Over the past number of years, there's been a notable increase in e-commerce, and that's led to an uptick in warehousing space. And given the number of people who adopted online shopping habits during the pandemic, the need for warehouses is only likely to grow.
Southern California, meanwhile, is home to the country's largest cluster of warehouses. And it's not at all coincidental that the area is also known as having the nation's worst air quality.
Not only do warehouses themselves contribute to poor air quality, but the trucks that shuttle goods back and forth between them produce a heavy emissions load. But a new ruling adopted in early May could change things for the better, at least from an eco-friendly standpoint.
New guidelines for warehouses
Warehouse operators in Southern California will now have to comply with new regulations that require them to reduce emissions from the trucks that service their sites, or otherwise take different measures to compensate. The ruling, which applies to facilities that are larger than 100,000 square feet, requires warehouses to earn points to make up for truck-produced emissions by either switching over to zero-emissions delivery vehicles or investing in other mitigation measures, like installing solar panels.
Warehouses will also be given the choice to opt out of these requirements -- that is, if they're willing to pay a fee.
What's interesting about this new rule is that it technically applies to delivery trucks, not warehouses themselves. But the goal of this initiative is to greatly reduce the air quality issues that have long plagued Southern California.
In fact, this new plan is expected to reduce nitrogen oxide emissions by up to 15%, leading to up to 300 fewer deaths, 5,800 fewer asthma attacks, and 20,000 fewer lost workdays between 2022 and 2031. This rule also makes sense in light of a separate regulation adopted by California last year that requires more than half of all trucks sold in the state to be zero-emissions by 2035.
The impact on real estate investors
Industrial REITs (real estate investment trusts) have become popular among real estate investors, especially in light of the evolving shopping habits that emerged during the pandemic. But while California may be specifically targeting delivery trucks that service warehouses, in the near term, it, and other states with large clusters of industrial space, could impose added regulations on larger facilities that cost money to implement.
Now the good news is that greener warehouses can be cheaper to operate in the long run when accounting for energy savings. But there are costs involved in making these facilities more earth-friendly, and that's an expense warehouse operators may need to absorb.
Even if future regulations come down the pike that relate to trucks only, that, too, could change the face of warehousing. Still, such rules may not be met with much resistance in an age when eco-friendliness seems to be not only essential, but trendy. Walmart, for example, has already committed to operating 100% zero-emission trucks by 2040, and Amazon has made similar promises.
Warehouse operators may not want to wait
Warehouses that opt to get ahead of the curve and invest in emission-reducing features before they're forced to could end up reaping a world of savings. Once the demand for retrofitting really picks up, the costs involved could get even heftier, and beating regulators to the punch could work out well for warehouse operators throughout the country.