Will COVID Bring Manufacturing Back to the US?

Last week, presidential candidate Joe Biden announced an economic plan that aims to revive American manufacturing and reclaim supply chains.

But even before the presumptive Democratic nominee announced his plan, some CRE observers saw COVID-19 as an accelerant that could change where companies build products.

“I think we will see more manufacturing brought back to the US, particularly for anything healthcare-related,” Jeff Berryhill, principal for Stonemont Financial Group, said earlier this year. “You will also see companies outside of those areas—that manufacture in Asia and are just experiencing supply chain disruption—that will bring that back here or at least diversify it.” 

Early in the pandemic, James Koman, CEO of ElmTree Funds, expressed similar sentiments as COVID-19 upended supply chains. 

“When you look at corporations, they’re going to start to move more and more of these foreign operations back to the US as a result of this pandemic,” he said in an earlier interview. “The whole idea is to mitigate potential disruption moving forward.”

Koman estimated that many companies have seen their supply lines frozen because they can’t get the necessary parts. “That is going to open up some opportunities, which is going to be great for the job market here,” he says. “I think it’s also going to bring a lot of these businesses to North America and Central America. I don’t think all of this is going to land domestically here in the U.S., but it is going to be a lot closer to our borders.”

Manufacturing a product close to where it is offers more certainty, especially in times of crisis. “If your client base is in Asia, then it makes a lot of sense to manufacture over there,” he says. “But if your client base is here, it can make a lot of sense to manufacture here because then you run fewer risks of having that product arriving late.”

If some portions of manufacturing come back to the US, it will have ramifications on the supply chain. “If we see manufacturing being reassessed, that’s going to drive a lot of need for distribution,” Berryhill says. 

Right now, there is a lot of competition for good industrial assets. There’s an argument to be made that more American manufacturing will only add to that demand.

“From an investor’s perspective, when we look at asset classes, the natural tendency is to gravitate more towards industrial because those are the assets that tend to be more fungible,” Berryhill says. “If your tenant doesn’t renew the lease, you’re not going to have a lot of downtime to put somebody else in. Those are the easier transactions to do.”

While Koman thinks there is momentum to bring some manufacturing functions back to the U.S., it won’t happen overnight. “It’s going to take time to come to fruition,” he says. “Look at all of these different sectors, whether it is automotive or construction industry, and see how much of that is weighted towards foreign manufacturing production,” he says.