Flip a switch, the light turns on. Put a plug in a socket, the electricity flows. Turn the faucet, water gushes. Utilities are essential to the operation of any property, but they are often overlooked because it's easy to take them for granted.
But in commercial real estate, many companies overlook utility costs and capabilities during the site selection process. Workforce development and logistics are hot topics in commercial real estate, but don't overlook other necessities.
In today's competitive landscape, the timeframe for corporate site selection from start to finish continues to tighten. Decision-makers expect sites for new construction or buildings with new operations to have the necessary utility capacity from the get-go. Utility providers, therefore, can add significant value to the site-selection process by working with communities, site selectors, and their clients to have plans and approvals in place for system or capacity expansions.
Two sites in the same community can have very different development and utility costs. Providers need to be fully aware of how they assist in the site-selection process. They also need to engage the brokerage community to communicate capacities and discuss potential upgrades for planned uses of the property. Such collaboration would ease approvals and expansions, helping commercial real estate professionals both in locating new facilities and expanding existing ones.
Availability and Cost
By far, the most important way a utility company can assist with site selection is fully understanding the service availability and excess capacity to all sites and available buildings in the community and/or communities served. If there currently isn't any excess capacity, the utility company needs to be prepared to expand that capacity in a given area, depending on growth patterns.
Installing new service or adding capacity is not an overnight process. It often requires weeks or months to complete the entire process, which includes several layers of approvals, cost/benefit analyses, and easement procurements. Specifically, commercial real estate professionals can easily fall into the trap of thinking that just because a site has access to a certain utility means that the utility can adequately serve it.
For example, if early suppression fast response means a sprinkler system is required, a current waterline running in front of a property might not be adequately sized with the right pressure and flow rate in gallons per minute. This could make the difference between installing a pump for the sprinkler system or adding a costly water storage tank.
Knowing what a project will demand in terms of electrical, water, sewer, natural gas, and telecommunication services will allow parties to vet the site quickly and completely. Additionally, this vetting of a potential site should be a standard practice before planning an on-site tour.
Keep in mind that any costs for extending utility service or adding capacity are typically passed along to the client, and these costs need to be calculated upfront to determine the feasibility of the project. The last thing that you want after visiting a location is to realize that a water tank must be installed to accommodate the building's sprinkler system.
Incentives and/or Grants
Should the proposed project require adding new or expanded service to meet a minimum demand, many states and communities offer incentives to eliminate or defray costs to the company or developer. Cost-avoidance grants include money for water/sewer upgrades or extensions, road improvements, natural gas upgrades or extensions, and electrical improvements. The grants can be paid upfront directly to the company or over a certain time period. Typically, these incentives are performance-based, and the company receiving the grant is required to create and maintain new jobs and investment for a specified time period. Other incentives from utility companies could include rebates (often on a sliding scale over a certain time period) based on the company's utility usage, which can be advantageous for a company during the beginning stages of a project.
Again, knowing the requirements going into a project is paramount to maximizing any incentives and/or grants that might be available.
Site Evaluation Assistance
Utility companies can provide additional value to states and communities as well - which, in turn, helps the potential buyer - by aiding in the evaluation of a site for development. Development is a timely process, so most corporate site-selection projects will quickly eliminate locations that do not have the basic information readily available.
Knowing demand for electrical, water, sewer, natural gas, and telecommunication services allows potential developers to easily vet a site to determine if it should be considered for the project. Utility companies help bridge any knowledge gaps. Many utilities provide funding for communities or local economic development organizations to assist with basic due diligence. Typically, this early legwork will include verification of zoning and location of electricity, water, sewer, and natural gas, along with their corresponding capacities. Additionally, high-level mapping may be provided to outline any possible wetland, easements, and topographical challenges. Phase 1 environmental site assessment and some limited geotechnical testing to determine the suitability of the underlying soil on the site would be the next steps.
Having these deliverables readily available when initially requesting information and planning visits will help potential developers understand the site quickly and effectively. For any broker who lists land sites for industrial development, a common value-add from a utility company is a grant to do site evaluation to make a land site “shovel-ready.”
Plan Your Work
A community might have all the other attributes for a new plant or distribution center (for example, labor availability, favorable labor costs, and transportation) but a specific property could fall short in regard to utility service. Having the specific knowledge of utility extension, capacities, and approvals in place could help a community win the project. Conversely, companies working with site-selection professionals need to fully understand their own utility needs - not only for the project at hand but also for some level of growth at the new facility. If a community can only handle today's utility needs but not those necessary for future growth, the project manager needs to consider alternative locations.
Conversely, when brokers receive inquiries on a site, they need to make sure they fully understand the specific utility demands not only for the inquiry at hand, but for some level of growth of the proposed facility.