Advancing Economic Development

by Chris Camacho

GPEC hosts economic development event; courtesy Greater Phoenix Economic Council

From a business development standpoint, the biggest challenge is determining which companies are planning to “re-shore” operations and jobs as a result of global supply chains being severely impacted by the pandemic. COVID-19 exposed massive vulnerabilities for companies in this realm, but it also presents Greater Phoenix’s biggest opportunity. The region is well-positioned for this sector shift due to our proximity to California and Mexico; our strong and growing labor force, which is solidified by Arizona State University’s supply chain program; and we offer a modern city where people want to live and work.

In fact, with respect to supply chain access or distribution, Greater Phoenix is better positioned than any region in the Mountain West. We typically have 1,200 daily domestic and international flights from Sky Harbor International Airport, more than 33 million consumers can be served within a single day’s truck haul, and shipping costs from Greater Phoenix to California are up to 75% cheaper than other Mountain West markets. Global supply chains are forever going to change because of COVID-19, and North America, especially Mexico, with Sonora and Baja being major bedrocks for goods and transport, will be critical to our success.

Ease of congestion and lack of natural disasters also provide Greater Phoenix with optimal position because run times stay high. We don’t encounter blackouts or brownouts like California, tornadoes like you see in Texas, or flooding that’s prevalent in gulf states. Natural disasters have huge impacts on supply chains, and Greater Phoenix is absent of these catastrophes.

There has also been a major divergence in enterprise companies (those with 500 or more employees), with cost containment and optimization taking precedent through our conversations. Massive real estate portfolio contraction amongst these firms will lead to an increase in mega facilities, which bodes well for Greater Phoenix, but at the detriment of smaller markets. On the opposite end of the spectrum, substantial uncertainty exists for “main street” businesses in terms of their recovery. We estimate 10-20 percent of small businesses in Arizona will not survive the recession. Tech companies fall in the middle of this scale and are facing similar pressures to SMBs, with recovery dependent on the demand curve changing, which equates to consumer confidence and spending.

COVID-19 has disrupted different industries in different ways and to different degrees. Three distinct industries come to mind as the strongest at this time:

E-commerce and e-commerce platforms allow consumers to purchase everything online. The upswing e-commerce companies are experiencing will further shape the retail sector moving forward.

Cybersecurity is strong, with data protection being a priority as we begin to blend in-person office norms with full-time digital workers, which will become the new normal.

The Industrial sector overall — particularly distribution, logistics, e-commerce, technology and food production — is strong and will remain strong. This is evident through April numbers [the most recent at the time of this writing] that around 90 percent of industrial tenants made rent payments on-time.

We anticipate that, of changes made due to COVID-19, the blend of physical office and distance workers within the technology and financial services industries will remain as a new standard.

This is one part of the June 2020 cover story on industry impact of COVID-19. To see the full story, click here.

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