GE opened this Louisville, KY facility in 2012.

WASHINGTON, DC—Think “changes in industrial space requirements” and the impact of e-commerce on distribution center demand comes immediately to mind. However, a new white paper from Cassidy Turley provides a reminder that the manufacturing sector has similarly undergone a transformation.

“The good news for both the economy and commercial real estate is that manufacturing is experiencing a revival,” according to the white paper. “US manufacturing output has risen significantly over the past four years as the economy has recovered from recession.” An estimated 17.2 million Americans work in manufacturing, and if the sector’s output were measured by itself, it would constitute the world’s 10th largest economy.

Yet that doesn’t mean the sprawling complexes that produced everything from cars to rolled steel will once again dominate the landscape as they did in years past. “America now has very few large factories,” according to Cassidy Turley’s white paper.

Out of more than 295,000 manufacturing establishments counted by the Census Bureau recently, “less than 0.5% employed more than 1,000 workers,” the white paper states. In the new era, “manufacturing commercial real estate requirements will be as focused on the connectivity of smaller production hubs where R&D and software are aligned as their predecessors were with large factory floors where numerous employees focused on the connectivity of parts.”

A number of technological trends have converged to drive this transformation. Among them are “the falling costs of electronic sensors and microprocessors that can be used to make machines more proficient, the accessibility of Big Data associated with cloud computing; and advances in software that are suddenly making it possible to manage the manufacturing process with an entirely new level of precision. These innovations are converging to produce the greatest change in production and business models since the dawn of the industrial era,” the report states.

And as manufacturing processes have been transformed, so manufacturers’ CRE needs have changed. The report identifies “a new paradigm” in which smaller manufacturing centers and the ability to shift production quickly as demand shifts are driving real estate strategies.

“Companies with multiple facilities are focusing on uniformity across markets while simultaneously searching for the highly skilled talent needed to successfully navigate the critical robotic operations occurring on the factory floor,” according to the white paper. “As a result, manufacturing facilities are being drawn to major metropolitan areas where designing, sourcing and assembling takes place in smaller manufacturing clusters.”

Manufacturing firms are looking for not only the traditional industrial element of fabrication but also “closely aligned office space where collaborative R&D occurs, as well as logistics and distribution hubs where increasingly customized products may quickly be delivered,” the white paper states. “Technological innovations will heavily influence the corporate real estate strategies of manufacturing firms” over the next several years.

Yet Cassidy Turley says these firms will also be guided by a number of considerations in determining where to locate, relocate or expand. For manufacturing operations where technology transfer and access to the world’s top tech talent are critical drivers, they’ll look to markets such as Silicon Valley, Austin, Los Angeles, Phoenix and Boston.

“For other manufacturers, the ability to tap into nationwide distribution will be of utmost importance,” according to the white paper. In those cases, “inland ports” such as Dallas/Fort Worth, Chicago, Kansas City, Atlanta, Memphis, Charlotte and Southern California’s Inland Empire will offer “a competitive advantage.”