California’s EV Push To Turn Truck Charging Into Preferred Asset For IOS

As part of its bid to decarbonize vehicles of all kinds, California is on the cusp of implementing new charging regulations for electric semitrucks that will require billions of dollars in investment for industrial outdoor storage, where charging access will be an amenity needed to attract top-tier tenants.

“Right now, I think it's something that is going to help you attract a tenant, not something that someone's gonna pay more for,” Colliers Vice Chair Jace Gan said. “But in terms of the top-tier companies in the country, like Fortune 500 groups, they’re all gonna get electric trucks. Pepsi is buying Tesla trucks; they’re going to play the game on EV trucks.”

Via a series of regulatory changes, including the Advanced Clean Trucking and Advanced Clean Fleets rules, as well as emissions reductions schemes for warehouses, such as the Indirect Source Rule, California regulators have aggressively pushed to establish cleaner, emissions-free freight and warehouse sectors. Medium and heavy-duty trucks in the state, which account for one-fifth of California’s greenhouse gas emissions, must be zero-emission by 2045.

This means electric vehicle charging will come to warehouses and IOS properties across the state, and fast. As of mid-2022, there were just over 300 electric heavy-duty trucks in California, which has a total of 1.8 million trucks on the road, though that number is expected to grow.

The transformation will require billions of dollars of investment in the Golden State alone, said Gregg Healy, head of Savills’ industrial services group. Industry analysts believe that EV charging will become a key amenity and feature at IOS sites, one that can attract top tenants and help lease property more rapidly.

Some warehouse owners, especially giants such as Prologis, have already begun to make significant investments in their own charging networks, aiming to establish a charging-as-a-service product with no upfront cost to tenants, and hit net-zero emissions by 2040.

It’s likely that larger firms with more access to capital will make the investments first, and see whatever benefits come from establishing EV charging routes, while smaller businesses may struggle, entrenching current power dynamics in the industry.

“The road to get there will be littered with the corpses of businesses that no longer are going to be able to afford to do business in California,” Matt Schrap, CEO of the Harbor Trucking Association, a trade organization that represents drayage fleets on the West Coast, told Grist.

Based in large part around the operations of a handful of large Pacific Ocean ports and the vast Inland Empire warehouse market, the IOS market in California has slowed in recent months, impacted by the larger CRE slowdown and decreasing trans-Pacific freight volume, as well as intermittent strikes and labor actions at the Port of Los Angeles.

But it’s still incredibly tight in terms of vacancy, brokers say, and the paucity of new supply caused rates to run up in recent years, said Derek Fish, head of real estate investments for Realterm, a firm that specializes in logistics real estate. With high land prices compared to the rest of the nation, it’s harder to take on extra space in California or make significant infrastructure investments. 

That won’t pause the state’s larger push into electrification of heavy vehicles and logistics. 

Many leading developers have already committed to adding charging stations on their industrial sites, Daum Commercial Executive Vice President Rick John said. He’s convinced tenants with aggressive ESG goals will seek out sites wired for electric trucks, and early adopters will see big benefits when it comes to absorption and signing leases. The federal Inflation Reduction Act includes a 30% rebate on the cost of heavy-duty chargers, and a variety of proposed state incentives, investments and rebates will also help bolster needed new infrastructure spending.

Eventually, EV charging for IOS sites will be akin to an improvement or amenity that a property owner needs to make to stay competitive, renew leases and attract users, Fish said. Now, it’s more tenant-led in terms of what types of specifications any EV upgrade would have. Realterm has made investments on properties in Oakland and Fontana, California, and it has found tenants who need EV charging and are willing to help pay for the upgrade. 

The financial models may not be clear yet, but there’s going to be a lot of new businesses that are “going to pay a lot for real estate,” Industrial Outdoor Ventures CEO Tom Barbera said. Already, startups like Zeem and Forum Mobility are building out charging networks and capacity, and big players like unicorn cleantech startup Terawatt and a $650M coalition between Daimler Truck North America, NextEra Energy Resources and BlackRock plan to build out charging capacity with a SoCal focus. 

IOS owners have time, however, to make investments in EV infrastructure, Barbera said, in part because the production and availability of heavy-duty chargers and electric trucks is lagging the state’s aggressive goals. Colliers’ Gan sees most owners looking to install conduit to be charger-ready, and waiting until they’re pushed to invest in EV chargers. He’s heard industry sources say the state’s proposed pace of change, which will push the transition to EVs forward, is basically impossible to meet given existing resources. 

There’s also the added complications of being able to wire these sites for the massive power needs heavy-duty electric vehicles bring, Fish said. IOS sites weren’t scouted or developed with EV charging needs in mind, and the process of bringing power lines to these sites can be “can be politically and administratively intensive,” he added.

“There’s a slowdown in freight overall, a slowdown at the ports, happening to these companies at the same time they need to invest in their real estate,” Fish said. “So it's gonna be a little bit of a push-pull.”

WattEV, a firm that is building out its own all-electric fleet and charging stations in a bid to provide a turnkey clean transit option for freight and logistics, plans to field 300 electric trucks by the end of next year, increasing to 1,000 trucks by 2026. The firm’s plans will take advantage of state and federal grant funding to build up a fleet of vehicles and charging networks, starting at SoCal ports and spanning I-5 and I-10, backbones of vehicle freight in California. The network of charging sites, currently planned for 50 locations but likely to expand quickly, is either purchased or leased.

Picking sites depends heavily on how hard and expensive it can be to wire them with sufficient power and the ability to work with utilities to do so. WattEV CEO Salim Youssefzadeh said that some were perfect from a location perspective, but would be prohibitively expensive to service with sufficient power. With enough space, however, more sustainable, less limited solutions are possible; one planned 150-acre WattEV site in Bakersfield will boast 100 acres of solar panels.

WattEV has many competitors seeking to build up infrastructure, but few wrapping it in with fleet investments; each site costs between $3M and $20M, with each electric truck running $500K. Currently, the chargers WattEV has deployed can take a typical truck from zero to 80% charged in under three hours. In a few years, Youssefzadeh predicts, technological advances will cut that time to 40 minutes or less, currently the average time a trucker already spends at a rest station, an inflection point that will see the industry rapidly grow.

While the ultimate shape of this shift, and the speed of adoption, may be in flux, what’s clear is that the push for electrification won’t end on California’s borders. States including New York, ​​Massachusetts, New Jersey and Oregon have adopted or explored similar rules. Youssefzadeh said WattEV has already begun securing properties outside of California, betting that as more trucks in California plug in, they will fuel the growth of a regional charging network. 

“This is going to have a trickle effect into other neighboring states, with both vehicles and infrastructure,” Healy said. “The wave has already come, let's lean into the new technologies.”