How Tech reshoring will positively impact real estate in certain US cities
by Zain Jaffer
The U.S. Chips and Science Act of 2022 will impact the almost $600bn global semiconductor industry in ways that can also impact the US real estate sector in certain areas.
Chips are a valuable part of everyday life. Although high profile purchases like iPhones and iPads may be discretionary and thus negatively impacted by recession conditions, chips are in almost every device and appliance that surround us. Cars, trucks, plans, household appliances, mobile phones, laptops, watches, servers, transmitters, and others all use chips. There would be no self-driving Tesla, or Chat GPT answers, without chips.
Right now the chip sector relies on a complex myriad of materials, equipment, manufacturing, and other key suppliers located globally. Gone are the days when companies made everything in-house. Now it is a tangled web of these suppliers plus all the supply chain arrangements they want to make that criss-cross around the world. Many of these suppliers and subcontractors are based in China, Taiwan, and Southeast Asia. The US has long thought of that as a major risk.
Given the geopolitical risks in that region brought about by COVID and a possible war in the South China Sea, the US government plans to spend roughly $52bn, or a tenth of the total semiconductor industry annual sales as of 2022, to improve the US chip sector. Aside from spending on new R&D, it also wants to move a lot of the key suppliers to friendly countries and to the US mainland, far from China’s sphere of influence. This move is being termed as “reshoring,” as opposed to the more popular term “offshoring.”
While that may make sense from a national security perspective, it might not make sense from a business one. Morris Chang, the famous founder of Taiwan’s largest wafer fabrication facility, Taiwan Semiconductor Manufacturing Corporation (TSMC), said in an Asian publication that costs in the U.S. are 50% higher. This will likely mean that iPhones and other items will become more expensive. Apple relies on TSMC to fabricate its state of the art M1 laptop and A series Bionic chips. It remains to be seen if this is a good move for this industry.
There is also the question of whether the Chips Act funding will push through with disbursements given the $32T US government debt that has already hit a spending ceiling in the US Congress. Already the Treasury Department is dipping into government pensions just to remain in operation until the ceiling is lifted.
Nevertheless if the plans push through, this will mean a lot for U.S. real estate. Silicon Valley and Boston’s Route 128 started out as raw land that became home to many large tech company estates and small tech startups. New tech hubs include university towns across America like Austin, Charlotte, New York, and the like.
TSMC itself is building a US wafer fabrication facility in Arizona. According to the TSMC website, TSMC (NYSE: TSM) announced in December 2022 that aside from their first new Arizona wafer fab, scheduled to begin production in 2024, they have also started the construction of a second fab scheduled to begin production of state of the art 3nm process technology in 2026. Their overall investment for these two fabs will be approximately US$40 billion, which is the largest foreign direct investment in Arizona history and one of the largest foreign direct investments in the history of the United States. Aside from over 10,000 construction workers, the two TSMC fabs are expected to create 10,000 high-paying tech jobs, including 4,500 direct TSMC jobs. When completed, the two Arizona fabs will manufacture over 600,000 wafers per year, with estimated end-product value of more than US$40 billion.
In addition, Intel Corporation announced in early 2022 that it had chosen 1,000 acres in Licking County, Ohio to build two new wafer fabrication facilities worth $20bn, with help from some counterpart funding from the 2022 Chips and Science Act. During construction, it is estimated that it would require 7,000 workers, and when completed it would need around 3,000 tech manufacturing workers. This new Intel initiative promises to build a Silicon Heartland similar to the great tech centers in Silicon Valley south of San Francisco and Route 128 in Boston.
For both these giant tech manufacturing projects, there will be many suppliers that will locate alongside these new areas. New roads and infrastructure will be built, as well as schools, office spaces, and housing for workers and their families.
Clearly the creation of these new boom towns bodes well not just for tech, but for construction and real estate in those areas as well.