The industrial sector witnessed unprecedented growth during the COVID-19 pandemic, driven primarily by the surge in warehousing demand fueled by e-commerce. Now that the market has returned to normal after these record-setting years, industry stakeholders seek new avenues for growth.
To this end, the spotlight has begun to shift to the manufacturing sector as a leading source of new demand. This resurgence of interest in space for advanced manufacturing operations results from the culmination of pandemic-era plans to improve supply chain resiliency by regionalizing supply chains.
Onshoring and the Tariff Problem
While interest in a manufacturing resurgence has existed for years, it never quite felt financially feasible for U.S.-based companies. Labor and production costs in places like China, although rising, are still significantly lower than those in the United States.
Still, the previous U.S. administration enacted multiple key pieces of legislation that spurred companies to begin reshoring efforts. Reshoring efforts take years, and any company that’s sufficiently invested isn’t likely to pull the plug on their onshoring plans now.
And fast-forwarding to today, of course, it’s probably no surprise that one of the biggest drivers of reshoring efforts is tariffs. Tariff uncertainty has prompted many businesses to reconsider where their production assets should be located. This is especially true for production operations that require significant amounts of steel and aluminum to fabricate items. Even more so for U.S. businesses that currently manufacture their products in China and import them to the United States for sale.
While some businesses will simply pass any cost increases from tariffs on to their customers, others will undoubtedly choose to regionalize their assets within the U.S. to avoid the volatility associated with the numerous tariff wars happening between the U.S. and many of its core trading partners.
“We’re seeing a generational shift in how and where the goods we consume get made,” said Frank Crivello, founder and chairman of Wisconsin-based industrial real estate firm Phoenix Investors. “Onshoring isn’t just a buzzword or a trend. It’s no longer speculative, but strategic. At Phoenix Investors, we’re focused on breathing new life into underutilized facilities and supporting this manufacturing resurgence.”
What Reshoring Means for Industrial Real Estate
This level of demand will have a multifaceted effect on the industrial real estate market. Here are some of the impacts we can expect to see in the next few years:
- More advanced factories. Demand for manufacturing facilities that can support high-tech production will continue to rise, as facilities must automate to address the ongoing shortage of skilled industrial labor in the U.S. This trend will spur the sector to modernize outdated facilities and build new structures that cater to the needs of advanced manufacturing tenants.
- A resurgence of logistics real estate demand. While the factory demand itself is significant, the industry will also benefit from ancillary demand for logistics and distribution facilities associated with newly established U.S. factories. Nearshoring to Mexico and Canada will also fuel demand for logistics facilities along the border to support cross-border operations. This demand should help to slow and eventually reverse the rise of industrial real estate’s vacancy rate.
- Infrastructure improvements across the U.S. Advanced manufacturing and logistics facilities use a lot of electricity, and utilities will need to update grid assets to support the growing power needs of new factories. Similarly, highways will need improvements to accommodate higher traffic and internet providers will need to bring broadband to new areas.
- Demand for data centers will grow. The growing labor shortage in the U.S. is probably the largest threat to the reshoring movement. To combat this, many factories will turn to automation. As the use of automation, artificial intelligence, machine learning, and related technologies grows in manufacturing and logistics, demand for the data centers needed to host cloud solutions will grow alongside them.
As businesses navigate the ever-evolving complexities of the global supply chain, the shift towards domestic manufacturing holds the key to unlocking new opportunities and driving sustainable growth in the industrial real estate sector. As the industrial real estate market stabilizes in 2025, industry stakeholders should embrace the opportunities presented by onshoring and leverage its potential to drive growth and renewal in the industrial sector.
About Phoenix Investors
Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations and public stakeholders, Phoenix has developed a proven track record of generating superior risk adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost efficient solutions, and a reputation for success.
