By Taylor Williams
SAN ANTONIO — Automotive parts manufacturers and data center operators both represent major sources of demand for industrial space in San Antonio, as well as major consumers of electrical resources.
Both sets of users are increasingly prioritizing access to cheap, abundant electricity in their site selection and other real estate decisions. But that’s about where their similarities end. For the automotive industry has been a source of job growth and retention in the San Antonio area for decades, whereas data centers are a relatively new phenomenon that offer minimal contributions to local employment. And in between the two on the spectrum of industrial end users are third-party distribution and logistics companies, which really represent the market’s bread-and-butter tenant. But these groups typically don’t have such taxing power demands.
Editor’s note: InterFace Conference Group, a division of France Media Inc., produces networking and educational conferences for commercial real estate executives. To sign up for email announcements about specific events, visit www.interfaceconferencegroup.com/subscribe.
For data center developers and users, the need and demand for affordable, plentiful power is nothing new. And the fact that Texas has long had its own deregulated power grid has contributed mightily to the state landing many of those deals in recent years. But as more car companies embrace electric vehicles — including Toyota, San Antonio’s longstanding major automotive employer — the two user groups have found themselves in a something of a competition for sites with the infrastructure and ability to deliver “mission-critical” levels of power. The problem is, there’s only so much to go around.
As part of a sweeping overview of the market as a whole, a group of industrial brokers and owners touched on the rising role of electricity in San Antonio’s industrial sector at the inaugural InterFace San Antonio Commercial Real Estate Outlook. The event took place on Jan. 24 at the Omni La Mansion Hotel in the Riverwalk district and featured similar segments on the Alamo City’s multifamily market, as well as its retail and restaurant scene. Joni Margotta, vice president and principal of KFM Engineering & Design, moderated the industrial panel.
Jeff Bryant, principal and senior vice president at Ackerman & Co., an Atlanta-based developer that is active in San Antonio, touched on the heightened role that access to and pricing of electricity plays for these two subcategories of San Antonio industrial users.
“We’ve seen six to eight automotive component manufacturers look at our sites along with data center operators, which are looking for sites across the board with commitments for large power requirements,” he said. “It used to be that [data center operators targeted] certain markets where latency wasn’t an issue, but now they’re just trying to find space that has the power [requirements].” (Latency is a measure of the speed at which information is processed within a data center’s internal network).
Anthony Merritt, vice president at investment sales brokerage firm SRS Real Estate Partners, also touched on the power factor with regard to manufacturing.
“On the tenant side [of the market], there’s been a steady push toward facilities with heavy power [capacities], whether for existing [facilities] or spec projects that could potentially glean the power to handle tenants’ needs,” he said.
Merritt added that this requirement tends to be an especially front-and-center priority for certain types of manufacturers and directly influences their site selection. He said that the rebound in demand from distribution users is likely to translate to absorption of newly developed speculative facilities. If that scenario played out, it would preclude manufacturers from taking those spaces, which tend to have the necessary power capacities.
“The periphery of the market is being looked at very closely by high-caliber international manufacturers that simply cannot get the power there,” he said. “People in the industry are familiar with where the utility [lines] end in each direction, and that’s preventative to some of the specialized manufacturing [requirements] and lends itself to [absorption of] spec distribution centers. A change on that front would likely lead to an uptick in landing some of those large manufacturers, but that’s easier said than done.”
John Colglazier Jr., partner at Partners Real Estate, spoke at length about data centers and the complicated requirements they carry. He stated that he had three sites under contract in the region to data center users that were originally envisioned for more traditional industrial uses.
“Data centers are tricky business,” he said. “They’re an absolute windfall for landowners, especially those with more rural properties. They’re an absolute necessity [to society], and while they have large capital investments, they don’t create a lot of jobs and drain a lot of power out of the grid.”
“In San Antonio with [city-owned energy provider] CPS, we’re seeing a thought process of ‘There’s a finite amount of power, so let’s not take away from people that have long scratched out [a living] in the farming and ranching worlds,’” Colglazier continued. “Municipalities want to use [their power supplies] to create jobs with long-term residual value to the community, and it’s hard to see that with buildings that are tucked away and have maybe 10 people plus service crews working there.”