Commercial real estate organizations on the road to net zero are giving their decarbonization efforts extra juice by investing in electric vehicle charging.

Among those firms plugging in are Aviva Investors, the global asset management business of London-based insurer Aviva, which announced in September an investment of up to £110 million ($120 million; €124 million) in Connected Kerb, a London-based electric vehicle infrastructure specialist. In addition to its equity investment, Aviva has also tasked Connected Kerb with rolling out EV charging stations across its real estate portfolio. Slate Asset Management, a Toronto-headquartered manager focused on real assets, has similarly invested in an EV specialist, acquiring in July a majority stake in amperio, a German EV charging developer.

For many market participants that have already made the commitment to net zero, EV charging is emerging as another way to reduce the emissions generated on their properties. Over the lifetime of a vehicle, EVs reduce carbon emissions by up to 69 percent, according to data from Transport & Environment, a European non-profit focused on clean transport. The difference becomes starker the longer the vehicle is on the road.

Source: amperio

Many firms PERE interviewed are using renewable energy generated by their buildings to power EV charging, reducing emissions even further. A reduced reliance on the grid helps futureproof the assets and boost their appeal to tenants, which has been another driver of EV charging investment. In its announcement on the amperio investment, Slate highlighted its network of “tenants focused on environmental sustainability” across its portfolio of more than 255 grocery properties across Germany. Henrik Holland, global head of Prologis Mobility, Prologis’s EV subsidiary, says that tenants are demanding EV charging at its industrial properties.

“We believe having truck-charging infrastructure on-site will be a valuable amenity for attracting and retaining customers,” Holland says. “We are seeing strong interest from our existing customers in existing leases as they look to make progress on their own sustainability goals.”

Regulatory jolt

Also revving up private real estate investment in EV charging infrastructure is regulation. Many countries have already enacted laws incentivizing the purchase of electric vehicles. Beginning a decade ago, Sweden subsidized the purchase of an initial 5,000 electric cars, via a SKr200 million ($17.7 million; €18.2 million) government program. Since then, that program has been expanded multiple times, leading to last year 57,881 EVs being registered. This year is on pace to eclipse that, with 40,360 registered in the first half of 2022, per data from Statista.

China began subsidizing vehicles in 2009 and made plans to extend the incentives this year as they were due to expire. Both countries rank in the top five of advisory firm EY’s Global Electric Vehicle Country Readiness index, in large part due to early and aggressive regulation. Meanwhile, the US is trying to catch up, with a clause in the Inflation Reduction Act intended to increase EV adoption. The Clean Commercial Vehicle Credit lets companies claim up to 30 percent of the cost difference between a ‘clean’ vehicle and a gas-powered one. Further tax credits are granted to those that invest in vehicles made domestically. Additionally, states such as New Jersey and Massachusetts have their own incentive programs.

Greg Lauze, managing partner and chief investment officer at NorthBridge, a Boston-based manager that recently formed a joint venture with clean energy provider Green Bridge to add solar and EV charging to its fund portfolios, says state level regulations make investing in EV charging even more attractive combined with the federal incentives.

EV adoption has picked up considerably in recent years. On the commercial side, major global corporations are looking at EV charging for their commercial fleets. Amazon has committed to buying 100,000 EVs and have them all on the road by 2030, according to the firm’s website.

On the consumer side, global sales of electric vehicles doubled last year, according to data compiled by BloombergNEF, the media company’s research arm, reaching around 6.5 million passenger car sales in 2021, compared with around three million in 2020. That growth was bolstered by huge increases in sales in China and Europe. The US saw a doubling of sales but from a low starting point, from over 300,000 to 650,000.

As EV adoption proliferates, so will charging stations, according to Christian Schmid, Slate’s global head of infrastructure and head of the firm’s Cities and Communities Impact Infrastructure strategy. “We want to be in the places where people go about their daily lives,” Schmid says. “Like they did in the petrol age, they will do in the electric age.” This includes offices, retail parks and even hospitals, he adds.

This requires real estate managers to think ahead. “You need to be planning the infrastructure of [EV charging stations] two years in advance,” Lauze says. “Now is the time to have those discussions.”

Challenges with EV charging

How ubiquitous electric charging pumps become, however, will likely depend on whether the speed of charging can ultimately match that of pumping gas. The current fastest technology, level three chargers, will provide roughly 249 miles per charging hour, according to data from Carvana. But these are not compatible with all EVs and can cost $50,000 to $100,000, says Jamie Gray-Donald, senior vice-president, sustainability and environmental, health & safety at QuadReal, the Vancouver-based real estate investment arm of British Columbia Investment Management Corporation.

While using solar energy to power EV chargers can reduce reliance on national power grids, most of the firms that spoke to PERE expressed concerns about the capacity of electrical grids and their ability to handle a rapid scaling of EV usage. David Goatman, head of energy, sustainability and natural resources at Knight Frank, says that potential EV charging sites vary in terms of access to power, creating a bifurcation in value between sites that have suitable connectivity and those that do not.

Another challenge is that the returns on EV investment is less clear than for solar investment. Lauze says it is too early to measure the effect EV charging has had on returns in NorthBridge’s portfolio.

Gray-Donald says that EV charging equates to a “rounding error” relative to the sale of the price of a building. He believes it will be a matter of time before those incremental gains become material ones.

“It’s hard to move large dollars in the space. It’s not like buying an airport or a big infrastructure asset,” Lauze says. “It’s a couple million dollars at a time. That’s what makes it challenging, but also a good opportunity.”

Capitalizing EV investment

Many of the biggest real assets players are investing in EV charging stations on their real estate properties through their infrastructure vehicles.

CBRE Investment Management and Slate both use capital from infrastructure funds to invest in EV projects. Starwood Capital’s infrastructure arm, Starwood Energy, formed a platform to provide EV charging stations and other renewable energy solutions to real estate owners in September.

Robert Shaw, managing director of private infrastructure strategies at CBRE Investment Management, says the firm’s investors for its real estate business differ from those for infrastructure, meaning separate vehicles for the EV charging stations and the underlying real estate make sense.

Keeping real estate and infrastructure capital separate, be it for EV charging or renewable energy more broadly, may change in the future, however.

While he declined to comment on current or future vehicles that CBRE Investment Management may be raising, Shaw says: “[Hybrid real assets vehicles] would seem to make sense in certain investments like this where there’s a big crossover and intertwinement between infrastructure and real estate.”