05 May 2023 4 min read

A rising tide? An update on onshoring

By Bill Page , Jonathan Leclercq

We examine the potential drivers of onshoring and its implications for the UK real estate equity sector.


In our last article on onshoring we highlighted how disruptions caused by Brexit and COVID-19 had exposed frailties within the UK’s supply chain. We also focused on the problems of overdependence on overseas suppliers. Since then, the macroeconomic environment has changed – interest rates have risen, along with geopolitical tensions. So, does the case for onshoring still stand?

Supply chains: the weakest link?

Recent developments have further highlighted the frailties of supply chain management.

An environment of higher interest rates and consequent banking stress has reinforced more bearish market outlooks as businesses and consumers alike face tighter lending conditions. This mix of macroeconomic challenges, we believe, will amplify business-critical areas, such as supply chains. Indeed, 80% of manufacturers say that supply chain vulnerabilities are a significant strategic risk for both 2023 and 2024.[1]

Cost pressures

Rising prices have put pressure on manufacturing margins and cash reserves, particularly over the past year. The top three challenges that UK manufacturers have identified in their supply chain are all cost related. The increase in raw materials and purchase costs is the most concerning, while transport and energy costs closely follow.

According to Make UK, manufacturing margins have decreased by 14% over the past three months.[2] Despite this renewed focus on costs, we think there have been significant developments that argue against companies reverting to offshoring.

Legislation: advancing the case for onshoring?

In 2021, the UK government announced the creation of eight freeports designed to encourage domestic investment, job creation and manufacturing. The government also stepped up its efforts to drive regional growth, recently outlining plans for 12 low-tax investment zones across the UK. When coupled with the government’s ongoing efforts to reduce overdependence on global supply chains, we believe legislation is playing an important role in advancing the case for onshoring.  

The US has also stepped up its legislative activity. The Inflation Reduction Act is the third piece of legislation since late 2021 that aims to improve US economic competitiveness, innovation and industrial productivity, which, combined, introduces US$2 trillion in new federal spending over the next 10 years.[3] The scale and magnitude of these acts could usher in a wave of global protectionist policies, as the UK and EU are encouraged to protect the attractiveness of their domestic production.

The case against onshoring

Given the current macroeconomic climate, we expect many businesses to defer onshoring decisions in favour of cheaper alternatives to solve supply chain issues.

Indeed, businesses today have a suite of alternative solutions to call on. Companies have opted to diversify their supplier base (43%), increase supply chain monitoring (47%) or even secure longer-term supply contracts (38%) over reshoring (26%) to mitigate supply chain issues.


Moreover, enabling the transfer of technology from overseas and optimising automation in domestic facilities will not only take a significant investment in capital but won’t suit all businesses. For example, semiconductor chips, most of which are made in Asia, are too difficult for most western firms to take onshore as few companies can match the level of investment and hire the talent required.

Increasing demand in emerging economies means there is also little incentive to move production lines away from possible growth areas. The UK’s trade secretary has claimed that one of the benefits of the recent CPTPP trade agreement (a trade pact with 11 Asia Pacific nations) is that in seven years 40% of the world’s middle class will be coming from that region.[4] If correct, there will be less incentive for manufacturers to move production from those increasingly lucrative markets back to the UK. Instead, there is likely a stronger case for ‘friend-shoring’ to new trading partners i.e., the process of outsourcing supply to countries with shared ‘values’ and closer economic ties.

Implications for UK real estate

While government legislation and other select evidence point to positive momentum towards onshoring, we believe restraints on labour capacity, capital and enterprise in the short run will make this a very gradual shift. We expect businesses to continue implementing alternative strategies to mitigate supply chain disruption rather than face the significant upfront costs of onshoring, despite government efforts such as freeports and investment zones.

However, we believe this is still broadly net positive for real estate, particularly the industrial sector. But impacts will be felt in micro locations rather than the macro economy. In other words, onshoring should still provide a net benefit in our view, but its gradual pace, known frictions, and localised impacts do not justify a change in strategic focus for real estate investors.


[1] Make UK / Infor – No weak links: building supply chain resilience as at 7 March 2023

[2] Make UK / Infor – Manufacturing Outlook 2023 Quarter 1 Report

[3] McKinsey & Company – The Inflation Reduction Act: Here’s what’s in it: What’s in the Inflation Reduction Act (IRA) of 2022 | McKinsey

[4] UK-Asia trade deal to boost UK economy by 0.08% - BBC News

Bill Page

Head of Real Estate Markets Research

Bill is LGIM Real Assets' Head of Real Estate Research. He has responsibility for the formation of house views and inputs into fund strategy. He has 20 years’ industry experience. He is a voting member of the Real Estate Investment Committee and actively contributes to the platform’s office and industrial strategy.

Bill joined LGIM Real Assets in October 2012, having spent seven years at JLL where he was EMEA Head of Office Market Research. Prior to JLL Bill worked at Estates Gazette Group. He chaired the British Council for Offices’ Research Committee between 2015 and 2018 and sits on the IPF Research Steering Group.

Bill graduated from Lancaster University with a first class degree in geography. He holds the IMC certificate and IPF Diploma.


Bill Page

Jonathan Leclercq

Research Analyst

Jonathan is a research analyst in LGIM's Real Assets division. He joined in January 2022 from Bloomberg where he worked as an account manager and on the equities desk within their analytics department. Jonathan holds a degree in Economics & Finance from the University of Surrey, on weekends he can be found playing football in East London or sampling one of London’s food markets.

Jonathan Leclercq