Talking Property | Preparing commercial property for the electric vehicle evolution

NM:
Hello and welcome to Talking Property, our CBRE podcast series where our team of experts, our clients, and industry specialists share insights into the way we live, work, and invest through the lens of commercial real estate. I'm Natasha Mulcahy, the Head of ESG for CBRE'S Pacific Property Management Business, and I'm your host for this latest Talking Property episode. Today we'll be talking about electric vehicles and the challenges that we're facing, not just in Australia but globally to become EV ready. There has been exponential growth in the EV market over the past five years with close to 7% of new vehicles purchased in Australia in the year to April, 2023, being EVs. But we're still very much at the starting gates with the Electric Vehicle Council estimating that Australia will need to support an EV fleet of 1 million vehicles by 2027 up from the current total of just 83,000 to reach 2050 net zero targets. So how do we support that growth? What are the challenges facing property landlords? How do we roll out the necessary infrastructure safely and economically? And what are the big issues industry is grappling with to talk it through? I'm joined by Scott Howard, the US based head of CBRE's, newly formed global EV service line, by Tim Washington, chair of the Electric Vehicle Council of Australia, and by Neil Glozier, Director of Energy and Sustainability for CBRE's Pacific GWS business. Thanks for joining me today. 

TW:
Good to be with you.
 
NM:
Fantastic, Tim. So in your role as chair of the EV council, perhaps you could give us a quick overview of how the Australian market is currently positioned from an EV infrastructure perspective. I know CBRE recently completed a report assessing the top office buildings in our major cities and it showed that just 20% of them have EV charges. 
 
TW:
Yes, absolutely. And good to be here. So look, from an industry perspective, I think we all recognise that there is a long road ahead in terms of rolling out the infrastructure you require. I did read that report and what was interesting for me was that even where a commercial building does have a charging station, it's not necessarily that every car park has a charger. We might have one out of 200 to 300 car parks. And so because of the way the electric vehicles work, we believe that you probably need to have a lot more than one charging station per building. And what's interesting for the industry is that we believe with the right government settings, the cars will become available and people will buy those vehicles. And then it's a big question for us as to whether our commercial buildings are then set up to support those vehicles or whether people just get upset by the whole experience. So I certainly hope it's not the latter.
 
NM:
Yes, right. And Scott, how are you seeing it play out in the US? 

SH:
Well, I think in terms of the number, I think we're probably close in terms of commercial buildings having EV charging capability, but it's very, very regionalised in the US and you know, both the coasts, I live in San Francisco, California, a lot of EV chargers here. A lot of, you know, higher adoption rate in some of the West coast and the East coast. But even then, you know, I've had experiences and I do drive an EV. I've definitely had personal experiences where I've pulled into a garage and you know, there's only a couple chargers and I still view across all sectors of the industry. It's still almost in a pilot phase where I view whether a corporate occupier or a institutional landlord still trying to kind of figure out what the whole EV thing is all about. Whether it should be an employee amenity or should they try to monetise it, the payback. There's still a lot of definition to be defined in the business model, but I feel the momentum, you know, since we CBRE has formalised the service line, there's just so many questions, you know, kind of inbound requests for solutions from us. So I feel like we're headed in the direction where we'll ultimately end up being positive for most people. 

NM:
And what about globally? Beyond the US? 

SH:
Yes, globally beyond the US you know, Europe is actually further ahead of the US and you look at some of the more northern European countries in, I think it was Norway or Denmark, it was 50% of all vehicles were electric. So there there's definitely, you know, the European countries are well ahead of the US. 

NM:
Neil, you are working with some major clients at the moment on EV strategy. What's top of mind for them? What issues are they facing?
 
NG:
Yes, we're speaking to a lot of our top clients at the moment. Certainly the commercial space but also in the retail. And I think coming back to Tim's point and when we talked about the penetration, the lack of penetration in commercial. I think some of the key areas called the umbrellas, the electrical infrastructure, that's more of a practical piece at the moment. But I think actually if you're getting things off the ground, it's the commercial models. And the commercial structure and I think Tim touched right there. You know, one EV charging bay in a whole car park is probably more of a token gesture because they're not sure what to do than rather trying to achieve something for their tenants or for their strategy. So them two key elements, and I'm sure the guys will have some inputs into this, to attack the electrical infrastructure piece, that's quite a practical piece. 

There's a big consideration there. You might have one EV charger because that might even be driven by the electrical infrastructure they've got. Or we could actually put one in here without too much augmentation and so on and without strategy. So what we're trying to work with them on and, and look, our clients are aware of this now, there is becoming clearly very recently much more understanding of it. It is what does the future look like If we've got four now but we're going to have eight in six month's time and we're going to have 20 in a year's time, what do we need to do to electric infrastructure to help manage that? So there's definitely understanding, that's a big focus and certainly broader across that as we know outside of just the EV charging piece, there's the electrification of their building going forward, which is aligned as well. Getting off natural gas, being replaced for electric heating and cooling. So there's a bigger piece there. I think what we will be careful of, we're certainly working on that with our clients to be really careful it doesn't slow us down too much. Like we need to plan, we need to consider it. But I think maybe that's part of what is creating a little bit of paralysis almost because we're trying to over plan so we don't go ahead and do something. So there's a balance there I think I'm hearing from my clients. 

NM:
Absolutely. Can we unpack that commercial model element there a little bit? 

NG:
Absolutely. 

NM:
I know I'm certainly hearing that from my clients in property management that they want more information about the different commercial models, they want to make the right decision, they don't want to have to undo something down the track. So what are the commercial models? 

NG:
I'll probably start with what I'm hearing from the clients and I think maybe Tim and Scott will probably have a more in-depth view, especially Scott I suppose on what's coming across globally. But I think just probably the problem statement to open that conversation up, I suppose is you say what the clients are asking about, is really is it an owner operator piece? Or is it a third party, potentially owner operator? That's kind of, I'm sure there's more to the conversation than that, but that's the initial conversations and I think there's pros and cons for both depending on the capability or the drivers for the client or their assets. Certainly on one side there's an outsourcing piece which take away a lot of risk in some elements. But as with other assets within their buildings, if they are outsourcing that operation, maintenance management, the ongoing management, that asset, there's potentially safety aspects to that. When we talk about, you know, electrical safety, is it being maintained correctly, they're outsourcing that piece which could be a concern whether we normally do with assets in their building. And that safety could lead into the fire aspects as well which is something that we can unpack and brand risk. You know, if you've got chargers in your site that aren't operating or deemed unsafe, I feel that's not good for the client. But Scott, you might have seen.
 
SH:
Yes, I think to add to what Neil is saying, you know, that is usually where the conversation starts. I'm of the belief that we have a long way to go before the commercial model really lands. You know, I know that what I see, whether it's an institutional owner or a corporate occupier, future proofing is a big deal. And you know, we've definitely worked with customers who are saying, "Hey, I've put these, these five or six chargers in. It's not working like I wanted it to". There's whatever issues, whether it's a maintenance issue or a durability issue or they need to put more in, but they're not set up to put more in from an infrastructure standpoint. And you know, I do think there are a lot of pros to have somebody else own and operate it. There is a certain level of de-risking, but I also think we haven't quite gotten to the, the point for property owners of how the market's figured out how to monetise, having EV charging available for tenants and you know, we're just, we're starting broadly, globally to have conversations where we are getting that question more and more. 

You know, originally it was, "Hey, I want to put a couple of chargers in my parking lot, how can you help me do that?" I feel like the conversation's shifting a bit to, "Well I think I want to put a lot of chargers in my parking lot, how do I make this into an asset with a return for the building?" And we're having a conversation with a large institutional global owner, you know, it has large portfolio and several continents and it's a really interesting thing to kind of dive into it. It almost reminds me of doing, you know, doing real estate deals and selling roof rights. Something very similar to that concept. So I don't feel the market's really landed yet. I still think there's a bit of a disconnect between the property owners and the charge point operators. 

NM:
Sounds like there's some work to go, Tim, you're a veteran of the Australian industry. What have you seen? How have you seen the the conversations change? 

TW:
I actually think it depends on context and I actually think it depends on the stage of the EV market. So I think it is different between retail and commercial. But if we concentrate on commercial a little bit, I like to take a step back and basically go: Is electric vehicle charging infrastructure a commercial proposition at all? This is the first question I always ask our clients. Which is that if your strategy is to attract the best clients and your strategy is to attract the best tenants, there's a lot of pressure. For example, on end of trip facilities, there's a lot of pressure on providing bathrooms. What is the economic return on providing a bathroom? What's the economic return on providing an end of trip facility? And I think at the early stage of the electric vehicle charging journey for a lot of people, I think there is an argument to be made that it is an amenity. Obviously as you kind of outfit the entire building and it becomes ridiculously expensive. 

You can't have that, you must have a commercial return to that. But the early stages of getting people thinking about providing charging infrastructure in a commercial building, your tenants are going to drive electric cars. They're going to expect some kind of charging. The fact that you can't provide it regardless of business case means that you will lose out on those tenants. And so whilst there might not be, as Scott has put it, a landing on where the commercial model sits, it almost doesn't matter because if you don't have it, you won't get the best tenants and you won't get the highest rents. 

NG:
That's a great point. You just touched on Tim there, obviously that's the commercial piece. It's interesting you talked at the top about the report we just released and obviously the penetration difference between commercial and retail. Do you think maybe that's why to some degree that we're getting more penetration retail because there's more of a business case for a third party operator to come in and they can see revenue, they can see a structure around the retail space? Whereas commercial's more around that tenant retention, tenant satisfaction, not so much return investment driven for a third party? 

TW:
Yes, I think for me, I've looked at the kind of public charging model quite a lot. I'm not convinced that there is a model there yet. So I'm not sure the commercial model actually reflects that. I think that's more about public perception and getting into the right properties. But as we've seen from what's happened with Walmart in the US where they've basically taken the charging network in-house, I think even from a retail perspective, both third party CPOs or charge point operators as well as the retailers themselves are still trying to find their feet into what the commercial model is. But because they need that visibility and they want to get that publicity, I think that's probably why you have so much more penetration in retail because there's a lot more branding out there. And there's also a lot more government co-funding which is primarily focused on public charging in the retail space rather than commercial charging privately. 

NM:
That's a really good segue into the issue of government funding for us, Tim. It's obviously critical in the rollout of infrastructure generally. And now we're talking about electric vehicle infrastructure. Scott, what's the situation in the US? What's the impact of government funding? 

SH:
Yes, so it's a pretty mighty impact of government funding in the US for it was NEVI funding - National Electric Vehicle Infrastructure and you know, our current administration has definitely gone I would say pretty wide and pretty deep with the funding. And it's available on a lot of clean transportation corridors, which are the major highways generally in the US. And you know, not a day goes by that I don't get a notification about a certain grant or an RFI that needs to be responded to, whether it it's at the federal or the state level in the US. So it's definitely out there. I do think it's a big driver to Tim's point, it is a very interesting discussion. You know, I mean it's anything obviously that's funded by the government needs to be open to the public. 

It's not going to be private or anything like that, you know. So how it will get the use I think remains to be seen. But it is definitely, in my mind, one of the, I don't know if a game changer may be too strong a word, but it is definitely a big driver towards pushing the adoption of electric vehicles in the US. A lot of the focus previously with grants and incentives had been on the vehicle. Meaning if you buy an electric vehicle, you get a tax rebate, right? The focus has really turned to the infrastructure and so I think our government viewed it that hey, if you can put the infrastructure then people will buy the vehicles. And so it's been a bit of a shift over the past 12 to 18 months, we'll call it, where it used to be, "Hey, get the vehicles". Well automakers will tell you we're not selling the vehicles because people are worried about charging the vehicles, you know. So it was a bit of a chicken or the egg type of game, but it's definitely bringing some clarity to, you know, how this is being thought about and that's obviously a rollout over the next 2, 3, 4, 5, 6 years that that will take some time. But you know, I think the die is definitely cast with where the US is trying to move to, you know, from a public charging accessibility standpoint. 

NM:
Tim, what are the learnings from the US that you think we should adopt here in Australia?
 
TW:
There are lots of learnings. Unfortunately, I think just the way commercial incentives work and kind of of country's work is that we don't always take the best learnings and we don't. We always have to. It's like kids, right? You always have to let them make the mistakes themselves before they learn. But some of the things we've learned from the US market as well as the European market is on the chicken and the egg question, we very much believe infrastructure comes first, which is why there's been a lot of public funding for public charging infrastructure. And if you step back a bit, it's actually pretty cool as taxpayers that our government and us, indirectly are creating a brand new ecosystem for mobility and energy. Sometimes it's a bit disassociating from you when they build a big bridge or road or whatever, but this is kind of all around you and the public funding is there to create a brand new almost way of travel, way of energy consumption around you. Similar to kind of how we use public funding to promote rooftop solar and now we have the highest penetration of rooftop solar per capita in the world. 

And so that's really cool. And I think the other thing that the EV council certainly is very proud to be involved in is the evolution of charging infrastructure funding. So originally very much focused on public charging, still a lot for public charging and then that went down to the states as well. And now lately, a lot more on fleets and heavy vehicle fleets, recognising that we need to get the heavy vehicles decarbonised as well. And then the latest round of funding coming out all around innovation around infrastructure to try and keep some of the intellectual property in Australia rather than just buying stuff from overseas. So I really, I love seeing that evolution of funding because it basically speaks to a more mature understanding of what's required long-term. The infrastructure in Australia, we're nowhere near kind of close to being there yet, but it's encouraging to see the steps that various governments around Australia are taking. 

NM:
Fantastic. And Neil, what about your clients? What's the role of government funding there? Or is it really just about getting a better understanding of the commercial model and getting to the infrastructure? 

NG:
Yes, great. I think you've just hit it there. It's more about the commercial model. I think Tim articulated it really well earlier when he said about, you know, his tenant retention, what are your goals for it rather than, I mean, I think ultimately the government funding will always be, and we are still probably a bit further back on the bell curve to the US. Scott from your perspective is still very much around them tax breaks on EV vehicles, et cetera. But I think really, certainly the commercial space, I think the guys need to take it upon themselves. I don't see a lot of government funding moving into that space. I think it's something that is really a commercial model for you, separating yourself as being an innovator or at least moving forward with this in your portfolio to encourage your tenants into them sites 

NM:
And not being left behind. 

NG:
Absolutely. Absolutely. And I think everyone's realised that and they're trying to move very quickly now to try and catch up. 
 
TW:
And if I reflect on the long-term commercial model, one of the challenges I think for property players, and I think opportunities obviously as well, is to rethink who they are and what they participate in. Because EV charging will be the convergence of property, electricity, and transport. And so if you say to yourself as a property client, I only do property, I don't do anything else, that really limits. And obviously sometimes there are structural and legal issues as to why you can't play in different areas. But putting that to one side, let's say you hire some really fantastic lawyers who get around that. Are you an energy player long term? Are you a transport player long term? Because ultimately the consumption of electricity for electric vehicles will be heavily based on where they park. And so if you have a global property portfolio with millions of cars parked every day for hours on end in your property and you have charging infrastructure on there and you're dispensing electricity to those vehicles, who's to say that you shouldn't be one of the largest electricity distributors or retailers in wherever, whatever country you are in. 

And that I think is the challenge that you'll have to kind of face. And we've got in Australia, oil companies launching electricity, retail arms, electricity companies launching vehicle listing, you know, global OEMs wanting to be a large energy player. If you think about Tesla and Volkswagen, like it's all kind of jumbled together now in a big room. And I think for the property sector, they have to go, alright, let's look past where we are today and go, yes, let's put some infrastructure. But as we've been talking about the commercial model, maybe the commercial model sits outside of the direct property space. But I think that'll take some challenge because obviously these guys, most of these guys are pretty big. 

NG:
Yes, and I think Tim has a great point. I think that really dovetails back into the commercial piece as well. We were talking earlier on, like you're talking about the commercial model, it's that risk profiling. Scott mentioned it like where's the risk profile sit and yes, if it suddenly becomes that you're playing in the energy space, well who are your partners? Where's the demarcation between you and your partners on that? Of where, yes we are happy to, you know, use CapEx or invest in x, y, z, but we're not happy to operate, maintain or optimise these assets or, you know, retail energy. So where do we start to play and and who do we partner with potentially to do that? It will be an interesting space. 

SH:
Yes, it is interesting watching all that has entered in the US, at least public utilities that are trying to get into the game. Energy companies, automotive companies, some large equipment manufacturers that are big household names I think have seen the opportunity in the market. And it will be, I think it'll be a very fascinating several years to watch how everything shakes out with how people, you know, large well-funded companies adapt their business models to really get into the EV game. 

TW:
And I think, you know, sometimes when we talk about opportunity, we don't look at the flip side and this is like not a thing to make people scared, but there will be losers in this transition. There will absolutely be companies that one, don't make it, two, don't capitalise on it, and so therefore fall behind their competitors. And because of how big a change this is, it'll make previously almost unstoppable companies seem catchable and then it won't be a surprise when they fall behind the pack. And so there is both an opportunity but also a threat for those who do nothing because I think there will be a cost for doing nothing as well. 

NG:
So you're seeing a Nokia mobile phone type moment happening in the vehicle market. 

TW:
Absolutely. Absolutely. 
 
NM:
And it does feel like there's a grab for real estate right now for those prime electric vehicle charging locations. Are you seeing that? 

SH:
Yes, in the US and other areas we are definitely seeing it. You know, think seeing it in a couple different areas. I mentioned some of the funding along highway corridors, lot of speculative real estate purchases of, "Hey, this site we can get power to it, why not make it a charging site?" So it is definitely gold rush land grab, you know, whatever phrase you want to use, but it's there and it's very much for real. 

NG:
Yes. And if we use Tim's analogy earlier around the solar piece, it's packed to that solar PPA type market we've talked about in the past. With the rooftop it was always kind of, could you get your landlord and tenant to agree on putting a solar PV system on the roof under a PPA, and now it's actually flipped 180 and everyone's fighting over that roof area. You know, that land grab for the square meterage of roof that's now moving. I think it's a very similar model now into this market. Everyone see it's in the value of that real estate. 

TW:
But it's good news for your clients, isn't it? Because the only thing that matters in a land grab is the land. So if you own property, you've got the only thing that matters really. 
 
NM:
So if you are a landlord with some prime retail space, the lesson is? 

TW:
Let them fight. Let them fight over you. 

NG:
I think also look at your internal solution as well. Understand what the third party market is. Absolutely. And then understand, well what does that mean for me if they want to invest and do I want to invest? And understand your appetite, I think with the pros and cons of that. 

SH:
Yes, no, totally agree. I was going to say choose your partner wisely. You know, I mean if you're a retailer, you're sitting on a great site, there's going to be a lot of different, you're going to have a lot of different options and, you know, I think just trying to think a little bit ahead is important as you try to make the most of those options. 

NM:
Plan ahead. Don't take the first offer. 

SH:
Right. 

NM:
So as a final question to each of you, what do you think will be the biggest game changer for the industry as we strive to get EV ready? Scott, perhaps if I can start with you.

SH:
Yes, it's a great question and you know, I think that broadly, and I'm hesitating because I don't know, it's hard to give one answer what the biggest game changer's going to be. So I'm curious to see what Tim and Neil have to say. I'm going to speak very kind of narrowly about the US. I think the government funding goes a huge way because it's almost forcing the issue in a sense. The other part of that is, and I think other states will go along with this, but some of the government mandates I think are going to be very big because they come at you a lot quicker than you think they're going to. I think in the state of California, electric vehicles will have to be the norm. I think it was by 2035, but I could be mistaken on that. But you're, you know, you're starting to see some states and also countries outside of the US go down that path. And I think that almost forces the hand in a sense. But curious to see what my colleagues have to say here. 

NG:
Yes, well I think my answer is probably quite practical, so probably, it's a bit more down in the weeds maybe. But as Tim might have a bit of a broader view of the market with his experience over the last decade or so. But my industry, working with our clients, we talked about electrical infrastructure earlier and trying to get things moving and not them delaying us. So for me actually, I think it's really around the DNSPs, which is the network owners if you like, across Australia, and the regulatory bodies in fire for example, where they've gotten extremely conservative because they haven't got stuff in place. And them type of bodies for me is very quickly getting to a point of giving our guideline structures of what we need to do to deploy EV charging in various different sites and we need upgrade to infrastructure, et cetera. So that that accelerates that and it doesn't become a stumbling block to stop us and slow everything down rolling out. So quite a practical answer I think rather than a broader piece. But the quicker we have that in place, the quicker every project gets approved. 

TW:
I think there's probably two game changers. One from a policy perspective and one from a future technical perspective. From a policy perspective, I think it is the recognition, as Scott said before from governments all around the world, that the transition to low emissions vehicles is actually not a transport problem, it's an infrastructure problem. And as soon as you shift, because we've been talking a lot about commercial property, but actually if you think about all of the large bus depots, truck depots, et cetera, it is very much an infrastructure issue because infrastructure moves a lot slower than car sales. And you know, I was looking at funnily enough, Shanghai's top performing taxi charging hub yesterday who dispensed 513 megawatt hours per month, right? Per month. And so, you know, the kind of infrastructure for one hub is beyond the comprehension of anyone in this country. So I think it has to be an infrastructure mindset shifting from a transport mindset. 

And then the technical game changer will be wireless charging with bidirectional capability over the next decade where basically property owners will no longer require be required to install charging stations on the wall. It'll equal pads on the ground and when you drive over it, they'll all be able to be used for batteries when the vehicles are capable of it. That leads to almost like an automatic enrolment into programs for tenants, which means that property players have a lot smoother parts of becoming energy players. I think that will cause significant disruption in the market as to who wins in the energy space. And so I'm looking forward to seeing that play out. 

NG:
Yes, bidirectional charge is a really exciting space. I'm really bated breath on that one. I can't wait to see us get there personally as well. I think Scott mentioned earlier, I also drive an EV and I'm holding off on any kind of battery storage at my house just so we can get that moving on a personal basis as well; get that bidirectional charging. 

NM:
I'm certainly glad to hear that both of you drive EVs as our leads here in CBRE for the market. I feel like we've only just scratched the surface on this topic and we could talk all day. But thank you so much for joining me, Scott, Tim and Neil. There are so many considerations for the EV industry, consumers, property owners, and government, and it's clear that so much still needs to be done in Australia to get us EV ready. Thanks for tuning in to this latest episode of Talking Property with CBRE. If you like the show and want to check out more, visit cbre.com/au-talking-property or subscribe through Spotify and Apple Podcasts. You can also read CBRE's new EV report by clicking on the link in our show notes. Until next time.