What Impact Will The New NAFTA Have On Commercial Real Estate In Georgia
It’s no secret that the original NAFTA deal had several negative ramifications to commercial real estate throughout the U.S. While the auto industry was mostly affected in northern areas the southern states saw negative changes related to agriculture exports, textiles, and other manufacturing. As a broker that handles a large amount of office and industrial real estate I was excited to read the details in the new agreement, called the United States-Mexico-Canada Agreement or USMCA. Easy to remember for any Marine. It’s just USMC with an “A” on the end.
There has been a lot of news and speculation on how the new trade deal will affect U.S. industry. The auto industry and agricultural sector will clearly see the most gains. For several decades manufacturing plants have closed and dotted our cities with vacant buildings. Often these buildings could not easily be put back into use. Some cities wisely adapted and converted those sites to distribution facilities. Distribution and logistics were the big winners from the original NAFTA deal as there were needs to accommodate products and supplies flowing back and forth between the three countries. Currently, the southeastern United States’ landscape remains blotted with a large number of vacant manufacturing facilities. There is no question that over the last 12-18 months there has been new demand for these sites. I am hopeful that this new deal will bring extra demand to fill those sites and create the need for more growth.
Here are the reasons four why I am optimistic for Georgia in particular.
- Distribution and Logistics uses are going to see increased demand. There is no question on this and all experts agree this will happen. With the port expansion in Savannah we already have tremendous demand and the USMCA will only continue to drive demand in that sector of in our state.
- The auto industry just won a massive victory. Look at what is in the southeast now. The Kia Plant in West Point Georgia, Honda-Hyundai-Mercedes all in Alabama, Volvo and BMW in South Carolina. The south has cheaper non-union labor and as the auto industry continues to expand some of that growth has to naturally happen in the south. In particular the parts suppliers are going to see huge gains from this. The actual manufacturers will see gains as the structure of this deal makes it harder for overseas countries to compete with Mexico and Canada due to shipping costs on parts that have to be purchased from the U.S. There is some criticism that the requirement that higher wages be used for labor on assembly in Mexico and Canada will drive manufacturing overseas but I really don’t see that happening. What that will do is force manufacturers to stay in the United States where wages are already higher. It disincentivizes companies from outsourcing American labor jobs to cheaper markets such as Mexico. The agreement stipulated no tariffs on vehicles also which will again drive more and more jobs to North America instead of overseas.
- Agricultural businesses are going to see big gains also. Particularly in the dairy industry. Its estimated around 10% of dairy farms in the U.S. shut down the last 12-16 months. This is largely because we produce a large surplus of milk and cheese in the U.S. The new agreement allows us to ship more to Canada tariff free which is a huge win to the U.S. agricultural market. Canadian farmers are not happy about the deal but there has to be a winner and loser on each side of each point. The U.S. dairy farmer clearly won this deal. Poultry and eggs exports are also a huge win. If you don’t think Georgia’s economy will see an impact from the new trade deal think about these facts.
- The industry contributes over $1 Billion to Georgia’s economy every year
- Georgia is consistently among the top 5 states as far as production of chickens in the U.S.
- Poultry contributes over $4 Billion to Georgia’s economy every year.
- The steel tariffs stayed in place. I know a lot of real estate people were afraid of the steel tariff. In general construction costs related to steel have not seen a huge change. I believe that this will continue to be the case and will create more steel related jobs in the U.S. While that may not affect the southeastern states directly it is good to see that development costs related to steel have not changed as many predicted.
The big winners in this new deal are going to be industrial properties and agricultural businesses. There are many other nuances in the deal that will positively affect the office market but the main direct impact to the office market will come from the industrial sectors expansion. We should start to see more automotive related manufacturing, logistics-warehousing operations, and expansions in the agricultural business in our state. It’s an exciting deal for Georgia and we have a lot of reasons to be optimistic.