nvestors, developers, and local officials share an interest in understanding the demand for industrial space. Too much space and their revenues and tax base suffer, too little and tenants face the pinch of overly high costs and state and local competitiveness suffers. To better understand the future demand for space from Texas manufacturers, it’s essential to examine industrial trends and prevailing market conditions.
The State of Manufacturing
The demise of American manufacturing has been overly exaggerated. From 2019 to 2024, the economic output and employment truth is more nuanced. For instance, the total dollar value from manufacturing continues to grow. The inflation-adjusted economic output of manufacturing is up 1.4 and 3.3 percent in the U.S. and Texas, respectively. National manufacturing employment saw a small 0.5 percent increase, whereas in Texas, jobs are up a healthy 8 percent. Statewide, total employment growth has been two-and-a-half points higher than manufacturing. Recently, manufacturing has accounted for about a quarter of all industrial space absorbed, with distribution accounting for the bulk. Still, this industry has an outsized impact on state and local prosperity.
These firms employ a variety of workers at various skill levels, including many good-paying jobs that do not require a college degree. Nationally, average wages for production workers are comparable to non professional office jobs and exceed those for health support roles and retail. These firms can also have spillover effects as new manufacturers can attract suppliers or customers to the region. This deepens and enriches the local supply chain for the industries in question. The diversity of manufacturing processes means meeting the industry’s space needs is more complicated than just supplying a warehouse shell.
Growth Trends in Manufacturing
Demand for manufacturing space depends on growth in the industry. Figure 1 presents results when manufacturing operations are separated into 13 subsectors. All major manufacturing sectors in Texas are adding jobs (vertical axis) and most have increased the value of their economic output (horizontal axis). Figure 1 also shows consolidation trends across subsectors. Red subsectors have seen faster growth in the larger size establishments, implying consolidation into fewer, larger sites. Blue industries have seen faster growth in small size establishments, implying diffusion of activity across sites.
Since more establishments mean more space needed, establishment growth by subsector is a key indicator. Figure 2 reveals this in compound annual growth rates (CAGR). Three subsectors grew by more than 2 percent. Food led the way, followed by electrical equipment, and non-metallic minerals. Three subsectors grew between 1 and 2 percent annually. These were furniture, petroleum and chemicals, and machinery manufacturing. Two subsectors were essentially flat: wood and paper, and textile and apparel. Finally, three subsectors saw a net decrease in establishments: computer and electronics, “other” manufacturing, and primary metals.
Relative sector performance depends on many factors. Some important ones include level of automation and capital investment, economies of scale, and financial logic driving a subsector’s merger and acquisition activity. Texas’ relative competitiveness versus other states, and the competitive position of regions across the state in their talent, infrastructure, and business ecosystems also matter. Any forecast of space demand should consider these circumstances.
Manufacturing Size and Demand
Manufacturing establishments come in a variety of sizes. This influences demand for different sizes of industrial spaces. Future manufacturers will need a mix of products in multi-tenant and single tenant varieties. Figure 3 presents important insights into establishment size. First, 90 percent of establishments are small, employing fewer than 20 workers. Second, the largest establishments, those with 100 or more employees, account for the majority of manufacturing jobs at 59 percent. Third, manufacturing is adding small establishments at a faster rate than the larger size firms.
How Much Space Do Manufacturing Workers Need?
With subsector growth rates and establishment size trends in hand, the final element essential for understanding manufacturing space demand is space per worker. Figure 4 presents estimates of average square feet leased per employee based on a large sample of CoStar leases across Texas. Subsectors with more space per worker can be considered low job density industries. The lowest job density sub – sectors are for bulk or continuous process industries such as non-metallic minerals (glass, clay, etc.), primary metals, and petroleum and chemicals (including plastics). High job density implies less space per worker. Four subsectors show approximately 550 feet per worker, including metal products, food, computer and electronics, and transportation equipment. These produce relatively complex assembled products that employ extensive automation.
What is Projected Total Manufacturing Space Demand?
The Texas Real Estate Research Center’s projection of annual manufacturing space demand in Texas factors in recent industry trends and expected macroeconomic conditions through 2026 (see table).
About 21 million square feet per year of manufacturing space is demanded. This includes numerous small spaces and far fewer very large spaces. The smallest size category can absorb about 2.7 million square feet each year. Much of this can be accommodated in flex buildings or even small warehouses or garages. Medium-sized manufacturers will require about 2.3 million square feet. On average, these establishments can occupy about 52,000 square feet. A mix of small single-tenant and larger multitenant buildings can meet the needs of these firms. Finally, the largest establishments will be able to absorb about 16 million square feet. These tenants will require large, usually single-tenant buildings since their average space per establishment is over 550,000 square feet.
Texas has the advantage of a diverse manufacturing ecosystem. The demand for industrial space will grow, and many factors may further raise the prominence of the state’s manufacturing industry. National trends in household migration and business investment remain favorable to Texas. Globalization is reversing. U.S. federal trade policy and corporate supply chain prudence is driving reshoring. Nearshoring, especially in Mexico, will also stimulate more demand for manufacturing space given the closely integrated industries that span the border. Developers and investors can build and see their efforts rewarded.
To fully capitalize on this convergence of favorable trends, public and private leaders would do well to consider the resources a booming manufacturing sector needs, such as a skilled trades-focused workforce, ample power and water, and efficient transportation infrastructure.
