April 3, 2024

The Impacts of Electricity and Natural Gas Availability on Industrial Real Estate

The Impacts of Electricity and Natural Gas Availability on Industrial Real Estate

The availability and reliability of electric and natural gas utilities should be a top concern for project stakeholders during the site selection process for new factories, warehouses, and other industrial buildings. As modern industrial facilities trend toward more automation, finding or constructing buildings that can handle the increased power needs of automation technologies is essential. Yet, locating sites capable of supporting heavy automation is an ongoing challenge in the United States as businesses seek to reshore operations and build resiliency into supply chains.

The New England Dilemma

The utility infrastructure of New England can pose challenges when attempting to establish advanced manufacturing or logistics sites. New England power plants rely heavily on liquefied natural gas (LNG) to produce power. LNG is also used directly as a fuel in many types of manufacturing.

Yet, even though America is the world’s largest natural gas producer, much of New England’s LNG gets imported because it isn’t a natural gas-producing region, lacks underground gas storage, and has limited gas infrastructure.

The region’s long, hard winters may also pose risks for factories and warehouses that rely on reliable power for heavy automation. New England winters can pose a variety of risks for such facilities, including:

Unexpected downtime due to grid instability is costly for manufacturers. According to data from Siemens, a single hour of downtime can cost between $39,000 and $2 million, depending on the size and type of operation.

However, not all hope is lost for businesses committed to setting up operations in the Northeast. Despite the challenges listed above, Connecticut and Rhode Island rank in the top 10 states for grid reliability.

Heading Down South

Many notable reshoring projects have landed in the Southeast, Southern, and Southwest regions of the United States because those areas of the country don’t pose the same types of risks. The availability of LNG is significantly higher in the South because those states are better connected to U.S. pipeline infrastructure, which means shortages don’t continuously threaten Southern power plants. Proximity to shale drilling all but guarantees supply for the foreseeable future.

Furthermore, southern states are well-positioned to benefit from a transition to renewable energy. Large utility-operated solar farms are best suited for warmer climates. For example, Texas produces more renewable energy than any other state because of its large solar and wind farms.

Generally speaking, the diversity and availability of power means southern states have lower energy costs, which is a huge draw for advanced manufacturing facilities. For example, battery plants that make electric vehicle batteries can have five times the energy consumption of an average factory. That’s why several notable battery plants have been established in the Southern U.S., including:

The reshoring movement has also brought a variety of other factory types to the South, including microchips, solar panels, automotive, consumer goods, and more. The region’s ability to support heavy automation has made it an attractive option for manufacturers in virtually all industries.

Electricity and Natural Gas in Industrial Real Estate

The availability of electricity and natural gas profoundly influences long-term operations for an industrial business—especially one that uses heavy automation. Before committing to a site, speak with local utility providers to ensure the location can handle the power needs of your intended operation. If you’re unsure which part of the United States best suits your needs, your real estate broker can help you determine the best regions to locate your new facility.

About Phoenix Investors

Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations and public stakeholders, Phoenix has developed a proven track record of generating superior risk adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost efficient solutions, and a reputation for success.

As Senior Vice President for Phoenix Logistics, Mr. Kriewaldt oversees the company’s day-to-day operations as well as corporate strategic development. With more than 25 years of experience in the industrial real estate and logistics industries, Mr. Kriewaldt boasts extensive expertise in real estate practices as well as third-party logistics operations, contract negotiation, and new business development. Mr. Kriewaldt proudly fosters long-lasting business relationships by putting the customer first and creating mutually-beneficial partnerships for all involved. He also holds a Master’s in Business Administration from the University of Texas and a Juris Doctorate degree from Marquette University.

Frank P. Crivello is a Milwaukee-based developer and Chairman & Founder of Phoenix Investors.

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