The Hidden Investment Opportunity In Electric Vehicles? Commercial Real Estate
If the future of cars is to be electric, the 2020’s will be the decade that turns the tide.
Last year, demand for electric vehicles (EVs) led to a meteoric rise in Tesla’s stock price, turning the electric vehicle pioneer from a bankruptcy candidate into the most valuable car manufacturer in the world. Domestically, over 18 million electric vehicles are expected to hit the road over the next 10 years, boosted by a notably pro-electric Biden administration.
Some may look at this growth in EV’s as a missed investment opportunity. However for those in commercial real estate, the true opportunity has just begun: the race for charging stations.
Electrifying Commercial Real Estate
While America now has 1.6 million electric vehicles, public charging stations have seriously lagged behind—only 40,000 have been registered with the U.S. Department of Energy.
This is a fraction compared to the roughly 150,000 gas stations in the U.S—and even a steeper fraction compared to the ambitious 500,000 charging station target set by the Biden administration. This has led to pent up demand, and charging infrastructure investments are already expected to exceed $13 billion over the next 5 years.
Why does this matter to commercial real estate managers? Because while charging stations ostensibly deliver power to electric vehicles, they also deliver customers to retail locations.
In other words, drivers waiting to recharge their vehicles are now captive, on-location customers—precisely what physical shopping centers have struggled to attract.
Re-Envisioning The Gas Station
The concept of up-selling drivers during refueling stops has been a tool of the convenience store industry for decades. Currently, 82% of gas stations have on-site convenience stores, generating $250 billion in revenues.
This natural synergy makes gas stations ideally positioned to enter the EV charging market. Love’s Travel Stops, a 520-outlet chain based out of Oklahoma, has already jumped on the trend, partnering with Electrify America to provide charging to several of their locations across six states.
However, others, such as gas and convenience REITs, Getty Realty (NYSE: GTY), and TravelCenters of America (NASDAQ: TA)—have been slower in their adoption. This may be in part due to concern that snacks and drinks don’t quite account for the lost differential in fuel margins. Electricity, sadly, is not as lucrative as gasoline.
However, according to Jacob Schram, a senior McKinsey advisor who witnessed Norway’s recent transition to electric vehicles, this isn’t a problem—but an opportunity.
“There’s no doubt that you will lose a hell of a lot of fuel volume,” he told convenience owners at a 2019 summit. “But what you have to consider is how do you replace that.”
Dwell Time Is Money
One main limitation to the gas-and-convenience store model is that drivers are only refueling their vehicles for 2-3 minutes on average. That doesn’t leave much time to shop.
But for electric vehicles? The charge time is currently around 15-20 minutes, even on the high powered fast DC Fast chargers. Not only is this an increase in charge time, but it’s also shown to translate to increases in dwell time—AKA time drivers spend doing everything other than refueling, for instance shopping. One study by electric vehicle supplier ChargePoint found that electric vehicle chargers could increase dwell time by as much as 50 minutes.
This increase in dwell time, along with the less hazardous nature of providing electricity instead of highly flammable liquids, means that charging locations can be located virtually anywhere. The Fuels Institute (a think tank funded by the convenience industry) found grocery stores, hotels, and shopping malls to be among the many types of businesses where charging ports are currently located. Of these, grocery stores (66%) and shopping malls (36%) were reported as the most desirable charging locations by potential EV customers—giving credence to the idea that drivers enjoy shopping while they charge.
All this has not been lost on commercial estate leaders. At least seven REITs including Federal Realty Investment Trust (NYSE: FRT), Washington Prime Group (NYSE: WPG), and Fulcrum Property have partnered with Electrify America to provide electric vehicle charging to hundreds of their locations. Simon Property Group, a leader in shopping malls and outlets has expanded charging to 116 of their locations in 20 states. Kroger has even joined the race, as has Walmart, installing charging stations at 120 of their locations.
“There’s definitely the commercial opportunity to capitalize on those who are already coming to your store,” explains John Eichberger, Executive Director for the Fuels Institute. “So there is a definite competitive differentiation tool there that could be leveraged.”
Yet exactly how lucrative charging stations will be for all types commercial real estate remains to be seen. For instance, while lodging is currently the most common location to find public chargers, it ranks near the bottom of the list for places where EV drivers want chargers.
Tariq Morad, General Manager at a Best Western in Northern Alberta—and an early adopter of Tesla’s supercharging initiative—says his Level 2 charger has had “absolutely no significant impact on business.”
“It was part of our green center initiative, and it was a way to support that initiative” he says on why he chose to install the charger. “We’ve had it used a dozen times in the roughly 4-5 years since we installed it.”
A possible explanation is that range anxiety makes drivers reluctant to travel with electric vehicles on lengthy road trips—such as those in remote parts of Canada. Or perhaps many travelers staying at hotels are using rental cars, with primarily gas powered fleets. Or it could be as simple as destination-based traveling will never mirror the same decision making process as a local trip to the grocery store.
Ultimately, only time will tell. However, while the exact “where” of EV charging is still being ironed out, the “if” seems almost certain. With tens of millions of electric vehicles set to hit the road in the next decade, those looking to charge up their investments, would be wise to keep an eye on commercial real estate.