Electric Grid Reliability and Commercial Real Estate

This brief presents initial findings from Hickey Institute’s ongoing research into electric grid reliability and its implications for commercial real estate (CRE) development and investment. Drawing from previous research by Hickey Institute and public and private data sources, this brief synthesizes current market conditions, emerging challenges and strategic considerations facing CRE stakeholders.

Key findings include:

• Demand for electricity is surging due to rapid growth in power-intensive uses such as electric vehicle charging, AI data centers and cold storage facilities. At the same time, baseload power capacity is contracting due to the retirement of fossil fuel power plants.
• Commercial building owners can often pass rising utility costs on to tenants, but these costs can make buildings less competitive than those in less power-constrained markets.
• Texas, the Southwest and major data center corridors currently face the tightest energy markets and the greatest competition for available capacity, resulting in longer development timelines and higher installation costs than in other markets.
• Power availability is increasingly a key site selection determinant for occupiers, and power redundancy is a differentiator in markets where grid reliability is a concern. Buildings with features like backup power, energy-efficient design and renewable generation can often command rent premiums that justify related capital expenditures.
• Developers increasingly incorporate evaluations of local grid capacity and utility reliability into site selection. In markets where utility upgrades take years, some developers are willing to fund substation upgrades to accelerate project timelines.
• Addressing the challenges facing the grid will ultimately require federal and state policy solutions, but developers can partner with local officials and utility companies on capacity planning to better align infrastructure investments with development pipelines.