Do industrial tenants need more power?

The dif­fer­en­ti­at­ing push for indus­tri­al prop­er­ties: A pow­er play 

The arti­cle rep­re­sents sub­jec­tive opin­ions of Hines, the spon­sor of the invest­ment vehi­cles offered by Hines Secu­ri­ties. Oth­er mar­ket par­tic­i­pants may rea­son­ably have dif­fer­ing opinions.

Onshoring of man­u­fac­tur­ing has cre­at­ed demand for heavy pow­er in indus­tri­al facil­i­ties. The grow­ing use of pow­er-hun­gry robot­ics and automa­tion is help­ing dri­ve the trend as man­u­fac­tur­ers and dis­trib­u­tors com­pen­sate for labor short­ages. Indus­tri­al devel­op­ers must decide whether and how to deliv­er heavy pow­er in their properties.

Amping up the power 

Indus­tri­al ten­ant require­ments are con­stant­ly evolv­ing in response to the busi­ness envi­ron­ment. One notable new trend is the grow­ing num­ber of man­u­fac­tur­ing and logis­tics ten­ants request­ing above-aver­age elec­tri­cal pow­er. In fact, Hines sees heavy pow­er capac­i­ty becom­ing an impor­tant indus­tri­al prop­er­ty consideration.

Over the past three years, Hines has observed that only the largest indus­tri­al facilities—larger than 500,000 square feet—would usu­al­ly offer 4,000 amperes (amps) of elec­tri­cal pow­er. Facil­i­ties small­er than 500,000 square feet typ­i­cal­ly offer 3,000-amp ser­vice, while those with less than 300,000 square feet of space would offer 2,000-amp service.

Now, many small­er buildings—including those devel­oped by Hines—offer 4,000-amp pow­er. But to accom­mo­date heavy pow­er users today, a facil­i­ty may need 6,000, 8,000 or even 10,000 amps of power.

What is driving demand for power? 

The ris­ing demand is the result of sev­er­al fac­tors. We believe one is the resur­gence of man­u­fac­tur­ing due to reshoring and the organ­ic growth of some sec­tors, notably elec­tric vehi­cles, bat­tery pro­duc­tion, com­put­er chips and bio­phar­ma­ceu­ti­cals. Demand for man­u­fac­tur­ing facil­i­ties has increased—and today’s man­u­fac­tur­ing increas­ing­ly relies upon pow­er-inten­sive robot­ics to boost pro­duc­tiv­i­ty and com­pen­sate for labor shortages.

Sim­i­lar­ly, automa­tion, elec­tric fork­lifts and oth­er tech­nolo­gies have trans­formed ware­house oper­a­tions while increas­ing elec­tri­cal demand. In addi­tion, the growth in food logis­tics has cre­at­ed a need for ener­gy-inten­sive box-in-a-box” cold stor­age. Direct-to-con­sumer retail has also grown, along with val­ue-added activ­i­ties that cre­ate new pow­er require­ments. Facil­i­ties with short-haul elec­tric deliv­ery vehi­cles also may need addi­tion­al pow­er for charging

Primary power 

Indus­tri­al devel­op­ers must decide whether to invest in heavy pow­er capac­i­ty on spec for a spe­cif­ic prop­er­ty. Through this pri­ma­ry ser­vice approach, the devel­op­er or land­lord owns the under­ly­ing switchgear, trans­form­ers, and oth­er elec­tric­i­ty trans­mis­sion equipment.

Then, if a prospec­tive ten­ant emerges with an urgent need for space with above-aver­age pow­er, a prop­er­ty with built-in high elec­tri­cal capac­i­ty may have a dis­tinct edge that may be reflect­ed in rents. In addi­tion, build­ing elec­tri­cal capac­i­ty may help future-proof” a prop­er­ty for charg­ing elec­tric cars and trucks.

This pri­ma­ry approach offers the advan­tages of con­trol and accel­er­at­ed speed to mar­ket, while prepar­ing a prop­er­ty for the prospect of fleet elec­tri­fi­ca­tion. How­ev­er, it also cre­ates risk because hard­ware costs are shift­ed from the pow­er com­pa­ny to the devel­op­er. If future ten­ants do not need the extra pow­er, the devel­op­er will nonethe­less have incurred an expense that per­haps could have been postponed.

In Hines’ obser­va­tion, more gen­er­ous elec­tric­i­ty has not yet trans­lat­ed into high­er prop­er­ty val­ues. How­ev­er, mar­ket dynam­ics may change in the future, as occurred with require­ments for clear heights and oth­er build­ing char­ac­ter­is­tics. Renew­able ener­gy sources and elec­tric vehi­cle charg­ers may also become part of the equa­tion along­side ris­ing pow­er require­ments. As user pow­er needs con­tin­ue to increase, the avail­abil­i­ty of heavy pow­er could become an impor­tant ameni­ty and differentiator.