How State and Utility Site Readiness Programs Benefit Industrial Users

Tale of two trends in industrial real estate

There are currently two diverging trends in the U.S. industrial real estate market. For the existing building market, CoStar is projecting Q3 of 2024 to be the softest quarter in several years due to a variety of factors. According to its research, 411 million square feet of product is currently under construction and will be delivered in 2024 — at a time in which demand has softened moderately. While this is welcomed news for prospective industrial tenants who can make use of light industrial, warehouse-oriented facilities, there is a much different narrative as it relates to specialized production-oriented projects.

The U.S. has been experiencing a period of hyperactivity in domestic manufacturing investment. Many of these projects are extremely specialized, capital intensive and utility-intensive, and as such, typically target greenfield real estate. The proactive development process for making sites suitable for these projects can be lengthy as it requires utility extensions and upgrades, along with significant pre-development due diligence work. Unfortunately, this recent wave of activity has largely depleted the inventory for “ready-to-go” heavy industrial sites nationally. Therefore, state economic development and electric utilities are seizing this trend as the opportunity to ratchet up funding for developing future product.

For the benefit of our large-scale production clients, Site Selection Group, a location advisory, economic incentives and real estate services firm, proactively tracks state and electric utility investments in industrial sites.

States continue to invest heavily in site and product development

In the past few years alone, nearly a billion dollars have been allocated toward funding site readiness programs aimed at boosting the inventory of quality large-scale industrial sites. The improvements resulting from this funding are an attempt to bolster a site’s speed-to-market. 

An impactful and recent example is the Kentucky Product Development Initiative (KPDI) program which boasts a staggering funding ceiling of up to $100 million. Improvements for this program can include utility upgrades and extensions, civil site preparation, due diligence, and even in some cases, property acquisition. Initiatives such as these are indicative of the fervent race among states and utilities to bolster their industrial real estate offerings.

Sample of marquee site readiness programs

Process for selecting sites for funding, and determining which initiatives are funded

Evaluating and prioritizing sites for potential funding involves an analysis similar to what a company might employ when conducting its site selection process. Often, states and utilities employ firms like Site Selection Group to carefully evaluate critical factors such as available acreage, utility capabilities, developability, workforce, accessibility and overall business climate of a given location. 

The evaluation typically identifies site deficiencies that warrant improvements needed to make a site more competitive. When evaluating a stable of candidate sites, not all deficiencies are equal, and the cost of remedying each deficiency can vary significantly. Therefore, states are forced to allocate funds based on the return on potential investments and will need to examine whether site improvement will lead to job creation and capital investment. As previously mentioned, solving a company’s speed-to-market concern is the surest way to create jobs and increase capital investment.

Future outlook for large-scale greenfield sites

While there are still a few quality options nationally that can meet the objectives of large industrial users with robust utility requirements, the market for the remainder of 2024 will feel constrained while the next wave of sites is developed. The investments currently being made require that significant issues are tackled such as utility extensions and upgrades and site preparation, which can take months (if not years).

Overall, the site selection and economic development industries are optimistic this unprecedented site readiness funding will significantly alleviate market constraints in 2025.