‘Not-in-my-backyard’ mindset threatens warehouse growth

Attendees at Prologis Inc.’s investors day heard pretty much what they came to hear. That included the logistics warehousing giant’s assessment of the macro environment, plans to build facilities occupied solely by data centers, its efforts to expand solar power use, and a broadening of its customer value proposition, among other things.

What they may not have expected to hear were comments from Prologis (NYSE: PLD) President Dan Letter that it is becoming increasingly difficult to build warehouses because of opposition from community activists and residents of the surrounding areas. Letter went so far as to advise listeners during a Q&A at the mid-December event to consider skipping their next warehouse tour and instead attend or tune in to local planning and zoning commission meetings in key markets to understand what has become a core challenge for developers.

There has always been some degree of tension between warehouse development and the concerns of the communities and local governments that embody the not-in-my-backyard (NIMBY) mindset. But the pandemic and post-pandemic surge in warehouse demand, triggered by a surge in e-commerce, has raised the temperature. Hundreds of millions of square feet of warehousing — mostly for logistics use — entered the market from 2020 through 2022. This has forced developers to butt heads more frequently with activists who may have no trouble with the jobs, goods availability and expanding tax base that warehouse development can provide as long as it doesn’t occur next door.

The battle is being waged in many states and localities, in urban, suburban and rural communities alike, though less so in more sparsely populated areas where there is a surplus of land. In urban areas, there is pressure from residents not to build warehouses on locations that were homes for decades to industrial developments.

But the fight is most pronounced and high-profile in California and New Jersey, states that are home to dense populations, tough environmental and permitting regulations, and major air and seaports. In both states are growing numbers of residents who, tired of seeing most warehouse projects being rubber-stamped, are resisting development and pushing their local commissions and state legislatures to fight with them.

In California’s Inland Empire, about 60 miles east of Los Angeles, the number of warehouses has increased from 234 in 1980 to more than 4,000 today, CalMatters, a nonprofit news outlet funded by foundations, donors, sponsors and members, said in a September story. Nearly 300 additional projects have been approved for construction, the outlet reported. About 300 of the 4,000 existing facilities are within 100 feet of a school, according to the outlet.

Only a handful of applications have been rejected in the past five years, critics told the publication. The tremendous growth has turned the Inland Empire into the nation’s largest warehouse complex.

Three projects have been rejected by their respective city councils since October, CalMatters said. Critics have asked Gov. Gavin Newsom to declare a regional emergency, including a moratorium on new warehouse construction, according to the outlet. They have also called on the state legislature to intervene, the outlet said. So far, nothing has happened.

In New Jersey, lawmakers as of the end of November were due to consider at least two dozen warehouse-related bills in a lame-duck session that would respond to public calls for state action to cool the continuing warehouse construction boom across the state, according to NJSpotlight, an outlet funded by various foundations and business groups.

Among other things, the bills urge lawmakers to give financial help to towns to rezone their lands to prevent warehousing where they don’t want it; direct the State Planning Commission to draw up a model ordinance that towns can use to resist warehousing, and provide $50 million to the state agency that preserves farmland where many warehouse projects are planned, the outlet reported.

In what is believed to be an unprecedented move, New Jersey officials said in mid-November that they had bought 575 acres of farmland in Warren County, in the northern part of the state, to block plans for 2.8 million square feet of warehouse development. The head of the state’s farmland preservation agency said it stood ready to make similar deals to keep the land from being developed, according to NJSpotlight. The decision was driven in part by strong local opposition, the outlet reported.

None of this has gone unnoticed by developers who are long accustomed to give and take with communities but are now absorbing more than just glancing blows from the public backlash. Ian Britton, senior managing director of the Ontario, California, office of real estate services giant CBRE Group Inc. (NYSE: CBRE) said pushback in the Inland Empire against further warehouse development has gained “significant traction.”

Developers indicate that community resistance has given them pause on expansion, Britton said. Beyond rising labor and construction costs, developers have to contend with issues such as development moratoriums, increased fees and taxes, and permitting delays that “make it very difficult to get a project off the ground today,” he said. 

A company spokesperson said Britton’s direct experience is with Southern California. However, developers nationwide face similar obstacles, the spokesperson said.

Commercial interests in New Jersey, which has 565 municipalities, know these concerns well. Dan Kennedy, CEO of the New Jersey chapter of the NAIOP, the Commercial Real Estate Development Association, said no sector or subsector in the past 25 to 30 years has been so directly and persistently targeted in the state as warehousing. Developers face community opposition even on projects already zoned for warehousing use and where they are not asking for a variance, or an exception to an existing zoning law, Kennedy said in a phone interview. Developers also confront some of the toughest environmental laws and regulations in the country, he added.

Some New Jersey localities, flush with pandemic relief funds doled out by the state, may feel they have enough of a financial cushion to ignore the economic benefits that flow from warehouse development, Kennedy believes. As those funds dwindle, municipalities and their residents who today oppose these projects may take another look at what they bring to the table, he said. “How do (local officials explain to their tax base that they are scaring off revenue?,” he asked.

Developers in the state may take heart from a mid-August superior court judge’s ruling that reversed a decision by Harrison Township, a rural community outside Philadelphia, to deny approval of a 2.1 million-square-foot, four-warehouse complex. According to a story in CoStar, a provider of information, analytics and marketing services to the commercial property industry, Judge Benjamin Telsey said the municipality’s action was “arbitrary, capricious and unreasonable.”

The judge noted that the locality failed to provide solid evidence to support its decision, and that the township’s denial was unduly influenced by the outrage of 300 people at a raucous December hearing who tried to intimidate the developers and local officials, according to the CoStar story. 

Virtually no project sails through without some community friction, and developers are more than willing to work with residents and municipalities to address valid concerns, such as building near schools, Kennedy said. The problems arise, he said, when developers face communities that won’t accept any compromise. “There’s a group of citizens that don’t want anything there, no matter what it is,” he said.

At some point, if it hasn’t happened already, developers may vote with their feet. Craig Meyer, head of industrial at real estate services giant JLL Inc. (NYSE: JLL) and a California resident, said developers will move to neighboring states where the approval process is half as long and land is cheaper. The pendulum will swing back and forth between industry and communities, but “we have to find an equilibrium,” Meyer said. Developers that operate in New Jersey already have regional footprints, Kennedy said.

It needs to be better understood — or better communicated — that in the Inland Empire it was industrial development that led the way, with people, jobs and goods following the industry’s lead, Meyer said. Today’s development in the region brings jobs, more tax revenue, and quick and easy access to goods that people want and need, he said.

“What some fail to recognize is that the industrial and logistics sector represents the largest job creator in the region,” said Britton of CBRE, noting that transport and warehousing have accounted for 13% of the increase in Southern California jobs since 2012.

The tug of war between communities and developers is unlikely to abate over the long term, though a collapse in construction starts due to high borrowing costs and an uncertain economy may cool things down for a while. E-commerce demand will continue to grow, and more businesses will look to warehouses to stock goods in order to avoid any supply chain disruptions. Both trends are considered secular, so warehouse development isn’t going away. 

Developers will still go where the opportunity is,” said Craig Hurvitz, director, national industrial research at Colliers, a Canada-based real estate services firm. “If the numbers make sense, they’ll move forward with these complicated projects,” Hurvitz said.

According to Britton, the key is improved communication with local stakeholders. “Developers who take the proactive steps to approach the community to determine their needs and formulate a plan to help achieve those goals together are the most successful,” he said.

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