What's Behind the Recent Rise in Auto Plant Development Photo: Bill Pugliano/Getty Images

What's Behind the Recent Rise in Auto Plant Development

Two major trends—the “reshoring” of manufacturing from overseas back onto U.S. soil and the technology sector’s jump into electric and self-driving cars—are revitalizing automotive-based commercial real estate.

From 2000 to 2014, there were virtually no new auto plants constructed in North America, with most development in the sector centered in Asia and Central/Eastern Europe, according to a recent Colliers International report.

Fast forward to 2015, and almost one-third of the world’s new auto plants under construction are in North America, with large growth in Mexico but also a resurgence in the United States. Automotive CRE experts say the Big Three are adopting a policy to locate plants near U.S. customers, allowing them to streamline processes and reduce costs and product development time. This movement is coupled with the new technology-driven advancements by West Coast-based electric vehicle makers.

For example, Nevada has become a hot site for electric car production. Palo Alto-based Tesla Motors is building a $5 billion lithium-ion battery factory dubbed “Gigafactory 1” near Reno. Competing electric vehicle firm Faraday Future, which includes former Tesla employees, recently announced it has selected a site in North Las Vegas for a $1 billion, three-million-sq.-ft. assembly plant. Both sites attracted more than $340 million in incentives from the state, which is a strong national competitor for new manufacturing facilities.

Cushman & Wakefield’s Andrew Mace, who with Alexander Frei led the site selection process, says Faraday evaluated more than 100 properties in 10 states and Mexico, but ultimately decided to tap into the tech knowledge of the West Coast.

“They’re based in Los Angeles, so they wanted to be close to that if they could, and they wanted to be close to West Coast ports,” Mace says. “Also, much of car production today is technology driven, and the West is where the talent is. Many auto companies, especially the suppliers, now feel they need to establish a presence there.”

Just in the past couple of years, General Motors, Honda, Nissan-Renault and Mercedez-Benz have opened offices and engineering laboratories in the San Francisco Bay area, and Ford opened a research center in Palo Alto at the beginning of this year.

That’s not to say that Michigan is losing its manufacturing luster. While the recovering bankrupt city has epitomized the Rust Belt, Detroit has rumbled back to life with manufacturing job growth, with 17,200 new employees hired in 2014—almost three times more automotive hiring than all other U.S. markets. Industrial vacancy is down to 6.7 percent in Detroit, a 20-year low, according to a third quarter Newmark Grubb Knight Frank report. Many of the 23 new development projects in the city are automotive related, including a 190,000-sq.-ft. logistics center for Chrysler and a 150,000-sq.-ft. manufacturing facility for YFS Automotive Systems Inc.

Mace says the West Coast still lacks a strong manufacturing worker base and available land. It’s much easier to find former unused plants to reopen in the Midwest, or available property in the Southeast, he says. Cities in the South have become big draws for new automotive plants. Six Southeastern states now produce about 3.9 million of the total 11.4 million cars built in the United States, according to a Cushman report.

In South Carolina, for example, Volvo Car Corp. broke ground this year on a $500 million factory in Berkeley County, its first U.S. manufacturing plant. Charleston is getting a new $500 million Mercedes-Benz factory to build Sprinter vans. Both projects promise to bring about 5,300 new jobs, according to Colliers.

“The automotive industry has been very robust, adding back capacity downsized from the recession and in reshoring plants back to the United States,” Mace says. “The new capacity is a big draw for all auto-related companies, and promises to expand development and jobs in 2016.”

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