New Projects In One Of Nation’s Top Industrial Real Estate Markets Waiting For Months To Get Power

Developers trying to meet the demand for new industrial warehouse space in desirable California markets are frequently coming up against a problem: getting power to their new facilities. 

“We have had instances where we have been delayed with obtaining building finals and/or a tenant not being able to operate due to utility delays,” largely stemming from getting new electrical infrastructure connected, Dedeaux Director of Development Benjamin Horning told Bisnow. 

That is an issue for a property type that is breaking records for its activity. In 2022, the nation’s industrial market enjoyed its second-highest total for overall net absorption with 477.3M SF, according to a Cushman & Wakefield report. The record was 561.4M SF in 2021. 

While the consensus among the biggest names in industrial real estate seems to be that the market is returning to pre-pandemic levels, for the Inland Empire, one of the nation’s top markets for industrial real estate, that will likely still mean high occupancy, low vacancy and demand for new product, many developers working in the area have said. The Inland Empire had 37.4M SF under construction at the end of 2022, according to a report from CBRE. Nearly 5M SF delivered in Q4, and the market had a net absorption of 2.1M SF. 

But new projects being delivered may have to wait a bit to turn the lights on. 

“There's historically been an assumption that the power is always going to be there,” Horning said.

Recent experiences are “forcing us now to take that into consideration much earlier on,” he added. 

PR Construction Executive Vice President Brian Brennan said the last time an electrical infrastructure-related delay slowed down a project he had bid on, it was 14 months before the project was back on.  

Of the projects he is working on that face delays, issues relating to electrical infrastructure are probably responsible for as much as 10% of those delays. 

“Just because you get a will-serve letter doesn't mean that you're going to get the power you want when you think you're going to get it,” Brennan said. 

In April 2022, a supervisor for Riverside County, one of the two counties commonly considered the Inland Empire, expressed concern that a cluster of new warehouses along the 215 Freeway wasn’t expected to have power for as long as two years, the Press-Enterprise reported. 

At the time, utilities provider Southern California Edison said it had been working with the county and developers in the affected area “to accommodate the electrical needs of planned industrial facilities which are critical to the economic vibrancy of the local community,” but it didn't comment on whether the supervisor’s assertions about the situation were accurate.

When asked last week whether these issues persist in Riverside County, a spokesperson for the county told Bisnow the county was unaware of any current challenges with new developments accessing utilities and that its involvement in the development process is limited to land use, permit and building standards reviews. 

Southern California Edison public information officer David Song said that the scenario sounded like an instance where there was confusion between having enough power and having the power available where it needs to be. 

“Supply isn’t an issue,” Song said, though he did concede capacity — having the infrastructure to get the power supply to the industrial warehouse — might not be there yet.

The infrastructure issue is baked into the way the utility, which covers much of Riverside and almost all of San Bernardino counties, functions. 

“Developers understandably want to ensure that there's the appropriate infrastructure in place at new developments so that they can attract the right tenants,” Song said. “The way we have to work, though, is that, until we have a good sense of the energy requirements for the specific tenant, it would be difficult for us to actually build out the infrastructure.”

Rather than risking a situation where infrastructure is built and then no users appear, Edison waits until it is clear on what is needed and then starts work, Song said.

“We will meet your needs as soon as day one,” Song said.

Sometimes it might not be at the full capacity needed, he said, “but you're also not going to be using full capacity on day one.”

Because the utilities are in a position where they have to be reactive, “they’re always going to be behind the ball, they’re always going to be delaying projects,” Brennan said. 

Brennan said he has mostly seen issues crop up when larger utilities are involved — entities that cover larger swaths and have more demands from customers. 

For speculative developments, this can present a larger challenge. 

“Oftentimes the service providers will be more willing to work with us if there's a real tenant or a buyer or user that's involved,” Horning said. “If it's just a speculative building, often they'll want to kind of hold back on committing a certain amount of amperage until we do have that tenant [and] know what their actual demand is, because they don't want to overprovide.” 

In more than one instance, Horning said, his company was required to submit a signed lease agreement to the utility to show it had a tenant waiting for a property. 

Now, instead of assuming his company will be able to get all the power it needs when it needs it, Horning said electricity is something his company scrutinizes.  

“As these issues have come up now, it's something that we pay much closer attention to on new deals going forward,” he said, especially in areas where they have hit rough patches before.

Horning said that there have also been situations where the company was initially limited on the amount of power a utility would commit to a project, but “when tenants became engaged with us,” the developer was able to get the power increased to the building and meet the minimum power needs. 

Horning said that in areas of Southern and Central California where he has had issues, he has always ultimately been able to get the power he needs to buildings — it has just taken a lot of working with the utilities and time.  

Despite the hurdles, it isn’t enough to make Dedeaux consider not working in Southern California or other markets in the state where this has been an issue, Horning said. 

Warehouses in general need more power now than they did five years ago, Brennan said. Though there are certainly energy savings achieved with requirements for LED lighting, the push for electrification of more warehouse equipment, such as forklifts and increasing automation, means that warehouses are using electricity for more things. 

As electric delivery and transport vehicles hit the roads and charge at warehouses, Brennan and other industry experts expect those electricity demands will continue to grow.

Song said Edison is planning ahead and has at least one major project in progress in the Inland Empire that would help prepare the region for a future that requires more electricity, not just electricity in more places. The project is pending approval from local authorities, Song said.