When China joined the World Trade Organization in 2001, many American companies abandoned their U.S.-based manufacturing operations in pursuit of China’s robust manufacturing capabilities and cheap labor. This manufacturing exodus ultimately caused a severe decline in the capacity and capability of the American manufacturing sector.

Labor trends have since shifted away from trade work in favor of college educations, resulting in a skilled worker shortage for manufacturers across all industries. Once-vibrant American factories have fallen into severe disrepair and contributed to urban blight across the country. Almost two decades later, the COVID-19 pandemic has exposed the risks associated with outsourcing manufacturing of essential goods to other countries.

Changes in Medical Manufacturing

As COVID-19 rapidly spread across America, hospitals found they couldn’t source the most basic personal protective equipment (PPE) like medical masks and respirators, gowns, gloves, and face shields because the bulk of them were made in China where factories and distributors were shut down as the country dealt with its own coronavirus outbreak. The same was true of essential medical devices such as ventilators, which are essential for treating severe cases of COVID-19. When the global supply did finally start to flow, many American medical professionals quickly discovered they had purchased counterfeit PPE from global suppliers.

In the face of the global pandemic and an ongoing U.S.-China trade war now in its third year, 69% of manufacturers across industries have begun to explore opportunities to reshore critical manufacturing assets back to the United States, according to recent data from Thomas for Industry. While most American businesses are highly motivated to retool their supply chain structures, the medical manufacturing sector recently received an extra bit of motivation.

President Trump recently signed the “Executive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs are Made in the United States,” which requires a variety of federal agencies and the U.S. military to purchase essential medical goods made on American soil. As it stands now, this order will be difficult to enforce, as U.S. medical manufacturers most likely lack the production capacity to meet the government’s needs, especially while the pandemic rages on. Still, an opportunity exists as language in the order suggests that the federal government will be awarding contracts by early 2021 and that it hopes to significantly diversify its supplier base by working with a broad variety of American medical equipment manufacturers.

Locking Down Industrial Real Estate

Reshoring isn’t an overnight process, so it would behoove makers of medical equipment to act immediately to secure the assets and real estate they’ll need to hit the ground running once they break free of existing foreign contracts and obligations. The industrial real estate sector weathered the pandemic better than most as booming e-commerce activity continues to drive demand for warehousing and fulfillment space. Unfortunately for medical manufacturers looking to reshore, there is significant overlap between the kinds of real estate used for warehousing and production operations.

Projections currently show an expected demand of 1 billion square feet of additional warehouse space in the United States before 2025, which may present challenges for manufacturers seeking new industrial space. Many reshoring plans are accompanied by a desire to offset risk and disruption through the diversification of production and warehousing assets. This means that formerly large, single-source operations will be split across multiple regions in the hopes that the rest can continue to operate should one region experience disruption. Seeking multiple sites may extend reshoring timelines.

Demand for industrial space shows no signs of slowing, so companies looking to bring manufacturing and distribution assets into the United States should prioritize the site selection process early on. Though they may not need these new facilities until next year or later, it’s possible that reshoring needs can be met by leasing industrial space that is currently under construction or by targeting disused or blighted properties for redevelopment. This will provide time to get the rest of the reshoring plan in line as development moves forward.

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, currently encompassing over 30 million square feet.  Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost-efficient solutions, and a reputation for success.

To see how we can help with the reshoring plan for your medical manufacturing operation, please contact us.