The case for new construction in a tight manufacturing real estate market

Manufacturing is alive and well, but there are underlying, uncontrollable factors that are affecting this sector.

For instance, despite the lowest unemployment numbers in the U.S. in decades, there are still thousands of manufacturing positions left unfilled and a shortage that is affecting companies’ relocation and expansion considerations.

“The brick-and-mortar aspect of a move will be just about equivalent regardless of location,” says Joseph V. Barna, Principal at Cushman & Wakefield/CRESCO Real Estate. “But there’s no sense in making a significant investment into a facility if your location makes it difficult to attract a workforce capable of getting the necessary production out of it.”

Manufacturing is also being reshaped by ever-advancing technology and shifting trends in logistics. Companies in the manufacturing sector need to understand all the ways in which their facility and its location affect its ability to operate successfully, both today and in the future.

Smart Business spoke with Barna about the ways in which these trends should inform manufacturers’ real estate decisions.

How are these trends affecting the decision between new construction and retrofitting existing buildings?
Northeast Ohio has possibly its lowest industrial vacancy rate in 30 years — about 3.5 percent on average. However, 80 percent of the limited available properties are considered obsolete in that they’re inefficient and can’t be economically retrofitted to meet today’s demands.

Getting what they want means a facility with state-of-the-art amenities and sophisticated, energy-efficient mechanicals. Coupled with municipal or state tax abatements, companies are finding that new construction is the better way to go.

The right work environment is not only necessary for operational efficiency, but also to secure and keep employees. Today’s manufacturing employees don’t want to work in a dark, dirty environment. And because talented, experienced workers are in demand, they can be fickle about their choice of employer.

What should owners who decide to build keep in mind as they design their space?
Think about the future. Buy more land than is currently needed to facilitate expansion. That will also make the property appealing to future users, increasing its future value.

Having additional land available for expansion can also accommodate the changing needs of some users. For example, companies once needed the additional space to stage a number of trucks and trailers. With trends shifting in fulfillment, that land is more often used for employee parking — sometimes thousands of parking spaces. By understanding the trends, a property can be set up to meet future needs.

Construct a facility that’s easy to convert for alternative uses. That likely means a rectangular shape, having ample docks for trucks, a ceiling clearance of 28 to 34 feet and extra land regardless of what’s needed for current operations.

New construction will cost just about the same to put a building up in the middle of the city as it would in a suburban park. To protect the facility’s ongoing appreciation, it’s better to build in a high-demand area that’s more likely to increase in value. Then, when it’s time to sell, the upside appreciation will be significantly better than if it were located in a low-demand area.

Always keep the exit strategy in mind. In addition to the physical structure, features such as good highway access and proximity to the workforce are always desirable.

Why is it important to think about the future when considering a move?
Owners need to understand their company’s long-term growth forecast because what may be a perfect building for today’s needs might not accommodate future growth. Understand the total operating costs of a facility. That’s more than the cost of the brick-and-mortar building. It’s how much it costs to keep it running with new energy-efficient mechanical systems.

Do a thorough analysis before making any move and get consultation from trusted advisers — an attorney, real estate expert, financial adviser or construction provider — because there are many considerations to make. With such a significant investment, even little mistakes can affect the outcome and future value.

Insights Real Estate is brought to you by Cushman & Wakefield/CRESCO Real Estate