suite B Tomball, TX 77375 281-401-4086 Fax: 281-351-7223 www.tomballtxedc.org kviolette@tomballtxedc.org

CANADA ONTARIO

Len Magyar Development Commissioner City of Woodstock 500 Dundas Street, P. O. Box 1539 Woodstock, ON N4S 0A7 Canada 519-539-2382 x 2112 Fax: 519-539-3275 www.cometothecrossroads.com www.cityofwoodstock.ca lmagyar@cityofwoodstock.ca

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

INDUSTRY REPORT

The U.S. Is Serious About Life Sciences The biopharmaceutical and life science industries are recognized as important economic drivers across the nation.

By Karen E. Thuermer

T

he life sciences sector brings high-paying and highly skilled jobs across a range of occupations. Pharmaceutical Research and Manufacturers of America reports that in 2011 the biopharmaceutical industry had a $375 billion direct economic impact and a $414 billion indirect and induced impact on the U.S. economy.1 The industry faces a lot of pressure. TEConomy Partners LLC points to a list of factors: close ties required between industry, academia, and clinical care to advance innovation; the long, costly, and uncertain process of new product development associated with the high level of regulatory

oversight and rigorous clinical trials required for biopharmaceutical product approvals; and the specialized nature of research capabilities, facilities, and talent associated with biopharmacetical R&D. These issues are outlined in detail in a June 2017 study entitled “Driving Innovation and Economic Growth for the 21st Century: State Efforts to Attract and Grow the Biopharmaceutical Industry.”2

Top Locations While locations throughout the nation are vying for their share of biotech/pharma activity, certain places within the U.S. are hot spots for the life sciences industry. JLL ranks the top 10 as being Greater Boston, San Francisco Bay Area, San Diego, Raleigh-Durham, Philadelphia, suburban Maryland/ Metro D.C., Seattle-Bellevue, New Jersey, Los Angeles/ Orange County, and Chicago Metro based on life sciences employment concentration and growth, concentration of establishments, venture capital funding, NIH funding, and market occupancy rate.3 Since early 2016, San Diego has seen over 2.4 million square feet added and 500,000 square feet under construction in the life sciences sector, JLL reports. The region is home to 1,400+ life sciences companies.

Phoenix Molecular Designs (MD), a Canadian-based biotech company focused on cancer therapy, announced in June that it is establishing a beachhead in San Diego to better access that city’s superb talent pool, network of existing biotech companies, and robust capital market. PhoenixMD executives explain that establishing strong ties between Vancouver and San Diego will enable the advancement of important discoveries into new medicines to expedite the treatment of cancer as well as other life-threatening diseases.

“It is rare for biotech companies in Canada to establish themselves in the USA and to see a company such as PhoenixMD grow at this rate,” says company CEO Dr. Sandra Dunn.4

Targeted Strategies TEConomy reports that 41 states are pursuing a targeted strategy for biopharmaceutical-related development and 45 states are ensuring leading-edge bioscience research capacAREA DEVELOPMENT | Q4/2017

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ity and infrastructure. Forty-eight states are advancing innovation and entrepreneurial development to leverage their R&D efforts for economic development.5 Those with a strong foothold in the industry are also pushing new large-scale initiatives to pursue biopharmaceutical development.

For example, Massachusetts’s BakerPolito administration announced in June a legislative proposal to bolster the state’s life sciences sector so that Massachusetts can continue its leading position in attracting world-class innovative and technologically driven companies.

The proposal includes providing up to $500 million over five years for strategic investments in public infrastructure, R&D, workforce training and education, including up to $295 million in capital authorization and up to $150 million in job-creating tax incentives. The five-year, $295 million bond authorization would provide capital funding that will enable the state to strengthen the ecosystem through collaborations that maximize third-party investments and sharpen the Commonwealth’s competitive edge.

“Our administration has a strong commitment to increasing educational opportunities in science, technology, engineering, and math for students across Massachusetts,” said Lt. Gov. Karyn Polito in a statement.6 One of those fast-growing companies, Alnylam Pharmaceuticals, Inc. — a leader in RNAi therapeutics — broke ground in April on a 200,000-square-foot, state-of-the-art biopharmaceutical manufacturing facility in Norton, Mass.

Alnylam CEO Dr. John Maraganore pointed to the Commonwealth’s talent pool, strong support from state and local officials, Massachusetts Life Sciences Center, and the town of Norton as critical to its ultimate decision to establish a manufacturing facility there.7 Massachusetts’ success has spilled over to neighboring New Hampshire, which is also becoming a leading national site for biotech and health services.

“We have been thrust into the spotlight by the August announcement of the establishment of the new $280 million Advanced Regenerative Manufacturing Institute (ARMI) in Manchester,” commented Taylor Caswell, Commissioner of the New Hampshire Department of Business and Economic Affairs.

The new industry center is attracting startups and established companies to rapidly enable large-scale biological manufacturing. “Combined with the presence of major divisions of Lonza Biologics on our Seacoast and Novo Nordisk in the Upper Valley near Dartmouth College, we have two big anchor companies in this space driving a whole new eco-

North Carolina, Arizona, and Texas are states that TEConomy Partners identified as having a longterm commitment to developing a biopharmaceutical industry, and they are experiencing major impacts.

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system of talent and training,” Caswell noted.

Connecticut is another state TEConomy identifies as expanding its efforts to pursue biopharmaceutical developments. Connecticut’s bioscience clusters focus predominately on medical devices and equipment, and drugs and pharmaceuticals. To foster their development, the state has committed $1.2 billion to Bioscience Connecticut, the Connecticut Bioscience Innovation Fund, and the Jackson Laboratory Genomic Medicine (JAX) initiative. JAX is a state-of-the-art genomics research center on the campus of the University of Connecticut Health Center in Farmington.

In May, Arkansas-based SCA Pharmaceuticals announced its decision to build a new 90,000-square-foot manufacturing facility in Windsor. SCA manufactures injectable pharmaceuticals in ready-to-administer dosages for use at hospitals and healthcare facilities. “Connecticut represents an ideal location for SCA, driven by its incredible workforce and myriad of transportation options,” said Dr. Gene Graves, CEO of SCA.8

Long-Term Commitments North Carolina, Arizona, and Texas are states that TEConomy Partners identified as having a long-term commitment to developing a biopharmaceutical industry, and they are experiencing major impacts.9 Companies operating in North Carolina benefit from the state’s 3 percent corporate tax rate, the lowest in the country. The state also has the highest concentration of Tier 1 research universities in the country. Duke University, the University of North Carolina at Chapel Hill (UNC), and North Carolina State University are located within 25 miles of one another, and contribute to an established workforce pipeline, active industry partnerships, and an innovative business environment.

Companies that have recently announced expansions and relocations to North Carolina include Pfizer, which is expanding its vaccine manufacturing plant in Sanford to the tune of $100 million as a result of new gene therapies built upon a technology first developed at the UNC at Chapel Hill. The expansion is supported by a $250,000 grant from the One North Carolina Fund.10 Texas is home to some 4,000 life science and research firms, and 100,000 workers in related fields, as well as the Texas Medical Center, the largest medical center in the world. Companies with major operations there include Novartis, Abbott, Medtronic, McKesson, Galderma, Allergan, and Monsanto.

In May 2017, the $310 million Dell Seton Medical Center for free site information, visit us online at www.areadevelopment.com

at UT Austin opened its doors, anchoring a new healthcare innovation zone in downtown Austin. Dell Seton will serve as the primary teaching hospital for Dell Medical School, the first medical training institution in nearly 50 years to be built from the ground up at a top-tier U.S. research university.11 Other locations that are carving out a life sciences sector include Iowa; Cincinnati, Ohio; and Baton Rouge, Louisiana.

For example, Iowa’s new Renewable Chemicals Production Tax Credit is a statewide business incentive that builds off the agricultural bioscience expertise at Iowa State University in Ames. The state recently invested more than $1 million to build a medical device prototyping lab in Iowa City to support the University of Iowa’s biomedical expertise.

The Cincinnati, Ohio, region is unique thanks to internationally renowned research hubs like Cincinnati Children’s Hospital Medical Center and the University of Cincinnati’s research hospital. Both regularly partner with biotech entrepreneurs to transform lab research into life science technology. Successful life science firms that have contributed assets, capital, and talent to the ecosystem including P&G, Ethicon, and Meridian BioSciences; along with successful serial entrepreneurs who have built and sold or IPOed a number of companies, such as Mike Hooven (AtriCure, Enable Injec-

tions) and Bob Beech (Intrexon, Eccrine Systems), according to Johnna Reeder, president and CEO of REDI Cincinnati.

Louisiana State University (LSU) is Baton Rouge’s anchor asset. Pennington Biomedical Research Center, which is part of LSU, has been involved in the development of all approved obesity medications on the market today, and many key diabetes medications. One of its most recent additions is a state-of-art-imaging center, used lately for in vivo imaging of brain activity related to dementia. The region is also home to the Baton Rouge Health District, a unique partnership between fierce competitors in healthcare, the health insurance industry, and the community. ■ 1

http://phrmacdn.connectionsmedia.com/sites/default/files/pdf/The-Economic-Impact-of-the-USBiopharmaceutical-Industry.pdf http://www.phrma.org/report/driving-innovation-and-economic-growth-for-the-21st-century 3 http://www.us.jll.com/united-states/en-us/Research/JLL-US-Life-Sciences-Outlook-2017. pdf?e89ae5d2-1063-4ad2-b303-bac0a93f4f1f 4 http://www.marketwired.com/printer_friendly?id=2223582 5 http://phrma-docs.phrma.org/files/dmfile/PhRMA-Driving-Innovation_06_01.2017.pdf 6 http://www.mass.gov/governor/press-office/press-releases/fy2017/administration-proposes-lifesciences-initiative.html 7 http://investors.alnylam.com/releasedetail.cfm?ReleaseID=967786 8 http://portal.ct.gov/en/Office-of-the-Governor/Press-Room/Press-Releases/2017/05-2017/GovMalloy-Announces-Pharmaceutical-Company-Opening-Manufacturing-Facility-in-Windsor 9 http://phrma-docs.phrma.org/files/dmfile/PhRMA-Driving-Innovation_06_01.2017.pdf 10 https://www.bizjournals.com/triangle/news/2017/08/08/pfizer-investing-100m-in-sanford-plantexpansion.html 11 http://www.prnewswire.com/news-releases/texas-goes-big-in-biotech-300475823.html 2

ASSET MANAGEMENT

Sustainability, Resilience and Wellness: Pulse of the Industry in 2017 A recent survey of the real estate and construction industry reveals that sustainability in the built environment continues to grow year after year, despite real or perceived added costs.

By Jennifer Taranto, Director of Sustainability, and Robert Leon, Senior Vice President, Structure Tone

F

or the second year in a row, Structure Tone tapped into the real-world knowledge and experience of our clients to help determine how sustainability and wellness are perceived by the real estate and construction community.

Our survey measures what matters to real estate decisionmakers — from third-party rating systems to wellness in the workplace. By comparing last year’s survey results with this year’s, we’re seeing some interesting trends emerge, both in what has changed and what remains the same.

We sent our survey to a list of long-standing, key clients, primarily at senior positions in corporate real estate or facilities management. Sixty-six percent of respondents stated that their square foot responsibility was greater than one million square feet. The following findings and analysis

summarize what they said about a number of sustainabilityrelated topics.

Sustainability: Room to Grow We know that client demand is a key driver for sustainability in the built environment. That demand can be driven by any number of factors, including regulation, reporting, incentives, and ROI. Our survey findings show that sustainability in the built environment continues to grow year after year even though added “costs, or at least the perception of costs,” as one client states, continue to be the number-one barrier to incorporating sustainability in the built environment.

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Third-Party Rating Systems: LEED Is Still King

for continued help with building the case for sustainability and creating greater “knowledge of the opportunities and costs/benefits.” As one survey respondent put it, decisionmakers need to be “moving past low-hanging fruit opportunities with limited incentives offered.” Established patterns can also be a challenge, including “institutionalized ways of doing things, from construction management to leasing decision-making. It’s difficult to coordinate all the parts to execute system-level sustainability changes in the industry,” as noted by another respondent.

Thanks to a groundswell of support dating back to the early 1990s, sustainability has become a critical component of the built environment. However, our survey data may indicate that a commitment to continued growth and innovation in green buildings, such as those that drive further energy efficiencies and fossil fuel reductions, may be weakening as fewer respondents see sustainability as pushing the envelope.

Still, many of our clients report that they are seeking opportunities for innovation in their facilities “At Boston Properties, environmental, social, and governance issues are increasingly important to our customers, investors, employees, and communities we serve,” says Ben Myers, Boston Properties’ sustainability manager. “There’s a sound business case for aligning our values with the values of our stakeholders.”

The number of our clients looking for such services as commissioning and retro-commissioning has remained steady, with 57 percent this year stating they would expect their projects over the course of the next two years to include this requirement. When asked if they would look to include an energy-modeling requirement within the next two years, the number basically remained the same as last year, with 55 percent stating that they would.

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The plethora of green building rating systems on the market has even the most sustainability-savvy respondents reeling a bit. One client simply stated that a lack of education about emerging rating systems continues to be a barrier. At the same time, our results show clients are more actively seeking LEED certification again.

When asked what the most important consideration is when looking to use any third-party rating system, the number-one reason respondents gave was reducing operating costs, followed by providing a healthier and more productive workplace. Lowering global emissions and increasing building value held the lowest two slots.

Emerging rating systems are still fairly unfamiliar to respondents. The percentage of end-users that have an understanding of the Passive House standard was split relatively evenly among “yes,” “no,” and “maybe.” Just over 6.5 percent stated that they would embark on a Passive House project in the next two years.

The Living Building Challenge (LBC) is garnering more attention in commercial projects, and its consideration as a well-respected third-party certification is trending up; however, the largest percentage of those polled about the system’s reputation (39 percent) responded, “I don’t know.”

Those looking at doing an LBC project in the next year decreased from last year’s surprisingly high 8 percent to 2 percent this year.

When looking at another quickly emerging rating system, the WELL Building Standard, an overwhelming 49 percent agreed that WELL is a respected third-party rating system, and 25 percent stated they would be doing a WELL project in the next year.

BREEAM, the oldest of all the rating systems, was released in the U.S. in October 2016. This rating system comes out of the United Kingdom, so it’s not surprising that 39 percent marked “I don’t know” when asked if BREEAM is a respected third-party rating system. Conversely, 28 percent did agree that it is respected and 6.5 percent stated that they would be pursuing a BREEAM project in the next year.

These findings indicate that more education may be needed for BREEAM to gain more traction in the U.S. market.

Wellness: It Has Arrived Last year’s survey showed that wellness in the built environment was an emerging need; this year it is overwhelmingly an essential requirement. Interest in pursuing WELL projects came from all sectors, but most strongly from our commercial office clients. The conversation around health and wellness in the workplace strikes right for free site information, visit us online at www.areadevelopment.com

at the heart of most companies’ attraction and retention policies, though what the industry really craves is data. As one client stated, a barrier to wellness is the “lack of data demonstrating the cost benefits,” adding that it is “hard to justify the added costs.”

With 80 percent of our clients affirming that they will or may seek external expertise to incorporate wellness in their built environments, the trend is distinctly upward. In fact, this year 80 percent also stated that wellness is a key part of their retention and recruitment plans. While attraction and retention remained the number-one driver behind wellness initiatives, this year it was followed closely by increasing employee satisfaction, with increased productivity, reduced healthcare costs, and reduced absenteeism taking the remaining spots. Last year attraction and retention led the others by a larger margin.

Finally, when looking at the most desired wellness attributes in a space, indoor air quality remains number one, but this year it’s in a tie with comfort, which is up from third place last year. Other major shifts include mental well being, rising from fourth to second most important, and lighting dropping to number three from last year’s second most important attribute. The aforementioned rankings are all determined by the mean data, meaning they represent the average of the selections when ranked from most to least important. When looking simply at which attribute received the most number-one votes, in a surprising turn, mental well being rose to the top after its relatively low ranking last year.

Resilience: Out of Sight, Out of Mind?

The industry’s attitude toward resilience also seems to have shifted. This year we found a striking disparity between the percentage of clients that see the importance of buildings that are built with resilience in mind and those that are, through outside expertise, looking to protect or strengthen their buildings from disastrous events. This apparent dip in concern over resilience could be due to the absence of a recent catastrophic weather event (survey and its analysis were completed before this year’s devastating hurricane season) and waning attention to the topic in U.S. national policies and media.

Despite these increasingly concerning conditions, resilience seems to be trending to a lower priority for building owners. Our data shows a slight shift away from the importance of designing a building to withstand extreme weather and climate change, though 54 percent still agree it is important, down from 61 percent the year prior. Passive survivability, a building’s ability to maintain critical life-support conditions if major utility services are lost, maintained its significance with two thirds (66 percent) still believing it matters. The steepest decline from 2016 shows that fewer clients are seeking external expertise in resilience, with 2017 showing a 17 percent drop in interest for resilience subjectmatter experts in commercial real estate. ■

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For more information on this survey and its results, please go to sustainability@structuretone.com.

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ADINDEXWEBDIRECTORY Advertiser

ALABAMA

Alabama Industrial Training www.AlabamaRTP.org www.aidt.edu

ARIZONA

Arizona Commerce Authority www.azcommerce.com kevins@AZcommerce.com

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ARKANSAS

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

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CALIFORNIA

Moreno Valley Economic Development www.MorenoValleyBusiness.com mikel@moval.org

CONNECTICUT

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

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Enterprise Florida www.FloridatheFutureisHere.com Greater Fort Lauderdale Alliance www.GFLAlliance.org dcoddington@gflalliance.org

IDAHO

Emsi www.EconomicModeling.com

ILLINOIS

Ameren Services www.Ameren.com/EcDev mkearney@ameren.com Hoosier Energy Economic Development www.HoosierSites.com hgutzwiller@HEPN.com

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INDIANA

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Seymour-Jackson County www.jcidc.com jimplump@jcidc.com

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MARYLAND

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

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Winston-Salem Business, Inc. www.WSBusinessInc.com www.whitakerpark.net rleak@wsbusinessinc.com

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BNSF Railway www.BNSF.com www.logisticsparkkc.com Eric.Goodman@BNSF.com probinson@northpointkc.com Greater Conroe Economic Development Council www.gcedc.org scheiner@gcedc.org Tomball Economic Development Corporation www.TomballTXedc.org kviolette@tomballtxedc.org

MICHIGAN

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ElectriCities www.electricities.com bdaniels@electricities.org

TEXAS

MISSISSIPPI 21, 63

City of Rochester www.RochesterEDC.com Karen.Pollard@rochesternh.net

NORTH CAROLINA

Commerce Lexington www.LocateinLexington.com ggreathouse@commercelexington.com

Michigan Economic Development Corporation www.MichiganBusiness.org/AD whiteheadn@michigan.org

NV Energy www.NevadaSiteLocator.com

NEW HAMPSHIRE

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

City of Bowie Economic Development www.CityofBowie.org JHKing@CityofBowie.org

Nebraska Public Power District econdev.nppd.com econdev@nppd.com

NEVADA

Indiana Municipal Power www.impa.com bryanb@impa.com

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

Ameren Services www.Ameren.com/EcDev mkearney@ameren.com

NEBRASKA

Huntington County Economic Development www.hcued.com mark@hcued.com

KENTUCKY

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MISSOURI

Hoosier Energy Economic Development www.HoosierSites.com hgutzwiller@HEPN.com

IOWA

FLORIDA

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CANADA ONTARIO

City of Woodstock www.CometotheCrossroads.com www.cityofwoodstock.ca lmagyar@cityofwoodstock.ca

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

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