Key Considerations for Manufacturing Facility Site Selection

Zeroing in on the right site can make or break high-stakes manufacturing projects.

In recent years, the United States has witnessed a resurgence in large-scale manufacturing projects ranging from electric vehicle factories to heavy industrial plants. These high-stakes investments are reimagining what American manufacturing can become in the 21st century. But a significant challenge accompanies such ambitious projects: selecting the right site.

It’s no longer just about finding available land; it’s about navigating a complex web of incentives, negotiations and logistical considerations that will determine whether these projects succeed or fail.

International companies such as Samsung, TSMC, SK and LG have joined U.S. domestic players in considering the support they could receive from state and local governments in the form of cash incentives, tax credits and workforce development when selecting sites for their U.S. manufacturing facilities. These companies negotiated attractive incentive packages that will help offset some of their initial capital investments and support local workforce development.

For instance, the Arizona Commerce Authority and the city of Phoenix provided a comprehensive incentive package for TSMC’s new semiconductor fabrication facility in the state, including income and property tax exemptions, as well as infrastructure support. Additionally, TSMC’s Arizona facility will benefit from workforce development programs offered by the Arizona Commerce Authority to recruit and train workers for high-tech manufacturing jobs.

State and Local Incentives

When selecting a site for a major manufacturing facility, economic incentives are often as critical as securing financing or advanced technology. Companies typically evaluate potential sites for large-scale projects across several states to identify the most competitive option. State and local governments have become increasingly proactive in courting large manufacturers, offering attractive tax breaks, grants and credits to entice companies to choose their regions. These incentives, designed to offset some of the up-front costs of developing land and constructing a facility, range from property tax abatements to sales tax exemptions and income tax credits.

States with active Opportunity Zone programs created in the Tax Cuts and Jobs Act of 2017, for example, aim to foster economic development in historically underinvested areas, making them even more appealing for manufacturers. For instance, Arizona has benefited from the growth of the automotive sector with companies like Lucid Motors and Nikola Motor Company locating in Casa Grande. Accounting for roughly 12% of the landmass of the country, Opportunity Zones are in all 50 states. Notably, the increase in U.S.-based fabrication plants, such as those for semiconductors, where Texas has benefited from dedicated Opportunity Zone funds, is key to increasing manufacturing output on a global scale. The U.S. currently ranks in the 50th percentile in this measure.

As valuable as these incentives are, they come with their own set of challenges. Navigating the maze of available tax benefits across different jurisdictions can be daunting. Tax incentives come in various forms, each with differing qualification criteria and long-term implications. Comparing these diverse offerings to identify the most advantageous package often requires thorough analysis and expertise. Manufacturers must assess whether the offered incentives are sustainable over the long term and whether they outweigh the cost of compliance. Furthermore, the incentives need to align with the company’s goals, and companies must ensure they meet the requirements to qualify.

Factors Beyond Tax Breaks

Negotiation in the context of site selection isn’t just about securing tax breaks; it’s about finding a win-win scenario for all stakeholders. Effective negotiations consider not only the incentives but also the underlying infrastructure, workforce availability, and proximity to customers and vendors — all critical elements in a project’s long-term viability. For instance, while some states might offer more attractive tax incentives, they may not have the workforce or infrastructure to support a large manufacturing plant. Conversely, a state with a well-established industrial base and a skilled workforce may offer fewer tax incentives, but the savings in operational costs and logistical efficiency could outweigh the more robust incentives offered elsewhere.

In successful case studies across the automotive and renewable energy sectors, for example, companies have worked closely with state and local officials to identify areas where the project could provide mutual benefits, such as investing in regional infrastructure, improving transportation networks or creating workforce training programs. Such collaborations make a project more viable while also ensuring the community is prepared to handle the long-term changes the facility will bring.

Workforce Training

Access to a skilled labor pool is crucial for successful projects. During site selection, manufacturers must evaluate both the current availability of skilled workers with the necessary expertise and the potential for workforce development.

While some state governments offer workforce training programs, not all are effective. Additionally, companies in cutting-edge industries often hesitate to disclose specific training needs due to propriety concerns. Even when shared, program developers and trainers may lack the technical expertise required, resulting in inadequately trained workers.

Successful site selection is especially relevant in industries like electric vehicles or advanced manufacturing, where a combination of technical know-how and specialized skills is required. This often involves collaboration between companies, educational institutions and workforce training programs to ensure that the local labor force can meet the plant’s demands. In many cases, this might involve creating new partnerships with local community colleges or technical schools to provide specialized training programs that align with the manufacturer’s needs.

Environmental Issues

Another important consideration is the environmental impact a large-scale manufacturing plant will have. Companies must ensure their projects will comply with local, state and federal guidelines concerning sustainability and the environment. This requires navigating a complex array of environmental laws and mitigating any adverse effects a project’s construction might have on surrounding ecosystems.

One of the more significant challenges is managing the construction’s environmental footprint, including water and air quality, as well as waste management. For manufacturers, addressing these concerns is not just about compliance; it’s about safeguarding their projects’ long-term viability. Communities are more likely to embrace new manufacturing ventures if they see that these operations will contribute to, rather than detract from, environmental sustainability. In some cases, this may mean adopting new technologies or adjusting designs to minimize environmental harm.

Unlocking Manufacturing’s Potential

Selecting the right site for large-scale manufacturing is a multifaceted process that involves far more than just choosing an available plot of land.

As the U.S. continues to rebuild and reshape its manufacturing base, companies, local governments and communities can work together to unlock the full potential of these high-stakes projects. By collaborating effectively and addressing key challenges — whether through negotiation, leveraging incentives, or managing environmental and workforce concerns — large-scale manufacturing will remain a powerful driver of economic prosperity, job creation and community revitalization. 

Liz Demaree is a senior policy adviser with law firm Nelson Mullins in Washington, D.C. Woojin Shin co-chairs Nelson Mullins’ Economic Development Practice and Industry Group and is a partner in the firm’s Washington, D.C., office.

Manufacturing Multiplier Effects: Impact on CRE Newmark’s August 2024 report, “Manufacturing Momentum: From Construction to Production,” revealed that various automakers have invested $44 billion in new electric vehicle (EV) factories or expansions of existing facilities since 2020. This investment has resulted in over 60 million square feet of new production space. In addition, there has been significant demand for related logistics and manufacturing, with another 50 million square feet of EV-related industrial space already recorded across five states during the same period. This figure is considered a conservative estimate. Plans are underway for a $7 billion development project in Phoenix described as a “city within a city.” Known as Halo Vista, this project will surround a manufacturing complex developed by TSMC. The project will encompass 2,300 acres and provide over 28 million square feet of mixed-use development capacity. This will include up to 8,960 residential units, along with industrial, retail and office spaces, according to Newsweek.

Relevant Reading In February 2024, the NAIOP Research Foundation published “Forging the Future: Manufacturing Growth and Its Effects on North American Industrial Markets.” The report, authored by Lisa DeNight and Liz Berthelette of Newmark, examines the trends behind reshoring and nearshoring and evaluates how related investments in manufacturing are affecting North American markets for industrial real estate’s two largest components: warehousing/logistics space and manufacturing space. Download the report at naiop.org/research-foundation.

• Magazine Article
• Tax
• Site Selection
• Manufacturing Facilities