A rise in onshore manufacturing operations by U.S. companies is creating more demand for factory space nationwide, according to CBRE.
The 3.8 billion-square-foot manufacturing facility market recorded a record low 3.4 percent availability rate at year-end 2022 after annual absorption of 53.8 million square feet — the highest amount since 2016 and the second-consecutive year that net absorption has surpassed 50 million square feet.
Much of this demand is from more companies onshoring their manufacturing operations to ensure uninterrupted supply chains. This strategy is growing as companies look to diversify their product sources, protect intellectual capital and take advantage of government incentive programs. Top industries that expanded their onshore manufacturing in 2022 included automotive, semiconductors, packaging materials, pharmaceuticals and defense. The availability rate for manufacturing space hit a record low in 2022 despite 28.5 million square feet of construction completions, the most since 2001. Average annual net asking rent for manufacturing space increased by 23 percent to $8.39 per square foot — nearly double the asking rent growth for distribution facilities.
Chicago — the country’s largest manufacturing market with a total inventory of 343.8 million square feet — recorded the most net absorption in the past year with 7 million square feet, followed by Detroit with 5.9 million. Detroit is particularly benefiting from increased onshore manufacturing operations by the auto industry.
The fastest-growing manufacturing markets are in the Sun Belt near large ports of entry or distribution. Austin finished 2022 with the biggest amount of net absorption as a percentage of total inventory at 20.6 percent, largely from the electric vehicle industry. Other top Sun Belt markets for demand in the past year were Atlanta; Charleston, S.C.; Charlotte, N.C.; Jacksonville, Fla.; and Phoenix. Phoenix is expected to climb the ranks for net absorption as several semiconductor plants come online in the next few years.
Despite economic uncertainty, onshore manufacturing operations will continue to grow and create more demand for factory space. According to a December 2022 Forbes/Zogby survey nearly 150 manufacturing executives said they planned to increase their onshore manufacturing operations this year. Growing demand, record-low vacancy rates and significant rent growth in the year ahead make manufacturing facilities an attractive real estate investment option, according to CBRE.
Andrea Zander is website content editor at Institutional Real Estate, Inc.