Evolution of manufacturing – adding complexity, creating opportunity

Many European real estate investors and developers have traditionally shown limited interest in manufacturing as an economic activity and driver of real estate demand. This is partly explained by the perception that manufacturing has been in relative decline in developed countries and also by the fact that major manufacturers have tended to develop and own their own specialist facilities. However, as our latest research report highlights, there are now a number of forces that are accelerating the pace of change in manufacturing. The result? New and different demands for real estate along the whole manufacturing value chain.

Rapid developments in digital technology are one of those key drivers. While 3D printing is still very much in its infancy, it has the 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; and instead of large bespoke factories, 3D printing is likely to create demand for more standard small and medium sized buildings. See infographic.

However, while 3D printing grabs the headlines, there are other changes taking place in manufacturing that are having an impact on real estate demand today. One is the need to serve markets, with more responsive and agile supply chains. This often requires manufacturing locations in proximity to key markets, along with suppliers and supporting logistics infrastructure.

Some manufacturers are reconsidering their decisions to offshore production in light of changing economic conditions. What were relatively low-wage countries have lost some of their cost advantages in recent years. In response, some manufacturers are moving operations back to Europe, while others are contemplating hybrid strategies that will site production in both developed and emerging economies. These location decisions are also being influenced by a heightened awareness of how vulnerable supply chains can be to sudden shocks such as natural disasters.

Taken together, the interplay of these different drivers of change is dynamically reshaping the manufacturing landscape in Europe.  These changes are making the location decisions of major corporates more complex; but are creating new opportunities for developers and investors.  Read more in Evolution of manufacturing.