3 Real Estate Markets That Will Benefit from Industrial Onshoring

Broader concerns regarding the lack of critical resources to contain and treat infectious diseases have not only prompted manufacturers to rethink global supply chains but have also galvanized several manufacturers to reshore their businesses in order to avoid future supply chain disruptions. Industries such as medical devices, personal protective equipment., sanitation gear, disinfectants, laboratory supplies, and testing equipment, have been identified as the most likely candidates to onshore their manufacturing facilities following the COVID-19 crisis. However, several firms beyond the healthcare industry will also follow suit, including computer hardware, heavy industries, and smartphone manufacturers. The fragility of ‘Just-in-Time’ inventory management, the ongoing US-China trade tension, and rapid advancement in robotics and automation technology have enabled domestic manufacturing to be both favorable and economically feasible.

In addition to driving demand for industrial space across the nation, this uptick in manufacturing will likely lead to the creation of jobs and correspondingly increase demand for multifamily housing across several markets in the US. Regions characterized by business-friendly policies, low taxes, and cheaper housing will stand to benefit the most of this shift. This short article will examine three real estate markets that are poised to outperform as a result of the onshoring of American manufacturing.

Market #1: Dallas-Fort Worth
Median House Price (2019): $247,500
MSA Population Increase (2010-2019): 45%
MSA Median Income: $48,062

Top Individual Income Tax: 0%
Top Corporate Tax: 0% (levies a gross receipt tax)
4 Hour Radius Population: ~ 20,000,000
Nearest Seaport: Port of Houston – ~ 3 to 4 hour drive.

Dallas-Fort Worth has been the darling market for multifamily investors this past business cycle. The city has experienced an astonishing level of growth over the past two decades, gaining close to over two million people since 2000. Dallas and its surrounding suburbs have the 3rd largest concentration of corporate HQs in the nation. As a matter of fact, it is the only metro area to be home to three of the top ten Fortune 500 firms. The Dallas metro area, which is home to the largest information technology industry base in the state, has now surpassed Chicago to become the 2nd largest financial services hub in the United States – trailing only New York City.

Several big-name firms have relocated to Dallas over the past five years. McKesson and Charles Schwab are two notable companies that have relocated and/or have expanded their presence in the Dallas area over the past decade. In 2016, Jacobs Engineering, one of the world’s largest engineering companies, relocated from Pasadena, CA to Dallas, citing the city’s favorable business environment and the city’s strong labor pool. In the same year, Toyota also decided to relocate its HQ from Southern California to Dallas as well. Most recently, Stanley Black & Decker announced that it will be reshoring 500 new jobs from China to the metro area by the end of 2020. The largest engineering and construction company in the Fortune 500, Fluor, is also headquartered in the Dallas-Fort Worth metropolitan area. The region’s strong infrastructure, talented labor pool, pro-business policies, and low cost of living will continue to be attractive for firms looking to establish a manufacturing presence in the United States.

Market #2: Reno
Median House Price (2019): $416,500
MSA Population Increase (2010-2019): 37%
MSA Median Income: $53,047

Top Individual Income Tax: 0%
Top Corporate Tax: 0% (levies a gross receipt tax)
4 Hour Radius Population: ~ 10,000,000
Nearest Seaport: Port of Oakland – ~ 3 to 4 hour drive

Billing itself as “The Biggest Little City in the World”, Reno has transformed from the gambling capital of the world into a booming logistics and technology hub. Reno is home to the Tahoe Reno Industrial Center (TRIC), which is the largest industrial park in the United States. The TRIC has over a hundred tenants including several warehouse and fulfillment centers for companies such as PetSmart, Home Depot, and Walmart. As e-commerce continues to grow a double-digit clip, Reno’s strategic location and favorable business climate will be a major draw for companies seeking warehouse and distribution solutions moving forward. Unlike California, which prohibits having more than two 28 ½ feet trailers connected to a truck, Nevada allows up to three, which consequently enables more efficient movement of freight. The Reno metro area is also within a day’s drive of 11 Western states and can serve up to 60 million people. The labor statistics for Reno reflect this rapid growth as logistics staffing grew by 46 percent between 2009 and 2015. There is little to suggest that this figure will decrease as e-commerce adoption increases across all industries amidst the current health crisis.

The most notable building in the TRIC is the behemoth 5.8 million square feet Tesla Gigafactory, a subassembly factory where Tesla Inc supplies lithium battery packs for its cars. Tesla Inc’s presence in Reno underlines the metro’s emerging tech sector. Several large firms, such as Apple and Rackspace, have either expanded or built data centers in the metro region as well. Reno is also bracing itself for the construction of Switch’s SuperNAP campus – which is projected to be the largest data center upon completion. Several trends in consumer behavior ranging from online shopping to the rise of virtual healthcare will result in the creation of immense amounts of data that will need to be safely stored. Reno’s position as both a logistics and technology hub in one of the most business-friendly states in the nation will draw companies and individuals alike seeking a cheaper alternative to the expensive, overregulated West Coast.

Market #3: Orlando
Median House Price (2019): $236,400
MSA Population Increase (2010-2019): 59%
MSA Median Income: $48.559

Top Individual Income Tax: 0%
Top Corporate Tax: 5.5%
4 Hour Population Radius: ~ 20,000,000
Nearest Seaport: Port Canaveral – ~ Less than one hour

Listed as a “Gamma-” city, Orlando, like many of its Sun Belt counterparts, has experienced immense growth since the turn of the millennium. Aside from being one of the premier tourist destinations in the world, the Greater Orlando area also hosts a well-established defense industry and a correspondingly strong manufacturing sector. Florida’s elimination of the manufacturing and equipment sales tax in 2015 has bolstered Central Florida’s reputation as the premier destination for manufacturers looking to serve the Latin American and the Caribbean. In addition to the state’s tax-friendly policies, the adage of ‘Location, Location, Location’ has drawn several manufacturers and distributors to Orlando thanks to its proximity to several major transportation hubs, including Orlando International Airports, Port Canaveral, two major interstate highways and access to national freight networks. The metro region also features a growing healthcare industry with the establishment of the University of Central Florida’s College of Medicine and a new children’s hospital. However, it is the metro’s strong ties to the Department of Defense that serves as the region’s economic anchor.

Since the Second World War, Orlando has served as a major aerospace and naval center for the US military. The Central Florida Research Park, the 4th largest research park in the country, is located in the Orlando metro region and employs over 8,000 people. As the home to the simulation commands for the US Army, Navy, Air Force, Marines, and Coast Guards, Orlando hosts the Interservice/Industry Training, Simulation, and Education Conference – the largest modeling and simulation conference in the world. Simulators are of particular importance to the Department of Defense as it cuts the risk and costs associated with training with real equipment, offers military personnel a safe and controlled environment to learn how to operate complex vehicles or machinery, and allows trainees to experience a wide variety of scenarios and environments that they may encounter on duty. The importance of simulation training is highlighted by the $1.4 billion worth of federal contracts that are awarded annually to the Central Florida Research Park alone. As the US appears to be entering a new Cold War with China, the centrality of defense contracting to preserve national security interests cannot be understated. This direct investment into the local economy, combined with the state’s tax-friendly treatment of manufacturing and the metro’s centralized location as the gateway between the US and Latin America, will create strong demand for real estate in Orlando following the current crisis.

The inevitability of American manufacturers to onshore and reshore some of their operations will be one of the driving forces for multifamily real estate in the coming decade. Just In Case inventory strategies, regionalized supply chains, the rising costs of doing business in China coupled with the current US-China trade wars will prompt several manufacturers to rethink their supply chain strategies and begin localizing some aspects of their operations. This repatriation of manufacturing will lead to a quasi-renaissance of American manufacturing, one characterized by extensive use of robotics, automation, and artificial intelligence. This resurgence of manufacturing will lead to the creation of several manufacturing jobs across the nation. Predictably, certain regions, namely the Southeast, Southwest, and the Interior West, will attract more attention due to their business-friendly policies, low taxes, and lower housing costs. The three markets identified in this article warrant special attention given the confluence of factors that make them attractive destinations for manufacturing. As inland cities with strong infrastructure networks, favorable business climates, and relatively easy access to seaports, these three cities will disproportionately reap the benefits from the onshoring of American manufacturing. Multifamily investors in these respective markets will also experience tremendous growth in the valuation of their properties in the form of rental increases, land appreciation, and additional cap rate compression. In summary, well-located and well-built multifamily real estate in these respective markets will not only be one of the safest investments, but also the wisest investments following the current health crisis.