While some construction industry research and information providers like JLL have predicted an overall slowdown in the rate of construction growth in the coming years, one sector within the construction industry has emerged as a star — the industrial segment.

The industrial sector has experienced the lowest vacancy rates in 16 years, according to JLL. The company also found that 18% of Q3 2016 leases were for newly built space, an encouraging metric for the construction industry.

E-commerce has driven a significant portion of the warehouse/distribution component of the market, a phenomenon that is part of the "Amazon effect," which refers to the internet giant's impact on pretty much everything to do with warehousing, ordering and shipping merchandise in the age of the internet, according to Kent Newsom, executive vice president of Ridge Development at Transwestern.

"Retailers are trying to figure out how to adjust to it," Newsom said. In the Dallas metro area, he said, Amazon alone has approximately 4 million square feet of warehouse and distribution space.

But then there's manufacturing space as well. According to the U.S. Bureau of Labor Statistics, manufacturing jobs increased by 25,000 between April 2016 and April 2017. While that figure is nowhere near pre-1980 levels, it still represents an increase of nearly 1 million positions from the first quarter of 2010.

A revival of manufacturing jobs might contradict the "jobs are being shipped overseas" mantra, but, in reality, as the standard of living is increasing in some countries that were once the cheapest good-producing places in the world, wages are ticking upward there as well. This makes countries like China not as much of a bargain as they once were.

In fact, according to the Reshoring Initiative, 60% of the investment that brought manufacturing jobs back to the U.S. between 2010 and 2016 was from China, Recode reported.

Rhetoric from the Trump White House about the possibility of import tariffs has also played into some manufacturers' decisions to scout out locations in the U.S., according to Joe Iatauro, JLL vice president and lead of the company's Atlanta industrial PDS business unit.

"For us it's exciting, but many are just trying to judge the landscape," he said. "For many, it's a wait and see."

Meanwhile, foreign companies are actively investing in the U.S.. Daikin, a Japanese heating, ventilation and air conditioning equipment manufacturer, recently announced it completed construction on a $417 million, 4.2-million-square-foot factory and associated development near Houston. In addition, German gummy bear manufacturer Haribo is building a $242 million, 500,000-square-foot gummy bear factory in Wisconsin, which is providing the company incentives. In exchange, the candy maker will provide job training and other community benefits. 

So, what goes into the planning for warehouses and manufacturing facilities? It's more than just picking an open space and hoping for the best, as owners in the sector have unique requirements and demands.

Site considerations

Jeff Bischoff, executive vice president of business development at Kentucky-based Gray Construction, which builds both manufacturing and distribution facilities, said cost and availability of labor is a big consideration in planning for both types of facilities, but he added that others include:

• Proximity to customer base and major shipping centers (such as UPS and FedEx)
• Results of site logistics studies
• Ability to handle significant trucking traffic
• Tax breaks and incentives
• Whether the land will fit in with future expansion plans

The choice between geographic locations within the U.S. comes into play as well. Iatauro noted that the Southeast has fared better than some other areas of the U.S. because of the relatively lower cost of labor and other business costs there compared with the West Coast and Northeast. The short distance to shipping ports in Savannah, GA, and Jacksonville, FL, he said, also make manufacturers' chore of importing raw materials an easier proposition.

The "last mile" concept is also something companies consider when selecting locations for distribution centers, Newsom said, which refers to how close the center is to the final delivery point, which could be a retail store or customers' homes.

Incentives also factor heavily into a company's decision to build in a certain area, and Iatauro said South Carolina is at the top of the list when it comes to a business-friendly atmosphere. In fact, China-based Wanli Tire Corp. recently announced that it will build a $1 billion manufacturing plant in Orangeburg County, SC, further strengthening the state's tire industry, which is currently No. 1 in tire exports.

Inside the construction process

Once a site is secured, it's down to business, and Ryan Molen, project director of advanced technology and manufacturing for McCarthy Building Companies, said manufacturers and facility owners are now savvier than they've ever been in the face of a variety of construction methods, as well as contractors.

Molen said McCarthy customers are increasingly looking for general contractors who can self-perform work versus subcontracting out all the trades. McCarthy's in-house capabilities include concrete, structural steel, mechanical, electrical and others, based on geographic location. "It allows us to control the schedule, get to market faster and control costs and quality," he said. 

Facility owners are also insisting, Molen said, that contractors be well-versed in a variety of delivery methods — such as design–build, design–bid–build and construction manager at risk — and be willing to explore which is best for the client, even if that means blending one or more methods together.

While construction on both types of facilities are still a function of plans and specifications, Bischoff said there are special considerations that come into play with these industrial projects during construction.

For warehouse and distribution facilities, he said, some unique considerations are:

• Correct space allocation — in accordance with building codes — for the types of items being stored
• Zoning restrictions regarding building heights and elevation
• Understanding many types of racking and their heights, as well as general storage requirements
• Machines needed for conveyors and cranes
• Roof hanging loads/rack loads in the slabs

Manufacturing facilities have pretty much the same considerations, Bischoff said, but also could include a guardhouse and scales, receiving capabilities for raw materials and shipping of the finished product, an employee parking area that doesn’t interfere with truck traffic, overhead crane requirements and specialized equipment.

Owners, Molen said, are also looking for contractors who can provide a turnkey product from site work to startup, which means installing expensive and mission critical equipment. 

What's next for manufacturing construction in the U.S.

"Our hope," Newsom said, "is that we can see manufacturing come back to the U.S. [Manufacturers] are going to have to pay higher wages, but [the U.S. government] is going to have to make it up by [imposing] less regulations on these businesses so they can be competitive."

Despite the current political climate of uncertainty, the bottom line, Molen said, is that companies will build manufacturing facilities and distribution centers where it makes the most financial sense. "When they're looking at logistics," he said, "there are few companies that would locate a plant for purely political or PR reasons."