State Product Development Trends Impacting Site Selection for Mega Industrial Projects
by Beth H. Land, CEcD, on Mar 27, 2023 9:00:00 AM
Exacerbating these difficulties is a rapid growth in utility capacity requirements, particularly with electric usage. With all these challenges converging, Site Selection Group, a full-service location advisory, economic incentives and real estate services firm, is seeing states and utilities commit record-breaking financial investments to identify and prepare new properties for industrial development. As economic development becomes more mainstream, and the political pressure to create jobs intensifies, state economic development agencies have aggressively and proactively increased their availability of qualified industrial sites. Site Selection Group outlines the latest product development trends below.
1. Market activity in industrial real estate sector is unprecedented
While post-COVID-19 economic headlines point toward uncertainty, announcements in both domestic and foreign direct manufacturing investment in the United States continue at an unprecedented level. Both the volume of site selection activity and the size and scale of the project's landing have increased. Examples of mega investments from 2022 include:
- Hyundai – Bryan County, GA – $5.54 billion – 8,100 jobs
- Blue Oval City (Ford and SK Innovation) – Haywood County, TN – $5.6 billion – 5,800 jobs
- Wolfspeed – Chatham County, NC - $5 billion – 1,800 jobs
- Micron – Onondaga County, NY - $100 billion – 50,000 jobs
- Honda/LG – Fayette County, OH – $4.2 billion - 2,500 jobs
- Our Next Energy - Wayne County, MI – $1.6 billion – 2,000 jobs
- Redwood Materials – Berkeley County, SC - $3.5 billion – 1,500 jobs
In addition to these mega investments, Site Selection Group is seeing a flurry of activity in traditional automotive and electric vehicle-related projects, photovoltaic manufacturing, life sciences, and food and beverage manufacturing. These sectors all have drastically different project drivers, ranging from proximity to customer and supplier networks to operating cost structures and workforce requirements, among others. However, one common theme among them all is that they need sites that can meet their constrained development schedules. With projects like these in the marketplace, states understand that investing a few million dollars in site development efforts can present a major return on investment as they seek to create jobs and boost their tax base.
2. Industrial real estate options are extremely limited
- In markets with a strong labor draw (or just positive fundamental demographics), most large-scale industrial sites that are left require expensive site preparation to offer a solution for current market demands.
- Utility infrastructure extensions are cost-prohibitive and/or cannot be completed in a timely manner.
- Advanced manufacturers typically want to own their assets due to their substantive capital investment into facilities which conflicts with the desire of most developers who strongly prefer to lease only.
- Private developers are cannibalizing prime industrial sites for big box distribution space, as they offer a higher ROI.
3. Manufacturers’ utility demands challenge electricity grid
As site availability continues to dwindle, utility requirements continue to increase. A typical industrial site selection project historically required 5-10 megawatts (MW) or less of electricity. Now projects requiring 100-200 MW+ of electricity have shifted from an anomaly in the market to commonplace. This boom in industrial projects and capacity requirements begs the question, “Can the U.S. grid handle this continued demand?” Lead time times for electric equipment (particularly transformers) and improvements to the grid will need to happen quickly to keep up with the evolution of manufacturing requirements. Since industrial properties with large electric capacities are so limited, Site Selection Group maintains a database of properties that can support these types of requirements.
4. States and utilities invest heavily in site developmentStates and utility providers understand that having a portfolio of vetted industrial properties can be an effective tool in recruiting new investment. The more that states, communities and utility providers can do to shorten the timeline and minimize risk for site development, the more competitive they will be. Site Selection Group often sees communities invest on a smaller scale in things like infrastructure extensions, or going vertical with 100,000 to 150,000 square feet of speculative building space.
States and utilities, however, are investing millions in large-scale mega site properties, which require substantial investment and a long-term vision. It is getting more difficult to find sites that can readily accommodate 500 to 1,000 buildable acres in areas that can also support large workforce requirements. Those properties that are available often have significant challenges to development (geotechnical or environmental concerns, wetlands mitigation, major transportation access hurdles, etc.). States are now being forced to step in and prepare these properties.
5. States take different approaches to product development
As states make investments, they are using different strategies to accomplish their goals. Some are investing strictly in mega sites, while others are trying to develop a balanced portfolio of properties (small, large, rail vs. non-rail sites, interstate frontage, expansion of industrial park vs. establishing new industrial corridors, etc.). Site Selection Group finds that states who take a holistic approach to product development, with an eye toward getting a return on investment are better positioned for project recruitment.
6. Six states that are investing significant resources to attract manufacturers
In an effort to win the next big project, states are racing to prepare industrial property for investment. While there may be key differences in how funding allocations are made, states typically like to invest in properties they are confident they can control (either through public ownership or an option to purchase). These investment strategies include but are not limited to property acquisition, due diligence studies, site prep work, wetlands mitigation, infrastructure extensions, right-of-way acquisition, marketing, etc. There are many other product development initiatives across the country, but below are six examples of states that are proactively investing in site development, with hopes of winning the next big announcement.
- Kentucky – Product Development Initiative – $100 million
- Mississippi – Site Development Projects – $56.7 million
- Missouri – Premier and Mega Site Grant Programs – $75 million
- South Carolina – Product Development – $200 million
- Tennessee – Site Development Grant Program – $81 million
- Virginia – Virginia Business Ready Sites Program – $90 million