#152 – Inside Our Industry – Green Energy Is Helping Drive U.S. Industrial Real-Estate Growth

Posted on | Inside Our Industry

With COVID-19 in the rearview mirror and consumers returning to stores, e-commerce has slowed. The push to increased green energy is picking up the demand for that warehouse space and more.

Green Energy Is Helping Drive U.S. Industrial Real-Estate Growth
By Liz Young  |  May 17, 2023  |  WSJ.com

Manufacturers of electric vehicles and parts are leasing more space as e-commerce pulls back from its rapid expansion during the pandemic

Renewable-energy companies are taking up a growing share of U.S. industrial real estate as manufacturers of solar panels, electric vehicles and EV batteries build out their supply chains, providing a boost to warehouse operators amid sagging demand for e-commerce business.

Companies that make and distribute electric vehicles and EV parts such as lithium batteries more than doubled their leasing in the first quarter of the year compared with the same period last year, according to data from real-estate services firm CBRE.

The growth came as e-commerce leasing fell about 66% as the surge in online retail sales during the Covid-19 pandemic receded.

Real-estate developers say green-energy companies are extending their supply chains in the U.S. as they seek to meet demand from consumers and businesses and to compete for federal subsidies aimed at expanding manufacturing in the U.S.

“Solar has been around taking space for a long time. But what we’ve seen more recently is significant acceleration of EV demand as well as batteries and other energy-transition technology,” said Luke Petherbridge, chief executive of Link Logistics, a developer and operator of 545 million square feet of logistics real estate across the U.S. that is owned by investment firm Blackstone.

Link Logistics has leased about 2 million square feet over the past several quarters to companies that make items such as solar panels, EV batteries, wind turbines and hydrogen cells, Petherbridge said.

The space the renewable-energy companies occupy is small compared with the swath of warehousing capacity taken up by online and physical retail inventories, but the growth in the sector is helping shore up industrial real estate as e-commerce companies pull back their leasing.

Retailers such as Amazon.com expanded rapidly during the Covid-19 pandemic to meet growing demand from homebound consumers who went online to order everything from household staples to furniture, driving industrial real-estate vacancy rates to multiyear lows.

E-commerce growth has slowed more recently as consumers return to stores and high inflation dents discretionary spending, prompting Amazon and others to slow leasing decisions.

Companies in the e-commerce sector signed leases totaling 4.7 million square feet in the first quarter, down from 13.7 million square feet a year earlier, according to CBRE data that tracks new leases and renewals of at least 100,000 square feet across major U.S. markets. Electric-vehicle and EV parts manufacturers and distributors leased 3.4 million square feet in the quarter, up from 1.5 million square feet in 2022.

Many companies that make green-energy products have been expanding in the U.S., Mexico and Canada as demand for their goods has grown from companies looking to cut carbon emissions and consumers seeking electric vehicles. The federal government has been extending subsidies to manufacturers of clean-energy technologies in and near the U.S. under the Inflation Reduction Act.

Construction of manufacturing facilities in the U.S. more than doubled in 2022 from the year before, in part driven by companies looking to cash in on subsidies, said Stephanie Rodriguez, national director of industrial services for the U.S. at real-estate services firm Colliers.

“Automotive and energy-related companies are really taking a bulk of that space,” Rodriguez said.