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
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.