Existing supply chains – products of globalization and inter-connectivity taken to an extreme degree – started to reveal their vulnerabilities long before the pandemic hit. With borders shut down and geopolitical tension rising exponentially, those warning signs proved to be valid.

The American pharma industry took a big hit: a significant share of the so called “active pharmaceutical ingredients” for the U.S. drug market are produced in Asia. Lockdowns in China and India immediately resulted in APIs under-supply for American drug producers. It was a similar case for personal protective equipment – American manufacturers scaled down their production capacities under the pressure of imports from China and were unable to ramp up quickly.

Another fierce discussion is taking place around 5G network equipment produced by Huawei and its potential use by American telecom market. With their recent “creative” move, the U.S. government essentially put a ban on Huawei’s purchase of components powered by technologies originating from the U.S. This comes together with the news that Taiwanese semiconductor company TSMC is going to build a factory on the U.S. territory

The level of governments’ interference into big business is unprecedented. It looks like the regulators have gained an unlimited power to step in and turn an economical question into a political one. That is especially so for strategic industries related to national security. However, the latest news on the Bill passed by the Senate, which could result in delising some Chinese companies from the U.S. exchanges, clearly indicates that hits are to be expected from anywhere.

Until now, some may have hoped, that the interruption of supplies was a temporary phenomenon, and that there was a way back to how things were set up pre-COVID. But the new wave of trade dispute between China and the U.S. seems to put an end to such hopes. It is no longer about pandemic-caused constrains, such as production sites being closed due to nationwide lockdowns. It is now more about countries taking protectionist measures, and about anti-globalization trends gaining momentum across all parts of the world. Therefore, waiting for status-quo in supply chains to be reestablished is not a viable strategy.

There have been numerous discussions about the ways for production companies to eliminate vulnerabilities driven by deep fragmentation of their supply chains. Forecasts are being made about on-shoring of production facilities and regionalisation of supply chains as a reverse-trend of globalization. Those are very reasonable assumptions, and we are already seeing companies taking steps in this direction.

However, it is important not to confuse immediate rescue measures with forward looking strategic plans. In the past, “efficiency” has been the watchword, and cost of labor played a big part in it. Today’s new mantra is “resilience”. However, when it comes to decisions on whether the production facilities should be relocated, most businesses will probably be driven by final consumer demand and the areas of its concentration.

While the outcome of all those paradigm-shifting events is unpredictable, there is one statement to be made with confidence: the landscape for industrial real estate investors and operators is destined to change. When rolling out their business strategies, industrial properties operators have to think strategically like never before. Not only should they closely watch the state of their tenants’ businesses, consumer sentiments, regulatory changes, capital flow trends, etc, now they must also apply geopolitical expertise to their business strategy.