For much of the past decade, industrial real estate growth was powered by e-commerce, logistics optimization, and supply chain efficiency. Those fundamentals still matter, but a new force is reshaping the sector across the Western U.S. Demand from tech companies for datacenter and related space has skyrocketed, and that energy-hungry product is now hitting the limits of existing infrastructure. This shift is rewriting the basic calculus of where industrial gets built. "It used to be about location, location, location—now it's about location, power, water, and people. Power is king," says Gary Baragona, Kidder Mathews' Vice President of Research & Data. "While location still matters, modern industrial users require a property with heavy power, especially with the surging demand from data centers and advanced manufacturing facilities. The ongoing growth in AI will continue making high-capacity power the critical requirement for industrial facilities."
Power Has Become the Primary Site-Selection Driver
"Power is everything! All industrial developer purchase decisions now are centered around its availability," says Herb Grabell, CRE, SIOR, Kidder Mathews SVP in Irvine. San Jose-based EVP David Buchholz, SIOR adds, "Power availability, utility infrastructure, and energy capacity are absolutely the key drivers to site acquisition and development in our market today."
The high-tech users leading the current industrial sector all carry heavy power requirements—4,000 amps in 200,000 square feet at a minimum. The larger one-million-square-foot-plus industrial properties typically demand around 10 megawatts of power, driven by their automated storage and retrieval systems as well as other robotics operations.
Eyes on AI
AI and datacenter demand is projected to grow threefold annually through the end of the decade, according to Jeremy Green, SIOR, Kidder Mathews EVP in Las Vegas. How fast are things moving? Green asserts that "time to power" is now the single most important factor in serving the demand, prompting increased focus on carbon-sensitive, behind-the-meter power solutions.
Silicon Valley is seeing a wave of datacenter and supporting-equipment manufacturing activity centered on the Interstate 880 corridor from San Jose through Fremont, California. Buchholz says that demand for high-power space is so strong it is breathing redevelopment life into obsolete heavy-manufacturing buildings.
Further south, an influx of AI-backed companies has helped put Los Angeles' South Bay corridor on a steady growth path, according to Robert Feathers, SIOR, Kidder Mathews SVP in Irvine. Large-scale datacenter plans remain challenging to execute in California given the state's stringent environmental regulations, including the air quality management district that regulates Los Angeles and three other counties.
"Major data/AI complexes will be game-changers in the appropriate places with power and away from population," Grabell says. "The ones that get approved in California, for example, will be outliers and should be rewarded."
Strains on the Grid
In Hillsboro, Oregon's tech corridor, datacenters have consumed so much of the industrial land supply that Portland General Electric has run out of power in the submarket, effectively halting new datacenter development. At the same time, Kidder Mathews EVP Peter Stalick says land prices have climbed beyond the reach of traditional developers.
"The datacenter demand, coupled with the transfer from gas-powered to electric vehicles, continues to overwhelm the existing electrical grid infrastructure," Stalick says. "The grid in most cities will need to double or triple in size in order to meet the increased electrical demand over the coming 10 to 20 years." Grabell adds that utilities may take three years or more to upgrade substations.
Metro Phoenix tells a similar story. Driven in part by a semiconductor manufacturing boom, the market has added roughly 172 million square feet of industrial space since 2020, according to Kidder Mathews EVP Mike Ciosek, SIOR. The rapid growth has tightened power availability across the region, with users requiring 3,000 amps or more often waiting up to a year for service and facing substantial costs to retrofit second-generation space, says SVP Pete Klees.
The Next Competitive Advantage
As tech's hunger for industrial space puts upward pressure on rents and pushes out more traditional users, a new market dynamic is emerging—one that has to be actively managed. From real estate competition and tenant attraction to utility coordination, industrial strength increasingly means balancing supplies and demands. Across the Western U.S., the markets best positioned for long-term success may not be those with the most available land, but those with the power, utility capacity, and infrastructure to support the next generation of industrial users.
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