Industrial facilities may seem like logical sites for solar energy installations in North America, but several factors impede wider adoption. These include costs, structural constraints, geographical or operational limitations, and, in some cases, the terms of landlord-tenant agreements and agreements with utilities. Several experts weighed in on the current situation and their expectations for the future.
Financial Calculations
Steve Kapp, SIOR, executive managing director at Newmark San Francisco’s East Bay industrial division, pinpoints a problem of ROI facing owners of industrial facilities in the United States: “If a landlord were to put a solar system in and spend millions of dollars doing it, the only beneficiary is going to be the tenant in the form of lower electricity bills,” he says. He adds that today’s market isn’t providing economic benefits for landlords in terms of higher rents or higher resale value. Tenants, meanwhile, have little incentive to install solar systems themselves since their leases typically last only three to seven years.
Owners of industrial and logistics buildings in North America may eschew solar in favor of other types of upgrades such as LED lighting or HVAC improvements, notes Chad Griffiths, SIOR, partner and associate broker at NAI Commercial Real Estate in Edmonton, Alberta. These upgrades, he says, are often cheaper and easier to implement. He also points out that some owners hesitate to invest in anything that might not directly increase their NOI unless it’s a long-term hold.
If local energy costs are low, landlords have little motivation to invest in solar energy in the absence of incentives. “In the Southeast and Mid-South, the biggest barriers are low energy costs and a lack of incentives from local, state, or national governments,” says Casey Flannery, member associate with SIOR and the vice president of Foundry Commercial in Nashville, Tenn. “Without strong tax credits or rebate programs, there’s not enough financial return to justify the upfront investment.” Street Jones, SIOR, principal at Rich Commercial Realty in Raleigh, N.C., is seeing this scenario play out in the Carolinas specifically. “Given the lack of incentives, we have seen most users and developers pass on installing solar when looking at the all-in costs,” he notes.
Landlords also must consider whether their facilities are good fits for solar installation from structural, operational, and geographical perspectives.
Jones raises another issue: insurance costs. He reports that some carriers, concerned about the threat of fire risks, won’t insure properties with solar installations, or will charge very high rates. But he also points out that fire risks can be minimized by following guidelines from the National Fire Protection Association.
Additional variables: Kapp mentions the potential for landlords to sell excess power to local utilities. If the rates are high, they may increase a landlord’s ROI. And then there are the Trump administration’s tariff policies, which could impact the prices of panels sold to the United States, most of which are manufactured in China.
What’s not a factor in most instances? Environmental considerations. When it comes to solar, “people get excited about it if it’s going to save them money,” says Kapp. Griffiths encounters similar attitudes. “For a lot of my clients, the priority is still cost reduction or compliance, not necessarily sustainability for sustainability’s sake,” he observes.
Facility Fits
Landlords also must consider whether their facilities are good fits for solar installation from structural, operational, and geographical perspectives. Justin Di Palo, co-lead of the national sustainability practice at the engineering firm Syska Hennessy, says that suitable facilities have large, unobstructed roof spaces, and are located in places with strong solar irradiance, like the American Southwest. Buildings in operation seven days a week are more cost-effective than those that close on the weekends, adds Kristopher Baker, the other co-lead of Syska Hennessy’s national sustainability practice.
The age and condition of the facility’s roof are other important factors. As Di Palo explains, “Older roofs may lack the structural integrity to support solar panels or may require replacement during the system’s lifespan, adding to project costs and complexity.” This describes many of the facilities in the Carolinas, says Jones, who notes: “We have a lot of older industrial product that does not allow for solar to be easily added to the building.”
The Future
At this stage, it appears that the costs of solar installation outweigh the benefits—even when facilities are well suited to the installations. “While it’s nice to offer and promote these kinds of programs—and they can be a good selling point—they’re not typically the primary driver in decision-making for an occupier,” says Flannery. “Space, location, and functionality still lead the conversation.”
Kapp believes that better financing options would generate more interest among commercial owners. He points out that in places like California, Arizona, and other warm states, most homeowners can take advantage of financing to put solar panels on their roofs. The homeowners make a payment each month on the system, which is offset by the power generation. And the contracts are assignable to the new owners when a home is sold.
But some industrial landlords are exploring the possibilities of solar adoption, despite the hurdles it may present. “Most of the buildings I see in North American markets still don’t have solar, although more developers are at least considering it during the planning stages,” says Griffiths. He also finds that when the economics line up, his clients are more open to the possibilities of solar than they were even two or three years ago.
Some companies, such as Prologis, are helping to boost the momentum. According to Chintan Talati of Prologis, the firm’s rooftop solar program leverages the company’s vast industrial holdings to generate power, both to support customers and, in some communities, to help meet the energy needs of local businesses and neighborhoods.
Brokers who see the potential of solar adoption should plant the seed early, Griffiths advises. “Even just showing what incentives might apply or how solar could reduce the operating expenses over time can make a difference.” He concludes: “As adoption grows, the key will be flexibility (both in how systems are deployed and how deals are structured between landlords and tenants). Like everything else in industrial, it comes down to economics and practicality.”
CONTRIBUTING MEMBERS