The (New) Industrial Revolution

…how lessons learned during the downturn continue to effect businesses — and real estate — today.

For those who survived the Great Recession, the name of the game became “efficiency”. Companies cut expenses, consolidated operations, and streamlined processes in hopes of becoming lean enough to weather the storm. It wasn’t always pretty, but it was necessary.

In West Michigan, manufacturing employment dropped under 150,000 by the midway point of 2009, and there was roughly 10.2 million square feet of unused industrial real estate on the market — or nearly a tenth of the total inventory. Companies were pressured to continue to grow production with less manpower and in less (or the same amount of) space. This was a difficult task and not everyone was able to alter their business practices to adapt. West Michigan was resilient though. It got smarter and better. Employment has since rebounded to approximately 175,000 and building occupancy has grown to nearly 95 percent; yet output and industry growth has outpaced that, without considerable new building inventory added to the market. How, you ask?

Well, one lesson learned by some was the benefit of automation. Automation was already emerging as an industry disruptor, but recessionary forces served to accelerate this evolution. Despite an initial capital investment, it could allow companies to produce more, in less space, and with less ongoing overhead cost than human workers. In fact, according to Boston Consulting Group, it costs barely $8 an hour to use a robot for spot welding in the auto industry, compared to $25 for a worker, and the gap is only projected to widen. More generally, the “job intensity” of manufacturing industries, and especially its best-paying advanced ones, is only going to decline. In 1980 it took 25 jobs to generate $1 million in manufacturing output in the United States. Today it takes just five.

Because of this, companies are able to continue ramping production without the implicit increase in space demand. With construction costs 30–50% higher than a decade ago, few companies could afford to build more space. Locally, we have seen a number of companies add on to buildings or reconfigure layouts within existing footprints, but new building construction has been relatively muted until just recently. So by purely looking at the numbers, it may seem as though the West Michigan industrial market has seen a plateauing of growth. But ask most executives and they will tell you business is good; they just learned how to be more efficient with the resources — and the real estate — that they had.

Roughly 85 percent of manufacturing jobs lost since 2000 are attributable to technological change — namely automation — according to the Center for Business and Economic Research at Ball State University

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