How COVID-19 Is Changing Corporate Location Strategy: New Research From The Site Selectors GuildJuly 23, 2020
Andy Levine (DCI): Last week, the Site Selectors Guild released the findings of its latest membership survey titled “How COVID-19 is Changing Corporate Location Strategy.”
Patience Fairbrother (DCI): Andy and I had a chance to sit down with the organization’s leadership to better understand the key takeaways.
Andy: So sit back for the next 25 minutes or so for a discussion on the future of site location from the consultants that are on the front lines working with companies every day.
So welcome to Episode 68 of “The Project: Inside Corporate Location Decisions.” I’m Andy Levine, chairman of Development Counselors International.
Patience: And I’m Patience Fairbrother also with DCI, and Andy’s co-host of The Project.
Andy: So let’s set up today’s episode with a quick description of the Site Selectors Guild. The Guild is the only association of the world’s foremost professional site selection consultants. In the past three years, Guild members have facilitated the announced creation of approximately 165,000 jobs and $90 billion in announced capital investment. That’s a lot of jobs and a lot of dollars for the organization’s 50 members.
Patience: The Guild surveyed those 50 members in a short survey to get their perceptions of how COVID-19 is impacting the site selection industry. The data was captured from June 29th to July 8th, so it’s very current.
Last week, Andy and I connected with Jay Garner, chair of the Site Selectors Guild and president of Garner Economics, and Rick Weddle, president of the Guild, to discuss the findings.
Andy: Here’s our conversation with Jay and Rick.
Jay and Rick, it is great to have you both as our guest today on The Project podcast. Thank you both. Patience and I are super excited to talk through the findings of the Guild’s new survey on COVID-19 and its impact on site selection. Now, Patience, given that you’re the only one on the phone who could meet the definition of young and restless, I’m gonna let you ask the first question.
Patience: Thank you, Andy, as always, for that dig about my age. So let’s start with some good news here. When you first conducted the survey in April, 45% of Guild members indicated projects are moving forward. And in this latest survey that was conducted just two weeks ago, that number is up to 61%. So Jay, did you find this uptick in a fairly short amount of time to be surprising?
Jay Garner (Site Selectors Guild): Yes and no. I mean, how’s that for a typical economic development answer of walking the fence? You know, when the shutdown basically occurred on March 15, I mean, everything globally was shut down through the…towards the latter part of April. And then when Georgia and Colorado opened, actually on the same day, and then other states started to follow, then it wasn’t surprising that we were gonna start seeing an immediate uptick in a number of sectors. And, you know, we’re all trying to make decisions based on facts. The facts keep changing. There were people who were saying it was gonna be a W-shaped curve, a V-shaped curve. We’re seeing a V-shaped now.
That will probably change back to a W based on some states going back into a shutdown mode. But those kinds of results, 61% reporting that companies are indeed moving forward, it’s a significant increase since April; 34% said that companies are still pausing their site selection projects, not surprisingly; and then 5% said that companies are consolidating facilities or cancelling site selection projects, which is lower than what I initially anticipated back when the shutdown occurred in March and April.
Patience: So Rick, related to this, I know you also asked Guild members when you think most of your client companies are going to start or restart expanding and adding new facilities. Can you just walk us through your findings there?
Rick Weddle ((Site Selectors Guild): Thank you, Patience, and thanks for the opportunity to participate in The Project Podcast. You know, the Guild members, as location advisers, are really the first to see emerging trends on the corporate side. And as Jay said, the majority of projects are starting to move forward. We see 2021 as being when most project activity resumes, 69% report that this is when they expect to see it. Previously paused projects, which were many back in the initial shutdown, 13% has reported that those started to move foward int he second quarter. However, with the rise of COVID-19 cases we’re seeing now, no one is predicting that previously paused projects will restart in the third quarter. So everybody’s taking a bit of a break in looking at new projects until they get a better transparency on what’s happening.
So it looks for now that activity will really start to pick up in the fourth quarter, with 22% saying they see projects starting then, and then really get underway in 2021, in Q1 and Q2. Of course, the caveat here is the pandemic. In today’s world, the long term isn’t very long. There’s just too many unknowns about this crisis. So forecast based on what we know now will change if circumstances on the ground change.
Andy: Just to jump in, to follow up on that, Rick, and invite Jay as well to comment on this, you know, we all know that companies hate uncertainty and the pandemic is causing uncertainty, but there’s also the uncertainty of an election. Is that, sort of, combining together to give a double hit in terms of, you know, making the third quarter particularly slow in terms of activity?
Rick I think, historically, the election year quarter, in a national election, has been one in which companies tend to pause a little bit, or slow down, or not start new projects, just because, as you said, uncertainty is the big difficulty. Companies can do well in good times, bad times, or in-between times, but uncertain times are really difficult. So it’s not uncommon that we see a little bit of hesitation in the third quarter. I don’t know if Jay may want to comment further on that.
Jay: Oh, absolutely. It’s a historical perspective of what we’ve seen in years past. There is a little bit of a difference this time, Andy, in that because there is a pent-up demand, and because there is a consumer need in certain sectors that we’ll talk about a little bit later, like food and beverage, like certain types of medical supplies, medical equipment, we are starting to see activity in terms of RFPs from corporate clients now that we did not see at all in March and April. The spigot was basically turned off. It got turned on slightly in May, and many of our Guild members are now saying that in terms of RFP activity, it is indeed picking up.
Andy: That’s encouraging to hear. I want to take you both in a little bit of a different area and actually, for me, I found this to be the most thought-provoking area of the survey. And I want to read the question that was posed to our consultants verbatim. And here it is: What is the likelihood of your clients considering the following areas for new or expansion projects for the next 12 months? And we asked about four different areas: large urban areas, those with 1 million or more residents; mid-sized urban areas; suburban areas; and rural areas. Jay, let me throw this one to you in terms of the findings and who came up on top of that question and also, who was on the bottom?
Jay: Well, let me be the conveyor of bad news first so that we can talk about the better news later. Not surprisingly, the large urban areas, populations of a million or more, are not being ranked favorably by location advisers because of feedback they may be also getting form their corporate clients as a potential investment decision location in the future.
Why is that? Well, I think during the pandemic, when we did have shelter-at-place, stay-at-home orders and so forth, people who were stuck in the cities were stuck and they wanted to have space, they wanted to have fresh air, they wanted to be able to do things that they couldn’t do because of the geography they lived in. So as a result of that, who’s on top? Well, suburban areas, by four, the vast majority of our Guild members saying that suburban areas, followed by the mid-sized urban markets of less than a million people, and then rural areas are the top three winners, with suburban areas leading the pack by far with more than 64% of our Guild members ranking it as the best opportunity.
Now, I will say one thing, Andy, related to that. As it relates to suburban areas, you know, there was discussion for years where millennials and Gen Z wanted to be in the urban market. But the demographics were showing, over the last few years, where the aging millennials that were having families, having children were indeed moving from urban to suburban locations so they could have the space with their family. And then the pandemic accentuated that. It really gave more of a need and a desire for that to occur.
So here’s a big shift in the demographics, and I think we’re gonna see that for years to come. Everything is cyclical and when we have therapeutics, when we have a vaccine, it can change again. But this is how it is right now.
Andy: It’s so interesting because if we were to go back a year, the large urban areas, because they have this density of talent, were really thriving and doing well in site selection space. And it seems like it’s completely switched. Wouldn’t you say, Jay?
Jay: Yeah, absolutely, it has. It sure has. It’s just showing you how things can be turned outside down based on a black swan event.
Andy: Black swan event, I like that. Okay. Good. Rick, I want to pull you in here. You know, the mid-tier cities did pretty well on that same question, 57% of the consultants said that the mid-tier cities would do favorably in this new world. Can you take us through some of the cities that consultants felt were especially strong candidates for new projects right now?
Rick Sure, Andy. When our members were asked as to who might be winners in this new normal, this new era, a number of mid-tier cities or regions were noted. And the mentioned these cities as strong candidates for new investment, new locations, and also expansions and growth. I am stricken by the list at how diverse it is from a geographic perspective. Let me go through it very quickly in alphabetical order, so as not to put in a presumption of rank.
But Boise, Idaho Colorado Springs, Colorado; Columbia, South Carolina; Columbus, Ohio; Greenville, South Carolina; Huntsville, Alabama; Indianapolis, Indiana; Kansas City, Missouri; Raleigh Durham, North Carolina; Reno, Nevada; and Tucson, Arizona. Each of these cities, as I look at the list, seem to hold in common, either a strong technology base or a well-developed cluster or niche in manufacturing or in industry sector, and also, they’re in a state largely with a strong or positive business climate that makes them competitive before the pandemic, but also makes them very competitive when business resumes post-pandemic.
Andy: Jay, I know you’ve looked at this list as well. What are your takeaways, as you look at this list?
Jay: I think I agree with everything Rick has said. I mean, that’s exactly right. Rick is spot on. I think this has climate issues. As it relates to can a company protect and grow, sustain their investment in a particular geography is a key component, whether it’s a state business climate issue, which has everything to do from taxes to right to work considerations, to local business climate issues. Can you get a permit, do what they need to do? Is there an appetite for discretionary and statutory incentives? So, business climate is a key consideration too.
So between what Rick said, and adding the business climate component, all of these communities, to me, when I saw this list from what the Guild members added, I mean, there’s others too that I could easily put on here, but all of these absolutely make sense as potential midmarket opportunities for future.
Andy: Rick, let’s just go the other way. The consultants also commented on the large cities and they were asked, you know, which ones would be perhaps harmed in the crisis here. Walk us through some of the findings and what the consultants said on this question/.
Rick Someone once said, “A funny thing happened on the way to the future,” and boy, is that true in this pandemic era. Our consultants had indicated, no surprise, that New York would be especially hard hit among the nation’s largest cities. Of the consultants who agreed that large urban centers are not at all or unlikely to be considered for future projects, 100% said that New York City would be the least likely locations to be considered for future projects, underscore here, in the next year. Now, Los Angeles and Chicago followed with 63% and 42% respectively. So, these are three of the major, premiere, top-tier cities in our country.
What’s driving this? I think uncertainly over a number of factors. All of these cities have high density, in an era where we’re talking about social distancing. You have the complexity of spacing, of office configurations and management of…even elevator access or cafeterias or eating options in the office. Dependency on mass transit at a time in which people are trying to drive alone or be distanced from people. And then there’s the other side to that, which I think is new-found productivity in work-from-home efforts. That’s a whole side topic we could cover a whole podcast on is that companies are finding that people can work very productively from home. So, the list goes on and on. So, I think we have to stay tuned and see how all this plays out over this next year in these large markets.
Patience: So just to switch gears a little bit and let’s kick this next one over to you, Jay, the consultants were also asked about, as locations around the globe begin to reopen, what are those industry sectors that have the most project activity. Could you just walk us through what those top three industries were shared by Guild members?
Jay: Sure, Patience, the top with 67% of our membership believing this would be the top-ranked is in the biotech and life sciences sector. That does not surprise, I think, any of us, as it relates to the big discussion that has been ongoing over the last several weeks or months, and that’s the supply chain regionalization, and also supply chain protection as it relates to medical supplies, medical equipment, pharmaceuticals. So that is a major sector where we all believe we’re gonna see significant growth.
Related to that, right behind it is advanced manufacturing, and so that takes into consideration the manufacturing components of those items, such as medical equipment, medical supplies. And, you know, pharmaceuticals is considered manufacturing. It’s really not advanced manufacturing. People think it is, because, you know, folks are wearing a clean suit in a clean room, but it’s batch manufacturing.
All those components are a great opportunity for economic development professionals in North America to pursue, because you are gonna see supply chain regionalization. You are gonna see a China Plus One or…and that Plus One is gonna be in North America, whether it’s the U.S., Mexico, or Canada, because of U.S. and CA.
The third is a sector that’s near and dear to me, because it’s one of our specialties, it’s in our wheelhouse, and that’s in the food and beverage processing sector. And again, we had issues with supply chain. You know, for those who ventured out, went to grocery stores rather than having your groceries delivered, if you could get someone to deliver them, you saw a number of shelves in the food and beverage sectors that were empty, primarily also in areas with meat and protein. And so because of COVID-19, you know, at one point in May, between one-third and one-half of our entire protein production facilities in the United States were offline, until they were able to get a handle on all of those hot spots, at those harvest facilities for protein.
So, you know, I’m actually seeing significant RFP activity right now, from major corporations, that are looking to do those kinds of new expansions and that has all of us in the site-selection world thrilled that there’s that kind of growth.
Followed by biotech, life sciences and then advanced manufacturing, food and beverage, the one sector that was behind food and beverage which surprised me a little bit was transportation and logistics, because there is that need for the supply chain. It seems that Amazon is having an announcement a week, as it relates to a new mega distribution center, and so as a result of that, they are close behind in terms of the fourth industry sector where our Guild members thought it would have most activity.
And then pulling up the rear is software and IT.
Patience: Rick, was there anything from this list of top industries that surprised you?
Rick No, not really. I agree with everything that Jay has said. If you think about as the supply chains realign and are rerationalized, all these things have products in conjunction with them that are in high demand, that we simply have to get to the market, and we are the market. And so, nothing really surprises me about that and about the demand curve on those products, if you will, that we have to now get delivered to our home or accessible in some way.
Andy: All right, guys, we’re gonna bring this home with kind of our final question area. In the survey, the consultants were asked to, sort of, look into their crystal ball for the next 12 months, on both office projects and manufacturing projects. And this was an open-ended question. We all know that the Guild consultants have a lot of different opinions, but, Jay, I’m wondering if you can summarize the Guild’s perspective on manufacturing projects, and you’ve touched upon this a little bit already. And then Rick, I’m wondering if you can take the other side of this and, sort of, do the same on office projects. So, Jay, manufacturing, what are Guild members seeing right now?
Jay: Great growth opportunity, optimism, the need for consumer demand, that we are seeing consolidations because of a number of companies that may not be able to make it financially. And so, you know, Darwin’s survival of the fittest mode kicks in, you’ll be swallowed by the bigger folks. But Andy, there’s a lot of optimism for manufacturing facilities, and I think it’s a big pond decision for all the economic developers that are listening to this podcast.
Andy: Rick, do the same for the office side of things. What’s the Guild perspective on that?
Rick Well, thank you. As clear and succinct and opportunistic as Jay is about the manufacturing side, the other side is just the flip side. There is a general consensus that office projects will remain on hold until there’s some type of understanding on what the office of the future will look like, how much space will be required, when people will go back to work, all sorts of uncertainties that cause companies to just kind of stop, look, and listen, if you will, before moving ahead with office projects.
Now, I think this will get sorted out over time, but for right now, there are many uncertainties and companies will be likely to avoid redeploying to high-rise office buildings in urban areas or traditional office configurations for a while. So, I think we’re on hold for a while for office space.
Andy: All right, we’ve kept this to a reasonable amount of time, and hopefully, piqued people’s interest to go on the Guild’s website, which is siteselectorsguild.com. If you go under the Research tab, you’ll see this new study, there’s and opportunity to download an infographic, a press release about the study, as well as the background on the study itself. So, I’d encourage you, if Jay or Rick, sort of, piqued your interest or more, to go there and check it out.
Two final items that I just wanna leave the group with, Jay, you can talk to this. The Guild’s Fall Forum is moving forward, September 21st through 23rd, in Richmond. I understand this is sold out?
Jay: It is indeed sold out. Frankly, I was a little surprised. I was hopeful. I didn’t know what to expect when we opened registration. Not only are we sold out, but we have a wait list of 29, and I would encourage those who might want to attend to still sign up to be on the waitlist, because undoubtedly, we’ll get some people to drop. You know, someone may be asking, how smart is it to even do a conference like this, and that’s a great question. And we’re following all the CDC, State of Virginia, and City of Richmond guidelines. We will require everyone to wear a mask. We will absolutely insist on physical distancing, but we’re still planning to have an outstanding conference that will be of value to our attendees, unless, of course, either the state or the city tells us that we can’t have the conference. That’s not the case now. We are limiting our attendance to 120, Andy. So, it will be done well, but it will be done safely.
Andy: Excellent. Good to hear. The other one I just wanted to promo is Rick, it’s nice to have you on the podcast because you are a podcast master yourself and the host of “Site Selection Matters.” You have completed, I guess, since starting this, 35 episodes, yes?
Rick That’s right. We just completed our 35th episode of “Site Selection Matters.” It will be uploaded soon and going live. It’s an interesting one. It’s on the topic of economic resilience as a location factor in this post-pandemic era, and I took the bold challenge of bringing together six of our site selection consultant members in a very deep and rich discussion of the issue of economic resilience and how well cities, regions, and states are doing or may do in responding to the pandemic.
ndy: Oh, I admire anyone who get six consultants to discuss together on the phone. Good work. Thank you both. Patience and I really enjoyed our time with both of you and we look forward to hearing more from the Guild and also attending the conference at Richmond, so thank you both.
Rick Thank you, all.
Patience: Thank you.
Jay: And thank you.
Patience: So that is a wrap on episode 68 of “The Project: Inside Corporate Location Decisions.”
Andy: We have to thank both Jay Garner and Rick Weddle for their time on the call with us. Again, if you were looking for more detail on the report, we direct you to the Guild’s website, siteselectorsguild.com. You’ll find an outline of the key findings, an infographic on the report, and a press release.
Patience: The Project is sponsored by DCI. We are the leader in marketing places and served over 500 different cities, states, regions, and countries. You can learn more about us at aboutdci.com.
Andy: We hope you’ll keep listening. There are many more projects to come.