Advanced Manufacturing Boom Echoes Through Commercial Real Estate
The industry is playing a key role in siting and developing new semiconductors and similar plants
By Patrick Sisson April 11, 2023 8:00 amreprints
If the billions of recent dollars of investment flowing into industrial sites across the United States is any indication — including microchip plants and electric vehicle factories — the Biden administration’s Build Back Better vision is keeping builders and land brokers very busy.
“Everything is happening at the same time,” said Guillermo Martinez, the global battery sector lead for international business consultancy Turner & Townsend.
A massive confluence of reshoring, government stimulus from the Inflation Reduction and CHIPS and Science acts, the explosion of electric vehicle and battery factories, and continued expansion of the industrial sector due to e-commerce and logistics growth has supercharged the development of new advanced manufacturing plants. There has been $200 billion in domestic semiconductor plant spending since CHIPS was introduced in early 2020, and last year the nation’s announced investment in EV and battery-related plants totaled $128 billion, the most of any country.
And, while bank failures and rising interest rates have unmoored much of the financial world, key forces supporting this factory renaissance — decarbonization and deep-seated international trade rivalries with China — suggest these projects will soldier on despite current economic uncertainty.
“There’s a political strategy behind these investments, so I don’t see these changing unless the need or the political strategy changes,” Martinez said
To put the scale of this shift into perspective, in a 350-mile radius around Nashville, there are approximately $55 billion in committed investments in facilities for making batteries and semiconductors, according to Martinez.
This doesn’t include the value chain and supplier sites that go along with these massive corporate investments. Like the existing auto industry, these behemoth plants, which can cost from $500 million to near $50 billion and cover 500 acres or more, represent the apex of an ecosystem of suppliers and warehouses, all presenting opportunities for selling land and building new facilities. And all compete against data centers and logistics sites for land and available electricity.
“In the last six months, due diligence and analysis has come back,” said Jacob Everett, founder of Corsa Strategies, which focuses on site selection and consultant services for big business. “Before that, like 12 to 18 months ago, things were moving at a pace where companies were in a sprint to build capacity, create more products and distribute more products because demand was so high.”
This also doesn’t even touch on many of the marquee megaprojects making headlines, such as the two massive semiconductor plants on opposite corners of the country: the $100 billion Micron plant in central New York state and the $40 billion Taiwan Semiconductor Manufacturing Company (TSMC) plant in Arizona. A $30 billion, 4.7 million-square-foot Texas Instruments semiconductor plant coming to tiny Sherman, Texas, north of Dallas is expected to set off a chain reaction of new commercial and residential development: 1,500 jobs and an $800 million housing development called Megatel, complete with a 2.3-acre crystal lagoon. About four hours’ drive south of Sherman, in Taylor, Texas, Samsung is building a $17 billion chip plant, and has said it might invest up to $200 million in chip manufacturing in Texas, according to the Wall Street Journal.
Much of the press coverage of these plants justifiably focuses on the significant public subsidies and tax breaks that states and municipalities proffer corporations to lure them. These sweeteners are not as important as the market analyses that come before any deals, however.
Increasingly, the process of locating these plants, and deciding where massive real estate opportunities will take shape, boils down to sophisticated takes on land and parcels. Rampant nondisclosure agreements make it hard for developers and real estate firms to talk about their contributions to these developments. Still, significant work will inevitably have been done on analyzing land parcels, workforce trends, and infrastructure and resources before tax breaks take center stage, said Everett.
“To some degree incentives can be secondary to other factors, especially as the marketplace becomes more competitive,” said John Vardaman, Nashville business unit leader for DPR Construction, which specializes in technical development projects such as factories, manufacturing sites and life sciences facilities.
While there are brokers who specialize in finding these sites, and even proactively picking up industrial land for future projects, that’s not where most of the real estate action for advanced manufacturing begins. Instead, it starts with state and local governments and economic development groups assembling potential sites. In Syracuse, future home of Micron, for instance, Onondaga County has been purchasing large tracts for future industrial sites.
Private landowners occasionally play a role, too, but it’s challenging for them to have the timeline and resources to sit on sites for a long time, unlike the spate of speculative development in million-square-foot warehouses. Assembling massive tracts from scratch for the campuses needed for advanced manufacturing sites can set back projects for years.
Many brokerages have gotten deeply involved in assembling teams of data scientists to parse out potential locations and run sophisticated analyses for each corporate client. It’s part of a larger shift in the brokerage industry toward more service and consultation, not just land acquisition. These analyses go very in-depth. They include measuring the resilience of sites from power outages and wildfires, the average speed at which local governments respond to natural disasters, how seismic activity might disjoint fragile equipment, and gauging the growth of the electric vehicle industry by state and city to find the best places to locate manufacturing centers.
Land Advisors, a national firm that helps broker these land deals, worked with the Arizona Commerce Authority to assemble land for suppliers of the TSMC facility in Casa Grande, outside of Phoenix. According to regional specialist Kirk P. McCarville, it came down to price: Sites north of Phoenix topped at $40 a square foot, while down south Casa Grande offered suppliers sites at $5 a square foot.
These kinds of multivariate analysis and regression models were pioneered in retail analytics, said Wayne Gearey, Savills’ chief labor economist, and have since been adopted by corporate real estate searches (think Amazon’s HQ2 charade five years ago). Even consulting firms like McKinsey have devoted more resources to site selection as a service, seeing the dollar signs and opportunities amid a larger manufacturing shift. Gearey said he even has one client doing predictive analytics to figure out where to invest in land, in anticipation of where factories will move next.
Successful searches look past general markets and focus on specific parcels of land, said Gearey, to avoid the mistake of choosing a market but overlooking the contours and challenges of a specific site.
“It’s not about markets, it’s about locations in markets,” he said. “When we look at things, we look at every single ZIP code in the United States.”
The states and regions that have had significant success in luring gigafactories and other big advanced manufacturing developments — Nevada, North Carolina and Arizona, for example — tend to have significant amounts of public land to parcel off for new projects. These areas also focus on infrastructure and resource allocation to present water- and power-ready sites for factories. (This is now significantly hampering development in drought-stricken Arizona.)
A significant part of these analyses also centers on labor and workforce issues, including how many workers live nearby, their skill and education level, and local employment rates. The nation’s low unemployment has made hiring much more challenging, even for the majority of semiconductor plant positions that don’t require a bachelor’s degree. To put the labor crunch in perspective, there were 311,000 new jobs in February, but 3.3 million open job postings, said Gearey. His team creates bespoke data analysis, including competition indexes, for every search.
Megaprojects of this scale go in two main directions when it comes to developers. Many large corporations have significant in-house real estate and development teams. Others tend to contract with larger regional developers. All tend to hire a vast amount of advisers, project managers and cost managers to help oversee developments that can take up to a decade to complete.
The electric vehicle and battery industries, both relatively young, provide upstarts with an opportunity to compete for projects. Nearly every industrial developer is looking to seize these opportunities, including facilities for suppliers and other supporting infrastructure, but fewer than a dozen — including DPR Construction, Yates Construction and Gresham Smith — have the requisite skill and experience to design or build next-generation assembly lines or biotech facilities.
Everett says firms often turn to large, regional developers, those with deep roots and nearby corporate offices, who would leap at the chance to form a partnership around plans to build a long-term, big-budget advanced manufacturing site.
“In my view, every industrial developer wants a hand in this market,” said Michele Pino, a site-selection specialist with Land Advisors, “but there are just several who can make this happen.”