Unleashing the Industrial Real Estate Surge: Texas Takes the Lead

By Ron Gilbreath, managing director of asset & property management, Westmount Realty Capital 

It’s no trade secret that global lockdowns during the pandemic had a significant and lasting impact on supply chains worldwide. Ernst & Young’s 2023 poll revealed that 72 percent of senior-level supply chain executives experienced negative impacts on their businesses due to the pandemic, resulting in the emergence of a concentrated focus on supply chain visibility.

The crucial point to acknowledge during this continued disruption is that these impacts are closely tied to the just-in-time (JIT) inventory management system. As a result of these challenges, businesses are actively reassessing their distribution network strategies, leading to a surge in demand for industrial warehouse space. With the necessity to maintain greater inventory levels, companies are re-evaluating their warehouse space requirements and distribution setups to mitigate the risk of future supply shortages.

The lockdowns disrupted two essential elements of JIT strategy: steady production and supplier reliability. Suppliers forced to comply with government lockdowns incurred major disruptions across various business lines due to the challenge of maintaining consistent production. This is a key component of JIT delivery that relies on having materials physically present during the production process. When these materials are unavailable, production delays occur. The inability to maintain forecasted production levels also prompted the need for additional inventory across the business-to-business and business-to-consumer supply chain.

Supply chain disruptions have driven industry leaders to reconsider JIT strategy and embrace new principles focused on a just-in-case (JIC) environment. As suppliers struggled to comply with government-imposed lockdown measures, significant disruptions reverberated across multiple business sectors. Maintaining steady production — a vital element of JIT delivery — became a challenge since this initiative relies on having materials physically available throughout the production process. When these materials became unavailable, production delays ensued.

In line with this strategic shift, recent reports from Reshoring Initiative and Deloitte highlight the growing interest in relocating manufacturing operations closer to end-consumers. The Reshoring Initiative’s latest data report unveiled a remarkable 53 percent increase in U.S.-based jobs related to reshoring and foreign direct investment in 2022 compared to the previous year.

Similarly, Deloitte’s survey of transportation and manufacturing executives revealed that a significant amount of respondents — 68 percent, to be exact — were considering shifting their manufacturing operations to the United States, with 39 percent of them citing Texas as their preferred location. These findings further support the notion that businesses are actively seeking to mitigate disruption risks and cost inflation by re-evaluating their manufacturing strategies and exploring new geographical opportunities.