A new research report by Jones Lang LaSalle highlights that changes across the manufacturing industry will create more complexity and challenges for manufacturing companies but increase opportunities for real estate developers and investors.
The report highlights that three-dimensional printing (3D printing) will transform certain parts of manufacturing, and the nature of factories and supply chains. While still in its infancy, 3D printing has the longer term potential to spark what some commentators have dubbed a ‘new industrial revolution’.
The ability to ‘print’ objects on demand could radically change how and where manufacturing takes place, and the types of facilities companies require. Instead of mass production, 3D printing emphasises customisation; instead of off-shoring, 3D printing is likely to encourage more local production closer to the market.
According to Jon Sleeman, director of EMEA logistics & industrial research at Jones Lang LaSalle, 3D printing will “change the nature of factories in certain industries. Instead of large bespoke factories, it will create demand for more standard small and medium sized buildings, which companies would be more likely to lease than own. As a result, this will open up opportunities for developers and investors.”
The dynamics driving the location of manufacturing capacity including issues around off-shoring, re-shoring or near shoring are also shifting. The report notes that, while off-shoring has been an important trend, many types of manufacturing are characterised by a predominantly local or regional focus, are inherently less mobile and may have a strong rationale for remaining in higher cost economies. In addition, over the past two to three years there have been some indications that the pace of off-shoring is slowing, and even some evidence of re-shoring by companies, particularly in the US, but also in Europe. This reflects a greater understanding of the wider ‘hidden costs’ associated with overseas production, including the extended lead times of meeting customer demand and exposure to supply chain risks.
According to Jon Sleeman: “The evolution of manufacturing is driving demand for a range of real estate across the value chain, including R&D facilities, which are often co-located with production, and logistics facilities which support manufacturing. According to Jones Lang LaSalle, over the past five years (2008-2012) manufacturing companies directly accounted for 16% of the total take-up of logistics real estate across 11 major European countries, highlighting the significance of manufacturing as a source of logistics property demand .”
Paul Betts, EMEA Logistics & Industrial, also argued that the evolution of manufacturing will drive real estate demand across all parts of the value chain. "It will drive changes in locations as existing manufacturing clusters develop and new locations emerge," he commented.
“Developers and investors, whose industrial real estate focus has mainly been on logistics, should also consider the opportunities generated by manufacturing especially in strong cluster locations,” he said.
The evolution of manufacturing is changing Europe’s manufacturing landscape. The report highlights that:
• Four of the world’s largest manufacturing economies are European – Germany, Italy, France and the UK;
• Europe attracts a substantial amount of manufacturing foreign direct investment (FDI) – a quarter of the global total over the past 10 years;
• Across the EU-27 countries manufacturing gross value added is forecast to grow in real terms by 15% between 2011 and 2021, according to independent forecasts.
• Europe has a wide diversity of highly competitive manufacturing industries often geographically concentrated in clusters, which generate strong demand for real estate.
• Central and Eastern European (CEE) economies will remain attractive locations for manufacturing to service European markets because they combine relatively low costs with good labour force skills and access to markets.
• Russia, Europe’s largest recipient of manufacturing FDI over the past 10 years, could attract further industry to service its consumer markets and also former Soviet states and Middle Eastern countries.
• Turkey will attract more manufacturing due to low costs, its growing domestic market and proximity to richer European markets.