How the Manufacturing 'Supercycle' Impacts Real Estate Leaders

S Sovereign Properties CEO Russ Bennett has led the development of more than 6,000 apartments nationwide in five markets. I believe the U.S. is on the cusp of a manufacturing supercycle that could reshape the global investment environment and significantly impact the real estate market.

This manufacturing revival has gotten a boost with the emphasis on the "America First" principle and the imposition of tariffs on Chinese goods in 2018. The Biden administration has continued to restrict capital inflows to China, further incentivizing the movement of supply chains to the United States. This is reinforced by legislation providing nearly $2 trillion in domestic investment and incentives: the U.S. Clean Energy Inflation Relief Act, the $280 billion Chip and Science Act for semiconductor manufacturing, and the $1 trillion Infrastructure Investment and Jobs Act for sustainable infrastructure.

As a result, U.S. manufacturing construction spending rose to $196.1 billion as of July. Government initiatives to support domestic manufacturing have sparked a wave of investment that I believe could reshape supply chains over the next decade and create a significant headwind for the real estate sector.

Southern U.S.

In my view, the Southern US could be a major beneficiary of manufacturing investment. Texas in particular has received an unreasonable share of investment, among which firms such as Samsung, Texas Instruments and Tesla have already begun expansion plans that are expected to create thousands of new jobs in the coming years.

Laredo, located on the Texas border, is a major delivery point for goods into the U.S., with 37% of freight shipments and 46% of rail containers entering in 2021 through this corridor. In addition, Laredo has recorded a 12% annualized growth rate for commerce in 2023. From my perspective, this heavy trucking activity has contributed to increased demand for industrial space in the central Texas corridor, including San Antonio and Austin.

Industrial real estate firm Xebec has submitted plans for a "3,300-acre logistics and manufacturing center" on a 32,000-acre site northeast of Austin, according to the Dallas Morning News. The development is one of many seeking to meet demand for industrial and residential space near multibillion-dollar projects like Samsung's Taylor chip plant and Tesla's Gigafactory. The impact of these developments will be felt throughout the Austin-San Antonio corridor and could create significant economic impact and position the region as a center of advanced manufacturing and technology.

Florida

Florida could also benefit from a surge in investment in advanced manufacturing. With the NeoCity district positioning Orlando as one of the best cities for STEM talent in the U.S., the state's outlook promises to be encouraging.

More importantly, I expect the region to receive a significant economic boost from several major infrastructure and technology projects currently underway. Among them is the Brightline high-speed rail initiative that links cities like Miami and West Palm Beach to Orlando.

Other regions

In other regions of the South, companies like Toyota, Hyundai, BMW and Albemarle are investing billions of dollars in what they call a new "battery belt." Auto production has expanded beyond traditional markets in the Midwest, potentially creating tens of thousands of jobs in states such as Georgia, Tennessee and North and South Carolina.

In addition to the U.S., Mexico could benefit from supply chain regionalization, given the existing Agreement between the United States, Mexico and Canada, proximity to U.S. population centers, available labor and large land resources.

The manufacturing sector has one of the highest employment multipliers, as a manufacturing plant typically drives demand for suppliers, transportation services, and service businesses. From my perspective, one side effect of the revival of domestic manufacturing will be an increase in demand for residential real estate in all southern states with proximity to ports. Investments in clean energy, infrastructure, and semiconductor manufacturing are driving large-scale job creation in these states, especially in high-wage sectors.

According to the U.S. Bureau of Labor Statistics, the Dallas-Fort Worth metro is on track to add between 150,000 and 200,000 jobs annually in the coming years, an annual growth rate of approximately 4 percent and nearly double the rate of job creation before the pandemic. Conventional theory suggests that for every 1.5 new jobs, one new housing unit is required. Permits issued in 2022 for the Dallas-Fort Worth metro area totaled only about 76,000, creating an annual shortfall of about 23,000-56,000 housing units. This comes at a time when the U.S. already has a nationwide housing shortage and underscores the need for new housing units to meet excess demand.

As the nation's commitment to domestic manufacturing intensifies and states in the Southeast attract extensive investment in industrial and residential real estate, I believe there will be significant demand for new housing and industrial space that will not be met by current construction projections and permitted developments. It is important for lawmakers, real estate developers and investors to focus on these growth areas and plan ahead to avoid dramatic increases in rents and home values.

In addition, real estate developers and investors should consider capitalizing on the coming wave of capital investment. Construction of residential projects typically takes two to four years to materialize from inception. Investors and developers should pay attention to the growth corridors mentioned. In addition, it is important that developers establish contact with local municipalities to stay abreast of upcoming investments in manufacturing and infrastructure and to ensure that sufficient housing will be available when those investments are made.

Council Forbes Business