Driven by government incentives and a race among automakers to grab market share, the electric vehicle industry is set to fuel demand for industrial real estate for years to come, predicts CRE research firm YardiMatrix.
North America has become more attractive as a market due to the more than $400bn in clean energy incentives being rolled out by the Biden administration. Major automakers including BMW, Ford, Hyundai, Honda, Mercedes, VW, Tesla and Toyota have announced plans to produce EVs or batteries since the US Inflation Reduction Act brought in the subsidies, which require that the vehicles be made mostly in the US and exclude materials from certain countries such as China.
The CHIPS and Science Act, additionally, incentivizes domestic production of semiconductors, a key component in EVs.
“The coming EV wave will create a plethora of opportunities for industrial real estate developers and investors, especially in the Southeast and Midwest,” according to YardiMatrix’s March 2023 National Industrial Report.
It will also transform the sector in other ways, the report notes: Automakers will own their manufacturing plants, but will also require an array of supplemental manufacturers and suppliers nearby, as evidenced by the firms located around Tesla’s EV plants, or gigafactories.
Tesla remains the biggest player in the EV space, producing an estimated two-thirds of all EVs sold. It is also one of the largest generators of greenfield foreign direct investment projects globally. But other automotive players are actively trying to close the gap.
Gigafactories are highly sought after investment projects and are multiplying rapidly worldwide. Business intelligence firm GlobalData estimates that between $106 billion and $177 billion is set to be invested in gigafactories worldwide until 2030. In 2020 there were only 66 EV plants; by 2030 there is forecast to be 155.
Southern states such as Alabama, Georgia, South Carolina and Tennessee have landed some of the more significant recent EV investments.
The U.S. already is experiencing a general, significant uptick in demand for industrial space off the back of increases in e-commerce activity and manufacturing output, which will be exacerbated by the EV boom. YardiMatrix predicts that up to 370 million square feet of new space is needed annually in the US to meet industrial demand, totaling 1.8 billion through 2026.
According to the March report, national in-place rents for industrial space averaged $7.12 per square foot in February, up 6.9% year-over-year and two cents higher than January. Growth of in-place rents is highest in markets adjacent to shipping ports.