Advanced manufacturing needs are recalibrating industrial real estate
The Power Shift in Manufacturing: How Energy and Automation are Reshaping Industrial Real Estate
For decades, the mantra of industrial location strategy revolved around proximity – being close to transportation hubs, suppliers, and customers. That’s changing. Today, access to reliable and abundant electrical power, coupled with robust data connectivity, is rapidly becoming the dominant factor in where advanced manufacturers choose to locate, fundamentally recalibrating the industrial real estate landscape.
From Proximity to Power: The Rise of Infrastructure-Enabled Assets
Robotics, automation, and the sensors that populate modern factories and warehouses are insatiable consumers of electricity. As adoption of these technologies accelerates, the demand for power is only increasing. This shift is elevating regions with strong utilities and robust infrastructure, even if they aren’t traditionally considered prime industrial locations. Greg Matter, vice-chairman and NorCal industrial super-region lead at JLL, notes, “Every manufacturer is an advanced manufacturer. If you’re not deploying technology, you’re falling behind.”
The Micro-Factory Revolution: Smaller Footprint, Bigger Impact
Interestingly, this increased energy demand isn’t necessarily translating into a need for massive facilities. Technologies driving “Industry 4.0” – automation, artificial intelligence, and digital twins – often require less physical space. McKinsey & Co. Research suggests these technologies can deliver a 30-50% reduction in downtime, a 10-30% increase in throughput, and a 15-30% improvement in labour productivity. This efficiency allows smaller factories to compete effectively with larger, traditional operations.
We’re seeing the emergence of micro-factories capable of operating almost anywhere. Companies like Nanotronics, with its CubeFabs – pre-fabricated modular semiconductor factories as small as 25,000 square feet – and Haddy, a 3D printing hub in Florida, are demonstrating the viability of this model. This echoes the success of the craft beer industry, which proved that localized, automated production could disrupt established giants.
A Clash for Capacity: Manufacturing vs. Data centres
The search for power availability is creating direct competition with another rapidly growing sector: data centres. Global electrical consumption from data centres could exceed 1,000TWh this year, surpassing the annual electrical consumption of Japan, according to the International Energy Agency. This competition is driving up land prices, particularly in key markets.
Prologis, the world’s largest industrial real estate investment trust, plans to invest $8 billion over the next four years to build 20 data centres, and is even considering converting existing industrial sites. In Northern Virginia, data centres are pushing vacancy rates below 3 percent. The dynamic is forcing a re-evaluation of “highest and best use” for industrial land.
Adapting to the New Reality: Strategies for Success
Advanced manufacturers are increasingly focused on operational flexibility and the ability to quickly upgrade electrical capacity. “It’s a go/no-go scenario,” explains Matter. “Knowing your electrical capacity and having a pathway to upgrade are critical.” For manufacturers, So rethinking sourcing, global operations, and where goods ultimately end up.
The ability to get smaller may be a key advantage. Smaller, more productive facilities can be built on parcels unsuitable for data centres, offering a competitive edge. Regions and assets that can align utility capacity with zoning adaptability will be best positioned for growth.
The Impact of Policy and Investment
Recent policy shifts are also playing a role. Data indicates that over $32 billion in advanced manufacturing investments have been stalled or canceled since August 2022, partly due to changes in US federal policy regarding clean energy. This highlights the importance of stable policy environments for attracting and retaining advanced manufacturing investment.
FAQ
Q: What is Industry 4.0?
A: Industry 4.0 refers to the fourth industrial revolution, characterized by the integration of technologies like automation, robotics, AI, and the Internet of Things to create “smart factories.”
Q: Why is electrical capacity so important now?
A: Modern manufacturing relies heavily on energy-intensive technologies like robotics and automation. Reliable and abundant power is essential for these operations.
Q: Are data centres a major threat to manufacturing growth?
A: Yes, data centres are competing with manufacturers for limited sites with sufficient electrical capacity, driving up land prices and potentially hindering manufacturing expansion.
Q: What is a micro-factory?
A: A micro-factory is a small-scale, highly automated manufacturing facility that can be located in a variety of settings, often closer to customers.
Did you know? Domestic manufacturing establishments have risen 19 percent since 2014, while employment has remained flat, largely due to automation.
Pro Tip: When evaluating potential manufacturing locations, prioritize sites with existing high electrical capacity and a clear pathway for future upgrades.
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