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Episode 35 – Insights into Location Resilience as a Factor in the Post-Pandemic Era

Site Selectors Guild
Episode 35 - Insights into Location Resilience as a Factor in the Post-Pandemic Era
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Rick: Welcome to Site Selection Matters, where each week we take a close look at the art and science of site selection decision-making. I’m your host, Rick Weddle, president of the Site Selectors Guild. In each episode, we introduce you to leaders in the world of corporate site selection and economic development to provide you with key insight into the best and next practices in our profession.

This year, we’ve been on a bit of a roller coaster with the onset of the COVID-19 pandemic and the wide range of corporate and government responses. While much remains uncertain, one thing seems clear, how we assess corporate risk related to economic vulnerability and location resilience will likely be forever changed. As we work our way through this pandemic, important questions are being asked, how will companies assess risk? How will a given country, state, region, or city response impact the company’s view of them for future projects? Is this a situation that will eventually settle down and return to business as usual, or will we see an entirely new dimension of risk assessment? That’s the premise or question that will guide today’s discussion with our distinguished panel of professional site selectors and location advisers.

In this episode of Site Selection Matters, we have as our guest, Mark Williams, president of the Strategic Development Group, Angelos Angelou, founder and principal executive officer of AngelouEconomics, Von Hatley, managing director of Jones Walker Consulting, Jerry Szatan, owner of Szatan & Associates, Ken Maly, senior managing director for location strategy with Newmark, and Seth Martindale, senior managing director of CBRE. Together, this group of thought leaders will share their informed insights on how resilience will impact location projects in the future. Join me as we welcome this distinguished panel to Site Selection Matters.

Well, let’s get started with a question to Mark Williams. Mark, what are your initial thoughts on corporate risk assessment of economic vulnerability and resilience in today’s COVID-19 or post-pandemic environment?

Mark: Hey, Rick. You know, corporate risk assessment has been a critical part of site location analysis since the beginning of time. And part of any legitimate selection project involves analysis of all kinds of risks, general business risk, geotechnical risk, labor risks, weather risks. There have been so many over the years and some clients are more concerned about certain risks than others based on their operation. And COVID-19, from my perspective, really lays out two new layers of consideration in terms of corporate risk. And really, the first is I think is going to be a tendency to more capital intensity and automation. As we know, there’s a great deal of concern about employees, the proximity of employees working next to each other. And I really think that’s going to be a permanent risk, an ongoing risk, something that’s going to be considered. So in the midst of automation, it was occurring. I think it’s going to accelerate because that’s an element of the COVID-19 risk.

The second thing is the community risk. And I think the Tesla example you may recall that for us from a month or so ago where Tesla in Fremont, the community didn’t want Tesla to restart operations. And I think companies are going to increasingly evaluate the business climate of communities and how they react to adverse situations like this. So I think companies are going to be looking at COVID from the proximity of employee risk and also this community risk.

To close, Rick, you mentioned resiliency. And what I’m seeing is kind of interesting. I’m seeing several communities, and I was in one yesterday, traveling yesterday, and there a number of communities that have grasped the COVID environment and are structuring incentives and other inducements in order to try to take advantage of the COVID-19 situation. So, I see that as resiliency. I see that as something that’s going to be attractive to companies. So I guess again, in closing, in terms of corporate risk, we need to understand whether they’re prominent risks or they’re temporary risks. If they’re prominent risks, then companies are going to adjust for the long-term. If they’re temporary risks, then it’s more of a short-term exercise.

Rick: Very interesting, Mark. We’ll come back to some of those in the lightning round. That’s very interesting. Let’s turn now to Angelos Angelou. Angelos, how do you see location resilience from your perspective, as a factor, and what difference do you think it might make in future business and industry location decisions?

Angelos: Well, Rick, thank you for having me in this podcast. Good morning, everyone. From my perspective, decisions on site selection are always long-term, not because of a short-term emergency situation like we have today with the pandemic. So sooner or later, every state, every city in the U.S. is going to see the brunt of COVID-19. And not everyone started at the same page, but as we are seeing today, states that were reasonably comparing to other states in the cases and the spread of COVID-19 now are having some of the highest growth rates of the spread of COVID. So, from a long-term perspective, I think decisions are not going to be influenced. Short-term, honestly speaking, every employer, wherever they may be today, they are being affected by COVID, and have taken measures, either enforced by the state or the local communities for whether they should be open and how much of business activity should be opened up.

So my take is that when I evaluate resiliency, location resiliency, I’m looking at it, not so much as how each community and state is still dealing with this pandemic, but rather, whether they have the act together and a strategy on how to come back once the situation has been dealt with. From that perspective, obviously, there are states and cities that have done an exemplary job in terms of dealing with this pandemic and others that have not. As a nation, we have not done a good job. So would that make the U.S. less attractive compared to other locations internationally? I don’t think so. Because the U.S. still continues to be the number one desired place for foreign direct investment for many, many reasons other than just how we’ve handled COVID-19. So longer-term, there’s no implication, shorter-term, I think the implications are not so much as related to location resiliency, but rather how decisions are being made today, whether it’s for expanding or contraction of employment because every private-sector company that I know is dealing with this pandemic wherever they may be. So plans for expansion or relocation, I think, have been curtailed significantly.

Rick: Interesting, Angelos. Thank you very much. What an interesting perspective. Good to know the U.S. is still going to be a competitive location. I know that Von Hatley has done a lot of work on industry clusters and how they impact a region’s competitive position. Given that point of view, Von, how do you see a region’s response to the pandemic impacting its ability to attract new business investment?

Von: Well, thanks for having me on the call today, Rick. You know, I believe a region’s ability to attract new business investment over both the short and long-term is going to be reflected in how they were able to respond to the pandemic in a myriad of ways. One of the fundamental characteristics of a cluster-centric regional economy is that the companies, along with their service providers, be it educational, legal, financial, or otherwise actively engage and communicate with each other to identify, address, and resolve common problems. The lessons we’ve learned here directly correlate to the lessons we can learn from the pandemic. You know, while many things can be said about COVID, one thing is for certain, it has created a common problem that we’ve all had to deal with in both a personal and business level. So given the fact that now requires us, as site selecting consultants, to ask the salient continuity of business and care for your community-related questions necessary to support our compliance to decision matrix. What we’re seeing, and we’ll be asking in future aside evaluations, are questions in three areas. Which are, how did your region initially address the pandemic? How have you been communicating since then? And how will you be responding towards recovery and an ultimate return to the new normal?

So here are some good answers. For education, what I’ve seen is some local school boards were able to literally, within two weeks, go completely online in delivery of content at the public school level. Laptops were already in the hands of the majority of the students. And for the ones that had inefficient connectivity, hotspots were added by the thousands and pop-up data centers were created to support the effort. You know, for businesses, some regions have been able to quickly mobilize their banking and financial community to set up and support companies to receive and support from avenues such as the CARES Act. But in addition, the legal community has been able to publish back-to-work information that companies need for guidance on both changing laws for best practices on how to introduce workers back into the workplace. And so the region’s ability to form the basic blocking and tackling to the response is important.

The questions we want to have answered are ones such as, how did you reach out and communicate with your largest employers? Did you provide examples of how they’ve worked together in unique ways recently to solve pandemic-related issues? How has the coordination between the service-related businesses been achieved? And how has this information been disseminated to both the business community and the general population? And all these questions will likely be asked and evaluated in the next few years when performing site location analysis. So, if you’re proud of what your region has been doing, it will likely be highly evident to exemplify the examples of your successes and the stories we’ll be asking about and want to be hearing from.

Rick: It’s very interesting. Thanks, Von. We’ve been talking a lot about general resilience. And now I’d like to switch and get Jerry Szatan’s take on specifically what it takes to make a region competitive and resilient. What about human capital, how can it be repurposed in response to such economic shocks? Jerry, what are your thoughts?

Jerry: Good morning, Rick. It’s a pleasure to be on the call. The economic impact of COVID-19 generally and on jobs has probably been the biggest of any event in our lifetime. It’s changed jobs and how people are working in many, many ways. I’ve heard people say, and Mark alluded to this a moment ago, that crises tend to accelerate trends that are already going on. So, when you think of what COVID has done, many, many people have lost their jobs. Some of those jobs are going to come back, hopefully, fairly quickly as economies reopen. Others are going to take a while. More people are going to be working remotely in the years to come. How many, you know, remains to be seen. There’s a lot of speculation that certain industries will tend to reshore in the coming months and years, medical equipment and others that are now seen as critical. So all of those are going to change the job market in one way or another.

I think one of the key characteristics of a resilient region is the ability to retrain people, to upscale people as needed. For those people whose jobs have gone away and are unlikely to come back, the question is, well, what can they do next? You know, at the same time, of course, new jobs are being created. Yesterday, Amazon announced two new distribution centers in Chicago south suburbs. I think each of those is a couple of million square feet. So obviously, those sorts of skills will be in demand. The training infrastructure, the ability to retrain, the ability to help people upscale is not only something that’s important for resilience, it’s what communities should have been doing all along in order to support long-term growth. So, I think strong regions will still have good basic education, good training infrastructure, and ability to attract talent, they’ll be able to partner with appropriate institutions to provide training, and so on.

Rick: Very interesting. If you’re good to start out with, looks like you might still be pretty good in this process. Let switch gears now, if we can, ask Ken Maly how the pandemic and subsequent business and supply-chain disruptions, and even geopolitical risks are impacting site location. Ken, has this changed your views at all on location resilience as a site factor?

Ken: Yes, definitely. Thanks for having me, Rick. Good morning. A couple of different ways to break down thoughts on this, short-term and long-term, as several others have mentioned. You know, we work for a lot of large global corporations with multiple offices, or locations, or facilities. And we’re working with them to develop dashboards and metrics at the local level around each of those locations to try to figure out when they can reopen. So there’s the short-term resilience in how these communities are reacting to COVID is dictating which of these offices can be reopened. And, you know, as, you know, a lot of them are having reduced demand, and those that are having the most trouble getting back online, you know, they could be in risk of never opening. So, that’s something short-term.

But in the long term, we’re really looking at this along with the trade wars, the USMCA as another trend that is really kind of pushing the trend towards breaking down these large global supply chains. A lot of our projects that we’re currently working on are expanding into regions that they hadn’t been before because they were serving it from one global location or either one U.S. location. So we have companies putting locations in Asia to serve their Asian demand. The reverse, even more, Asian companies coming to the U.S. to serve U.S. demand in North America. And then U.S. companies that had always served the whole U.S. in one location are now, say, building a western region or an eastern region to further break down those supply chains. So more and more, we’re seeing that our clients are trying to win business, not just on cost but on their proximity to the final customer and their ability to control supply-chain risk.

Rick: Very interesting. You know, I have to believe all these changes combine to create a whole new set of real estate-related risk. Let’s ask Seth Martindale about his views on how these impacts might affect the situation and what advice he might be giving companies going forward. Seth, what do you think?

Seth: Thanks, Rick. I appreciate you having me. You know, I think you have to break it up into, you know, two classifications. Generally, you talk about office and you talk about industrial. You know, I think some of the things in the office side are almost going backwards. You know, when you had an office location that was easily accessible from public transit, that usually was a good thing. You know, maybe you had less parking. You know, now that might be the opposite. You want to be able to drive your own car into the office. Previously, you might’ve wanted to be on a high-rise floor of a tall office building for great views. Now that makes actually getting to your office difficult because you got to wait in line for elevators because you can only have a certain amount of people in elevators. So I think those things are sort of interesting. And, you know, the COVID pandemic has definitely pushed those in a different direction.

Some other things that I think are important just from the office side is, you know, how much collaboration space do you have? You know, how close or how far apart can you get your people? Are you collaborating with other people in the building? You know, are there any outdoor areas? And I think, really, one of the big ones that we’ve been hearing a lot about is just the airflow infrastructure, the HVAC infrastructure in the office. How much is the air recirculating? How much of the outside air is getting brought in? You know, that’s become really become important too. So, you know, a lot of those things, people kind of glanced at before, but I think now they’re paying much more attention to.

The other thing that I thought was interesting is just, I’ll just probably caveat this and say I’m probably more optimistic on this than most people but, you know, and I think some of these may not be issues in the long term but, you know, proximity to food and proximity to hospitals for your office, you know, that’s always been something that’s come up lately. And then it was mentioned earlier, but the regulation of just, you know, are you in a Republican state, are you in a Democrat state? What are the potential issues associated with regulating your office?

I’ll just flip real quick and just say on the industrial side, you know, a lot of those things are the same. I think the big one though is you’re going to have… You’ve always had the infrastructure reliability question as, you know, can you get power? Can you get gas? Can you get water? Can you get wastewater? But I think there’s sort of a newly formed focus on that, that if, you know, half the workforce is out, are you still going to be able to be up and running? So, I think, you know, your risk tolerance has almost gone down given the situation. So, you just want to be as less risky as possible, and as much as you can sort of diversify those risks over your portfolio.

Rick: Very interesting, Seth, very interesting. You know, when I’m talking to Site Selector Guild members, it’s a little bit I’m reminded, it’s almost like drinking from a fire hydrant. We really have covered a lot of territory, have a lot of information out here, a lot of topics on the table. In the time that we have left, let’s open the discussion up a bit in somewhat of a lightning round to see what our panel thinks of each other’s insights and predictions or comments. Let’s go back and start with you, Mark, any further comments?

Mark: Yeah. I’ve been thinking as my colleagues have been talking, all great points, very interesting, lots going on. You know, it may be a tired analogy, but this is a big forest fire. And my take on things, especially in the U.S. and really globally is forest fires are going to happen. There’s going to be some destruction and real problems. We’re seeing this from an economic and health perspective, but already, we’re seeing companies and their strategies and selection decisions, we’re seeing winners and losers. We’re seeing companies adapt. And I’m just really confident that, although this has been a difficult time and will remain so for a while, we’re going to emerge from this with, you know, new strategies, new parameters, new ways of doing things. And that’s what’s exciting about our business always is we’re advising companies as they have to navigate this forest fire and regrow after it. So it’s an exciting time. All the points made by my colleagues are well taken and I know we’re going to do well together.

Rick: Angelos, your turn.

Angelos: I think COVID has changed the way businesses have been contracted forever. They will not be going back to normal. There will be a new normal. There will be a lot of impacts on commercial real estate, particularly for major technology companies who have now have had the experience of having people work out of their home, and are going to continue having the people work out of their home. Here in Austin, we’re looking at maybe up to 30%, 40% of the space of major technology companies will go back into the market. So, there will be a substantial sublease market. If we knew how to deal with COVID-19 from the very beginning based on what we know now, we would never have shut down the economy. We would have been testing every senior citizen center. We will be testing everyone over 55 years old because that’s where the risk factors are as well as testing people with underlying conditions that make them more vulnerable. But what it is, it is now, what I can simply say is no matter what happens at this point in time, the economy cannot afford to shut down itself again. It will stay open. We will go through the consequences, whatever those might be. Because the cost of shutting down the economy has been tremendous and another shutdown, it might have some significant damage to the economy long-term and its prospects for recovery.

Rick: Looks like we’re going to learn a bit as we go. Let’s hope we do because it’s going to be with us for a while. Let’s throw the ball back over to Von Hatley right now. Von, your turn.

Von: Yeah, I think there’s two things that I’m taking away from this call. One of them is, you know, there’s a new transportation mode, it’s information technology. Although it’s always been around, I think the ability to be able to communicate with both your educational system and your work-from-home community is going to be every bit as important as the roads, or the rails, or the bridges that are going into and out of your community. And then the second thing is that all of the workforce studies that economic developers have are probably out of date. Since we’ve had such an upheaval in the employment situation across the United States, I would begin to think and look at, you know, what is your new workforce look at? What are the gaps? And what are you doing to try to address most of your existing community needs? But then again, the needs for new companies looking to invest in your area.

Rick: Very interesting. I think there’s going to be a lot of workforce changes as we look at it and all the changes there. Jerry, that’s right in your lane, comments?

Jerry: Yeah, well, first I just wanted to underline Mark’s earlier comment about the ability of the economy to adjust. We are fortunate to have an innovative and flexible economy and it will adjust. The question is how, and in what direction? You know, to Seth’s point about real estate, people have made the argument that, well, if more people are going to work remotely, then companies will need less square footage. On the other hand, if those people still in offices are going to be increasingly socially distanced, then they’ll need more square footage. Well, which of those two is going to dominate? Who knows? And so, I’m going to come back to that old tried and true site consultant caveat about uncertainty. Yeah, we’re going to adjust. How exactly, remains to be seen. And with more uncertainty, I think even if we see a lot of site selection activity, there will be a bias toward decisions being delayed until things look a little bit clearer.

Rick: Fascinating. Uncertainty is always the hard part of everything. Ken, you’ve talked about data and information, maybe helping companies guide in metrics and things of that sort. Do you want to have a comment or so?

Ken: Well, going back, thinking of some of the colleagues’ comments here, especially about automation and supply chain risk in the industrial sector, I was just going to say that, you know, I’m always thinking of the economic developers and how they’re going to adjust. And I think it’s an exciting time for economic developers, especially in, say, smaller communities that maybe haven’t had a lot of opportunities before because what we’re seeing is a lot of companies that, say, would have never left their region, they would have never left Asia, for instance, coming over. So instead of just the big assembly plants, you’re getting a lot of more companies further down the supply chain. And others have mentioned automation, as these factories become smaller, more regional, more automated, you know, they can survive in locations with smaller workforces. They can survive in locations that have more competitive labor environments, and they can work in locations that don’t have global transportation infrastructure. You know, they can be a more regional location. So that was my thoughts, an exciting time for economic development and maybe a lot of new targets.

Rick: Can I change the relative weight on some of these things, as size matters, but differently in different things as the circumstances shake through that? Seth, let you close it up.

Seth: Appreciate that. You know, I think one of the things that my colleagues referred to earlier that was really interesting is, you know, what can the communities do given the situation? And I think, you know, stressful times really show those people that are doing things really well, right? And I think communities that can take the situation and sort of adapt to it have shown that they can adapt to this, they can adapt to anything, right? So we’ve seen some communities and states across the country that have been able to go quickly to virtual meetings or virtual approvals. You know, some communities that have allowed for permitting virtually and, you know, I think those sort of things, I don’t know that it’s affected the ability to get those permits done, but the fact that they had already figured a way to get it done is really the important thing. I mean, if they can figure that out, then I think they can figure out the multitude of problems a company might have over their lifetime.

I think the other thing that’s actually interesting, you know, I think things were already going this direction is from the politics side is just, I think it’s going to be interesting to see sort of what the oversight of the various states and communities look like. You know, the reference to Tesla earlier in California. I think companies are going to be concerned. And it’s not just necessarily the COVID pandemic, but how much power does a governmental entity have on closing you down and keeping you open? Are they working with you or are they working against you? I think that’s probably going to bubble up a little bit more in terms of the weight associated with that in the site selection project. So, definitely interesting times, but I think we’re definitely starting to see who the strong winners are across the country and who’s having a little bit more trouble.

Rick: Interesting times. What an interesting discussion today and one that gives us a lot to think about going forward. But that’s really all the time we have today. So let me say thanks to our panel, Mark Williams, Angelos Angelou, Von Hatley, Jerry Szatan, Ken Maly, and Seth Martindale for taking time to share their collective wisdom and insights into this important site location issue.

Angelos: Thank you, Rick.

Seth: Thanks, Rick.

Jerry: Thanks, Rick. Good talking with you all.

Mark: Thanks.

Ken: Thank you, Rick.

Rick: Thanks for listening to this episode of Site Selection Matters. And a special thanks today to our panel for sharing their insights and outlook on just how economic vulnerability and resilience will impact the site location business in the year ahead. What a truly interesting discussion. Again, I’m Rick Weddle, president of the Site Selectors Guild. This podcast episode presents my views and the views of my guests and does not necessarily represent the views or opinions of the Site Selectors Guild or its membership. We hope you’ll subscribe to the Site Selection Matters podcast on Apple Podcasts, on Stitcher, on Spotify, or wherever you listen to your podcasts. We look forward to bringing you some great discussions in the year ahead. Until next time, good day.