Industrial real estate has continued to outperform all other commercial real estate sectors over the past several years. Growing demand for manufacturing, logistics, warehouses, and data centers, e-commerce, and self-storage have helped spur the growth of this sector, but momentum could falter as certain cities block plans for new industrial construction. Developers with high hopes for constructing new industrial projects are being met with resistance as cities decline development plans, leaving room for other projects that better meet their cities' current needs.
Cities are saying no thanks
City planners recently rejected a 175-acre warehouse development project in southern Dallas after concerns from local residents about additional pollution, traffic, and reduction of property values in an already-congested industrial area. City planners and residents claim there is a greater need for housing, particularly affordable housing, in the area that ultimately is more important than the potential jobs and economic activity the new development could create.
But Dallas isn't the only city to say no to new industrial developments. Howell, a township in New Jersey, recently denied a 1.2 million-square-foot warehouse proposal, which is now resulting in a lawsuit against the city by the developer. Another New Jersey township in South Brunswick also rejected plans for a 744,000-square-foot warehouse near the New Jersey Turnpike with concerns over additional traffic noise, pollution, and hazardous runoff from the facility.
In early 2020, the mayor of Bolingbrook, Illinois, a suburb of Chicago, publicly opposed Amazon's (NASDAQ: AMZN) recent acquisition of 119 acres of land for the hopeful development of an 825,000-square-foot warehouse facility. Despite the estimated 1,500 jobs the warehouse development would create, the mayor would prefer to see a project that's more physically appealing and provides a higher earning wage than Amazon's $15 per hour pay grade.
Will this become a trend?
More and more towns seem to be approving development plans with caution, thinking of the needs of their citizens above zoning regulations or desire or demand for industrial development. While this is a growing trend that could stall momentum in some markets, I don't see it overtaking the industrial market as a whole. The demand for industry is there, and while some sectors are seeing oversupply, many are still undersupplied, and cities eventually will need to fill that void.
I think that in markets that are already highly saturated and becoming highly polluted, congested metros, developers will often be met with more resistance than in more rural areas that rely on developments like these for economic activity. Investors and developers in this sector should be prepared for potential kickback, having backup plans or alternative cities in mind for their developments, and be prepared with a plan and counter arguments to potentially combat city council resistance.