A new California state law aimed at easing residential concerns over industrial sprawl in suburban neighborhoods could curb warehouse development and potentially keep industry builders and buyers out of the state, some stakeholders argue.
The Planning Logistics and Neighborhood Standards Act took effect on Jan. 1, setting new standards and regulations for all new logistics developments as well as expansions over 20% of a property's current size in California.
The law kicked in as the industrial market is regaining balance across the state and country in the wake of a pandemic-induced building boom. Still, e-commerce operators are seeking space near residential neighborhoods to fulfill local consumers' online orders, and the new regulations could, in some cases, prevent developers from creating that supply due to higher costs and additional red tape, according to critics like Patrick Barnes, a principal at brokerage firm Avison Young.
The new legislation will “increase development costs and could influence companies to seek less-regulated markets,” Barnes, who has worked with industrial developers and tenants across Southern California, told CoStar News.
Similar measures are pending in state legislatures across the country, as communities continue to come to terms with an e-commerce boom that’s spurred logistics development ever closer to population centers, according to Michael D. Hamilton, a partner at O’Melveny. It's one law affecting commercial real estate that's taking effect this month in California.
The industrial spawl law was passed with the intention of curbing overblown development while still preserving jobs and attracting investment to California, said one of the law's sponsors, Assemblymember Juan Carrillo.
"Today, the world’s economy depends on an increasingly complicated logistics industry, and here in California where e-commerce and overnight delivery have become a way of life, finding this balance was critical," Carrillo said in a statement.
New mandates
Influential local business groups like the California Chamber of Commerce and construction union Laborers' International Union of North America have endorsed the new law. Proponents note it could curb growing concern from residents over pollution and traffic, while also encouraging housing development to meet the state’s affordability goals.
The law mandates high-efficiency heating, ventilation and air conditioning systems, zero-emission vehicles and solar installations that critics complain will raise the overall cost of developing logistics facilities.
Critics also claim that the law includes vague phrasing, leaving developers with too much uncertainty. For example, the law's definition of logistics use includes not just warehouses but also manufacturing facilities and enterprises requiring heavy-duty trucks, according to Tim Jemal, president and CEO of trade association NAIOP SoCal.
“Insufficient vetting of the bill resulted in deeply flawed legislation with potentially far-reaching and harmful consequences for industrial property owners, operators and tenants,” Jemal wrote in a public letter against the bill.
The bill sets new standards for warehouse design, location, parking, truck bays, landscaping, entry gates and signage for all new logistics developments and large expansions, with some exceptions.
Among the other new rules for new developments: Any housing demolished to build industrial facilities must be replaced by the developer at a 2-to-1 ratio, and logistics projects may only be located on roads designated as predominately serving commercial uses.
Projects larger than 250,000 square feet must be set back 300 feet from any property line abutting a sensitive location, such as residences, nursing homes, hospitals and schools. They must also include at least 50 feet of landscaping buffering adjacent to such sensitive locations.
Most jurisdictions in the state have until 2028 to enforce the changes; California's industrial hotbed, the Inland Empire, has until 2026.
The original bill’s two sponsors, Carrillo from Palmdale and Eloise Gomez Reyes from Colton, represent the Inland Empire, a region that has seen some of the most active development of industrial space in the country since the pandemic. Both have said they are open to amending the law to address some issues from critics.