Colliers Insight

Mike Spears

Colliers Logistics & Transportation (L&T) Group hosted its annual Supply Chain Conference in Las Vegas, NV on May 10-12, 2023. We had an incredible conference experience filled with inspiring speakers and valuable networking opportunities. These two days brought forth wonderful connections and fostered meaningful relationships.

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Below are some key findings and takeaways from the various sessions.

The New Semiconductor Supply Chain

Brewster Smith, Head of Supply Chain Solutions, Colliers

• Semiconductors are crucial not only for everyday life but also for military technology, making them a vital force shaping the world.
• Taiwan leads the global semiconductor production significantly, with Korea and China following behind.
• In response to geopolitical tensions, the U.S. is channeling investments into domestic chip manufacturing. In 2022, the Chips and Science Act was enacted, allocating $53 billion for semiconductor manufacturing, research and development, workforce development, and providing $24 billion in tax credits for chip production.
• The private sector is also making substantial investments, planning 22 manufacturing projects across 13 states within the next decade.
• Reshoring semiconductor production faces challenges, for instance, neon gas, a key component, is produced mostly in Ukraine.
• States with manufacturing based economic incentives will be emerging hot spots for industrial real estate growth.

Investors Panel – Doing More with Less

Moderated by Steve Bellitti, Senior EVP, Colliers

• Due to rising interest rates, landlords are experiencing a smaller occupier pool that has cash/liquidity, but the bright spots are sectors like ESG, EV, food & beverage and semiconductors
• Today’s hot markets are California adjacent, have good fundamentals and lower barriers of entry, like Salt Lake City and Las Vegas. Also popular are markets with huge population growth, such as Houston, which adds 250 people to their population every day
• The Falcon intermodal project will provide the fastest, most reliable intermodal rail service between Canada and Mexico.
• Tenants are increasingly requesting EV charging, solar power, and gold LEED buildings to reduce their carbon footprint. However, fulfilling these demands can be costly for landlords and developers.
• Current challenges include navigating local and state-wide legislation, as heavily regulated states can deter potential tenants.

Research & Market Outlook

Steig Seaward, Senior Director, National Research, Colliers

• Fed Tightening: The central bank now anticipates hiking the target range for the Fed funds rate more than financial markets anticipate. Rate cuts in 2023 appear unlikely.
• Inflation Outlook: This is key to the outlook for monetary policy, financial market conditions, and the broader economy.
• Wage & Job Growth: The Fed needs to rebalance the labor market to help put downward pressure on nominal wage growth.
• Industrial vacancy rates across the U.S. now average 4%.
• DFW and Greater Los Angeles lead with product under construction.

Nearshoring/Reshoring – The Key to Resiliency in Global Manufacturing

Rosemary Coates, Reshoring Institute

• In the 1990s, the prevailing manufacturing strategy was to relocate manufacturing operations to China, as it provided a highly cost-effective environment.
• The pandemic highlighted the vulnerability of lean methodology or “just in time” practices, as the closure of a single factory could disrupt the entire supply chain.
• The Tax Reform Act of 2017 significantly reduced the effective tax rate for manufacturers, a big win for the manufacturing industry.
• ~64% of companies in the manufacturing and industrial sectors are considering bringing back their manufacturing production and sourcing to North America.
• Overseas companies are acquiring factories in Mexico due to the USMCA agreement, which allows duty-free entry of products into the U.S. This has spurred extensive development on both sides of the U.S.-Mexico border.
• 80% of Americans express a preference for purchasing products made in America and are willing to pay up to a 20% premium to support this.

The Analytics Age: Transforming Corporate Real Estate Decisions

Bret Swango, Head of Location Intelligence & Workforce Analytic, Colliers

• Top concerns for corporate users all revolve around labor, talent and availability of skilled labor.
• The top 10 destinations for onshoring jobs are located in established manufacturing markets spanning the Midwest down to the Southeast.

Insights from Occupiers, a Panel Discussion on Navigating Today’s Challenges

Moderated by Rick Kingery, Enterprise Clients, Colliers

• Flexe has observed a decrease in deal volume for port markets, with inland markets like Memphis gaining popularity among occupiers due to its lower rental rates.
• BNSF is constructing a large intermodal terminal in Phoenix, making Phoenix an appealing and viable alternative to the Inland Empire.
• Rising interest rates have increased the cost of capital, pressuring occupiers to adjust the “just-in-case” strategies as holding inventory is a huge cost.
• Supply chain executives are currently in the process of right-sizing inventory levels, but there is still work to be done.
• Maersk is collaborating closely with its major shippers to enhance predictability of transit times. This helps demand planners achieve more accurate inventory management.
• Automation and AI implementation are occurring in the industry. For example, NFI has integrated AI into their truck fleet operations, optimizing efficiency and minimizing idle assets, and they are focused on easily redeployable automation, allowing bots to be relocated as needed.

To learn more about the L&T Group, please visit our website. We look forward to seeing our valued clients at the L&T pre-conference in Scottsdale at the Colliers National Industrial Conference.