While nearshoring and reshoring activities have increased from both businesses and governments, the sector is facing significant headwinds in achieving meaningful impact, according to Cushman & Wakefield.

“Disruptions to supply chains across the world have been the norm over the past three years, bringing the impacts of globalization and the importance of well-functioning supply chains into sharper focus,” said David Smith, head of Americas insights. “Not just an operational or financial headache for businesses to contend with, the disruptions grew so deep that consumers also felt them acutely.”

With the revived effort to begin reshoring and nearshoring manufacturing to the United States, the composition of real estate will need to change. Manufacturing vacancy now makes up 10.3 percent of the country’s total available space. With only 80 million square feet of space under construction, of which half will be owner-occupied and 25 percent is non-owner-occupied build-to-suit, this is not likely to improve soon. Tight leasing market conditions will be an issue for occupiers who have not already secured their facilities.

“Both governments and the private sector became more aware of the economic, financial and social impacts that disruption to supply chains can have — along with increases in protectionism that predated the pandemic — and the increased emphasis placed on sustainable energy supply chains, nearshoring and reshoring considerations have intensified for businesses and governments alike,” said Ben Harris, senior managing director, logistics & industrial services – Americas.

Alongside the real estate component, other parts of the U.S. infrastructure will need to change. Manufacturing requires a lot of power, and many greenfield land sites lack sufficient power to host the manufacturing sites needed. Limited land options for commercial real estate make selecting a new site difficult, but it will be more challenging for manufacturing users. In addition to struggles with power, the American Society of Civil Engineers (ASCE) gave the nation’s infrastructure a grade of C-minus on its 2021 quadrennial infrastructure report card.

In the first quarter of 2023, S&P 500 companies that mentioned “reshoring” during earnings calls were up 128 percent year-over-year (y-o-y). Reshoring and foreign direct investment manufacturing job announcements exceeded 360,000 in 2022, a record 53 percent increase from 2021. Since 2020, private companies have announced $470 billion in manufacturing and clean-energy investments — in addition to the $220 billion already announced by the federal government. These projects and investments are creating new job opportunities, helping to lift manufacturing employment to 13 million as of midyear 2023, its highest level since 2008. That represents only a 1.3 percent increase from the same period in 2019, compared to a 3.5 percent increase in employment across all sectors.

Job demand on an absolute basis is strongest in California and Texas, with unique job postings at 24,000 and 17,000, respectively. The Midwest is the region with the largest number of job postings at 66,000, which is up an impressive 28 percent y-o-y. This growth rate is only behind the Southeast, which increased 31 percent y-o-y. The Midwest continues to be a pillar of U.S. manufacturing employment, but the center of gravity is shifting southward toward the Sun Belt, particularly the Southeast. Much of this is tied to the strong growth in auto-related manufacturing. The 50 metro areas with the highest concentration of employment in auto-related manufacturing are all located in either Southern or Midwest states.

Andrea Zander is editor of Institutional Real Estate Americas.