Early signs are emerging that the $280 billion in federal aid aimed at spurring investment in domestic semiconductor production is gaining traction.
Commercial property specifically is registering the benefits as public subsidies and private capital flow into the semiconductor industry, though the long-term success of the United States in catching up to its global competitors is far from assured.
U.S. office and industrial property leasing among semiconductor makers has risen 33% since President Biden signed the CHIPS and Science Act in August 2022, according to CoStar data. Property values near semiconductor plants have surged by as much as 48% over the past five years in some markets.
Even apartment developments have received a lift. One Phoenix property leased entirely to employees of a nearby semiconductor plant recently sold for a near-record price.
Since enactment of the law, semiconductor firms have roughly tripled the annual amount of U.S. office space leased from an eight-year low of 572,525 square feet in 2021 to about 1.51 million square feet last year, according to CoStar data. Both San Jose, California, the biggest city in the tech-heavy region referred to as Silicon Valley, and Austin, Texas, accounted for half the total — with Austin slightly outpacing San Jose.
While the effects aren't evenly spread, industrial leasing activity from semiconductor companies still averaged 1.33 million square feet per year from 2014 through 2020, according to CoStar data. In 2021 and 2022, the annual average was up to 1.56 million square feet. It advanced even more last year, to 1.9 million square feet.
The CHIPS Act was meant to help reverse the U.S.' diminishing capacity to make semiconductors, components critical for operating computers and electronic devices. The U.S. now makes just 12% of the world’s memory chips, down from 37% in 1990, according to the Council on Foreign Relations, a nonpartisan think tank.
In December, the CHIPS Program Office awarded its first grant when it provided $35 million to defense contractor BAE Systems to support the modernization of its Microelectronics Center in Nashua, New Hampshire. The momentum has only grown since, according to a report from real estate brokerage JLL. By mid-April, the office had announced more than $40 billion in grants and loans.
Notable awards included:
- Intel, $8.5 billion for projects in Chandler, Arizona; Rio Rancho, New Mexico; New Albany, Ohio; and Hillsboro, Oregon.
- Taiwan Semiconductor Manufacturing Co., $6.6 billion for expansion of its capacity in Phoenix.
- Samsung, $4.4 billion for expansion of facilities in Taylor and Austin, Texas.
- Micron Technology, $6.14 billion for a new facility outside Syracuse, New York, and expansion of its facilities in Boise, Idaho.
- GlobalFoundries, $1.5 billion for investment in plants in Malta, New York; and Burlington, Vermont.
More applications are in the review stage, and awards could go to such firms as Texas Instruments and GlobalWafers America, according to the U.S. Department of Commerce, with a combined $35 billion planned for expansion in Texas.
There are limits to the effects. The economic impact from these investments won’t be even across markets, according to Kari Beets, senior manager of industries research for JLL.
“The impact tends to be in places with parts of the semiconductor ecosystem already in place,” Beets told CoStar News in an email. “For example, in Sherman, Texas, Texas Instruments already had a plant there — very small, nothing like what’s being built.”
New Manufacturing
GlobalWafers broke ground this year on a new $5 billion silicon wafer production facility in Austin, Texas, that is expected to bring 1,500 jobs to the market. Silicon wafers are used to make central processors and other chips. At full build-out, the project would be one of the largest electronics production facilities in the U.S. and among the world's largest manufacturing plants.
The average office price per square foot within a 5-mile radius of TSMC’s campus at 5088 W. Innovation Circle in Phoenix last year was $283, according to CoStar data. The average was even higher within 5 miles of Intel’s campus at 4500 S. Dobson Road in Chandler at $330 per square foot. By comparison, the average office price per square foot in Phoenix last year was $201.
Land price differences were even more dramatic. The average land price per acre within a 5-mile radius of TSMC’s campus was $1.12 million, according to CoStar. The average within 5 miles of Intel’s campus was $280,405. By comparison, the average per square acre land value in Phoenix last year was $91,924.
Another project could be starting up soon near the TSMC campus. Last month, Mack Real Estate Group was the winning bidder for the development rights to over 2,300 adjacent acres in Phoenix’s North Valley.
Semiconductor manufacturing plants are also influencing multifamily values.
The plants employ thousands of high-salaried individuals, many of whom are in the market for housing. Jobs in the semiconductor and related device manufacturing industry had average salaries of $190,000 in 2022, according to data from analytics firm Lightcast.
Deal Prices
In February, Ideal Capital Group acquired the 325-unit Sentio Apartments in Glendale, Arizona. All of the units are leased to TSMC employees, according to Morningstar DBRS, a firm that rated a Freddie Mac bond offering that included a $60 million loan backing the acquisition. The Sentio deal price of $108 million equates to about $332,000 per unit, the third-highest per-unit price in greater Phoenix in 10 years, according to CoStar data.
TSMC also has a partnership with Kalon Luxury Apartments in Phoenix that waives application fees for TMSC employees, and 70% of the units are leased to them, according to Freddie Mac.
“New homes are being built to support growth, and multifamily development is needed in the interim to support the teams involved in construction,” Beets of JLL said. “In Dallas exurbs just south of Sherman, more than 6,000 new homes were proposed. In Grayson County, where Sherman is located, there is a 56.7% increase in listings from 12 months prior, compared to 8.9% increase in new listings in Dallas County.”
In another example, Boise, where Micron's plant is located, is already facing an unprecedented housing crisis. Rapidly rising rents and appreciating home values have led to renewed conversations among city leadership on the right actions to take to address these issues.
More than 4,200 apartments have come to the Boise market since the end of 2022, according to CoStar data. Adding to that pipeline, more than 3,900 units are under construction, and another 1,400 units are in the planning stages.
Government officials contracted with Agnew Beck Consulting to quantify the supply and demand for housing within city limits. Boise will require 2,770 units every year for the next 10 years to meet demand, they concluded. Construction is not keeping up with demand. Over the past three years, housing construction in Boise produced 4,146 units less than the need.
Boise multifamily development has been concentrated in only a few areas. About 41% of all new apartment construction in the past five years occurred in the Southeast market of the city where Micron is expanding its chip production capacity, according to Agnew Beck.
Micron’s largest growth is slated for Clay, New York, near Syracuse. The firm has a 20-year plan for a $100 billion campus at the White Pine Commerce Park. The fabrication facility is expected to create jobs for 9,000 workers with an expected average salary plus cash bonus of about $100,000, according to Micron’s development plan filed with the state of New York.
Only 384 new apartments have opened within a 5-mile radius of White Pine Commerce Park over the past two years, according to CoStar data. Just 48 more units are under construction, and only 413 apartments are in the planning stages.
The area could need 40,000 more residences to accommodate the expected population increase that will come with Micron’s proposed plant, according to local officials. About 10,000 of those would be needed in the next three years.
Private Investment
CHIPS Act government subsidies are already attracting private investment to semiconductor manufacturing, according to S&P Global Market Intelligence. Investment is estimated to rise 85% in 2024 versus 2019 in inflation-adjusted terms.
However, many projects that have received CHIPS Act money have gotten off to a rocky start due to demand uncertainty, permitting issues and pending environmental reviews, according to S&P Global.
Current demand for semiconductors is undergoing some weakness, according to the credit rating firm. New orders have been down in 18 of the past 19 months. Even if an increase in demand intersects with new facilities made possible by the CHIPS Act, success in rebuilding U.S. semiconductor manufacturing is not guaranteed.
“The challenge is going to be, can this be sustainable over time,” according to Christopher Miller, associate professor of international history at Tufts University's Fletcher School of Law and Diplomacy on an S&P Global podcast last month. “Because I don’t think we should expect multiple CHIPS Acts into the future. There’s going to be one, I think. And the goal is to have this initial expenditure of funds catalyze an industry that the U.S. hopes will grow more over time.”
Nor is the U.S. alone in boosting financial aid to semiconductor makers, according to the Semiconductor Industry Association in a recent report undertaken by Boston Consulting Group. The European Chips Act, enacted in September, seeks to mobilize $47 billion in public and private funds. Taiwan, South Korea and Japan are also stepping up funding to try to hang on to their leads in semiconductor production.
The association projects around $2.3 trillion in private sector investment in wafer fabrication in 2024–2032 compared with $720 billion in the 10 years prior to the enactment of the CHIPS Act. The U.S. is projected to capture 28% of these capital expenditures, as opposed to the pre-CHIPS Act pace of investment, in which it would have captured just 9% of global capital expenditures.
“There are concerns that government incentives will beget a global race to the bottom, while a ‘tit-for-tat’ trade war could bring the whole industry to its knees,” Oliver Salmon, director of Savills World Research, wrote in a semiconductor outlook report last year. “The stakes are high, and when it comes to the technological frontier, every region has a trump card to play.”
Regardless of these concerns, money is quickly being dispersed, and private investors are jumping in, Salmon said.
One of the most notable examples came the very month the CHIPS Act became law.
Brookfield Infrastructure Partners signed a definitive agreement with Intel to jointly fund a semiconductor fabrication facility in Chandler. The arm of Toronto-based Brookfield is investing up to $15 billion for a 49% stake in Intel’s Ocotillo campus, with Intel having a 51% stake.