A rise in onshore manufacturing operations by U.S. companies is creating more demand for factory space nationwide. The 3.8 billion-sq.-ft. manufacturing facility market recorded a record low 3.4% availability rate at year-end 2022 after annual absorption of 53.8 million sq. ft.—the highest amount since 2016 and the second consecutive year that net absorption has surpassed 50 million sq. ft.
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.
Figure 1: U.S. Manufacturing Space Net Absorption
The availability rate for manufacturing space hit a record low last year despite 28.5 million sq. ft. of construction completions, the most since 2001. Average annual net asking rent for manufacturing space increased by 23% to $8.39 per sq. ft.—nearly double the asking rent growth for distribution facilities.
Figure 2: U.S. Manufacturing Space Average Annual Net Asking Rent
Chicago—the country’s largest manufacturing market with a total inventory of 343.8 million sq. ft.—recorded the most net absorption last year with 7.0 million sq. ft., followed by Detroit with 5.9 million. Detroit is particularly benefiting from increased onshore manufacturing operations by the auto industry.
Figure 3: 2022 Manufacturing Space Net Absorption by State
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%, largely from the electric vehicle industry. Other top Sun Belt markets for demand last year were Jacksonville, Atlanta, Charlotte, Phoenix and Charleston. Phoenix is expected to climb the ranks for net absorption as several semiconductor plants come online in the next few years.
Figure 4: 2022 Top 10 Growth Markets for Manufacturing Space
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.
Source: “U.S. Industrial Market Benefits from Rise in Onshore Manufacturing“
