Do industrial tenants need more power?

The differentiating push for industrial properties: A power play

What’s the Point?

Onshoring of manufacturing is creating demand for heavy power in industrial facilities. The growing use of power-hungry robotics and automation is driving 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 larger business environment. One notable new trend is that a growing number of manufacturing and logistics tenants are requesting above-average electrical power. In fact, heavy power capacity is becoming an important property consideration.

Until recently, only the largest industrial facilities—larger than 500,000 square feet—would 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. 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 for power is the result of several factors. One is that the world is seeing a 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 increase productivity and compensate for labor shortages.

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

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Primary power

Now, 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 has a distinct edge that may be reflected in rents. In addition, building in electrical capacity helps future-proof a property for charging electric cars and trucks.

The primary approach offers the advantages of control and accelerated speed to market, and future-proofs 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 our observation, more generous electricity has not yet translated into higher property values. However, we may see market dynamics change in the future, as we have seen with 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 requirements continue to increase, it’s clear that the availability of heavy power is becoming an important amenity and differentiator.