Evaluating Changes In Industrial Regulation: 2024 And Beyond

In recent years, the demand for industrial warehouse, distribution, and outdoor storage uses has surged. This robust demand, a response to the e-commerce boom and other market forces, has driven a critical need for logistics and fulfillment facilities near the Ports of Long Beach and Los Angeles and other regional transportation hubs. In response to this demand, municipalities have begun to overhaul their land use policies and to establish new regulatory programs intended to curb the impact of these uses and the truck traffic generated as a result on their communities.

These regulatory changes have created a high degree of uncertainty for industrial developers, who must now anticipate and evaluate regulatory change as they consider the investment, acquisition, and development throughout the Los Angeles area and Southern California more broadly. This article offers developers a framework for assessing the impact of proposed regulations and mitigating the risk of operating in a rapidly changing regulatory environment and provides an overview on key zoning code updates occurring in the Los Angeles area.

A FRAMEWORK FOR ASSESSING LOCAL CHANGE

To evaluate the impact of a proposed zoning code update industrial developers should consider certain key elements of a zoning ordinance. While the impact of some of the elements identified below are familiar, like downzoning, increasingly municipalities have begun to impose new development, operational, and noticing requirements that may be hidden deeper within a proposed ordinance but nonetheless can have a significant impact on the use and development of a parcel. These are the requirements that must be carefully evaluated.

Downzoning

Downzoning is the process of changing the zoning classification of a property to a lower density or less intensive use, often limiting the property’s development potential, and reducing its market value.

The latest trend in downzoning is the establishment of new “hybrid” or “flex” zoning, often employed in areas adjacent to areas with sensitive uses, to limit the range of industrial uses allowed. These new zones often prioritize higher employment and tax generating uses, such as the production, design, distribution, and repair of products, over warehousing, distribution, and industrial outdoor storage. In some cases, hybrid/flex zoning outlaws these uses entirely. Hybrid/flex zoning can be particularly challenging as a municipality’s desire for a particular use does not always align with the market realities and existing tenant pool, resulting in existing uses in legacy industrial areas located close to existing rail and freeways being rendered legally nonconforming.

Changes to Permitted Uses

Multiple jurisdictions have imposed, or are considering, significant changes to uses allowed within a typical industrial zone. These changes include establishing permitting requirements for certain uses, such as warehouses, based on building size rather than the activity carried out within or the expected impacts and mandating that certain uses include significant square footage devoted to commercial, non-warehousing uses. Municipalities are also imposing new permitting requirements on uses previously allowed by right, requiring, for example, a conditional use permit (CUP) for a use, such as trailer and truck parking, previously been allowed by right. Such changes limit the usability of sites and greatly increase the cost, complexity, and uncertainty associated with obtaining the approvals needed for a particular use to be established on a property. Considering the impacts of these changes is an essential first step in any due diligence conducted before the acquisition of a property.

Development, Operational, and Noticing Standards

While changes to permitted uses and zoning often garner the greatest publicity, development, operational, and even noticing standards, often hidden deep within proposed ordinances, can have just as much, and sometimes more, impact on the ability to develop a site and find tenants. Development and operational standards range from the familiar, increased setbacks and screening, to the unusual, such as prohibitions on the use of local streets by employee’s personal vehicles and requirements that industrial projects include outdoor amenity space encompassing significant percentages of lot area. Also present may be expanded noticing requirements — even up to a half mile — for industrial projects. A very close examination of a proposed ordinance, including sections governing process and procedure, is necessary to understand the full impact of a zoning update on a particular project’s use and development.

RECENT AND PENDING ZONING CODE UPDATES IN THE LOS ANGELES AREA

Summarized below are several zoning code updates that have already impacted, or have the potential to impact, industrial development in the Los Angeles area. Although this list is not exhaustive, the updates highlighted below illustrate the types of regulatory changes that developer’s should be aware of and consider when evaluating a locally-proposed regulatory change.

• • County of Los Angeles. Effective since 2022, the County’s Green Zone, which applies to certain areas of unincorporated Los Angeles County, mandates that existing and proposed industrial uses within a 500-foot radius of sensitive uses like residential neighborhoods, comply with new development, operating, and permitting requirements. These include height maximums, new setbacks, landscaping requirements, screening, requires related to the location of access points, and restrictions limiting hours of operation from 8:00 AM to 6:00 PM. Notably, discretionary approvals, including CUPs, requiring the approval of the County’s Regional Planning Commission are required for many industrial uses that previously could be established with only-staff level approvals, such as the County’s Ministerial Site Plan Review.

• • The County is also in the final stages of adopting the Metro Area Plan and its implementing zoning ordinance (collectively, the MAP). Notably absent from the current version of the MAP, which is set for adoption by the County Board of Supervisors later in 2024, is the previously proposed M-0.5 (Artisan Production and Custom Manufacturing) zone, which would have broadly prohibited distribution uses and industrial outdoor storage in areas of the County. Although abandoned, this hybrid/flex zoning is expected to be proposed at a to be determined future date and any effort by County staff to do so should be carefully monitored due to its wide-reaching impact.

• • City of Los Angeles. The City is in the midst of a long-running update to it’s Community Plans, which comprise the Land Use Element of the City’s General Plan, and its Zoning Code. Notable for industrial developers are the ongoing updates to the Harbor Gateway Community Plan and the Wilmington-Harbor City Community Plan. Due to the proximity of these areas to the Ports of Los Angeles and Long Beach and the significant amount of existing industrial development in these areas, the ongoing update is likely to significantly impact the owners and operators of industrial properties in these areas. The latest draft plans include a multitude of regulatory changes and redesignate certain parcels as Industrial Transition Areas, a type of hybrid/flex zoning that would, over time, eliminate industrial land uses in areas near residential uses. Other areas will be rezoned in such a manner that outdoor storage, including the storage of cargo containers and commercial vehicles, will be outlawed and certain uses, such as warehouses, formerly were allowed by right will now require approval of a CUP. The plans and their implementing zoning would also establish several unusual development standards, including a requirement in certain zones that all warehouse uses devote a percentage of total floor area to “another use” (i.e. office, school, restaurant, retail, office, medical clinic, and market uses). The Harbor Gateway Community Plans update is expected to be completed in late 2025 and, given its potential impact, should be closely monitored as it proceeds.

• • City of Carson. In 2023, the City of Carson adopted an updated General Plan. In connection with this update parcels in the City previously designated for industrial uses were redesignated Flex District (FLX). Within this hybrid/flex designation, the City is encouraging a transition from industrial to commercial/residential uses. And while light industrial uses with 30,000 of less square feet of floor area are still allowed, any projects over this size will require approval of a Development Agreement by the City Council, thus providing the City an opportunity to extract community benefits from developers unrelated to a project’s impact. A new zoning code implementing the General Plan’s policies related to industrial uses is expected to be released sometime later in 2024.
  • City of Pomona. The City is amid a contentious multi-year update to its zoning code. The ongoing update, which as currently drafted would eliminate most warehousing, distribution, and outdoor storage uses and a now expired moratorium on all trucking related uses, that remained in place for two years, have caused significant concern amongst industrial stakeholders with interests in the City of Pomona. It is expected that this effort will be wrapped up in 2024 and its impacts will be better understood as the draft continues to progress.
  • County of San Bernardino. The County of San Bernardino is working on development of an overlay to implement environmental-justice focused policy goals identified in its recently adopted Policy Plan, the County’s version of a General Plan. Current drafts of this ordinance, which would apply in unincorporated areas of the County within or near identified Environmental Justice Focus Areas, include an expanded noticing radius of as much as a half mile for certain types of industrial projects, require development of a community outreach plan for certain projects, and includes unique limitations, such as a requirement that certain industrial or commercial developments be prohibited from using local or residential streets for employee, client, or truck access or parking. It is not clear when this effort will be completed.
  • City of Pico Rivera. The City is currently undergoing a comprehensive update to its zoning code. Although detailed drafts have not yet been released, given the City’s attempt in March of 2024 to adopt a moratorium on warehouses, distribution centers, and related land uses in all industrial zones, it’s safe to assume that the updated zoning code will include a multiple of new use, development, and operational restrictions associated with warehousing and distribution uses.

The efforts identified above represent a non-exhaustive survey of local regulatory that have, or will, significantly impact owners, operators, and developers of warehousing, distribution, and outdoor storage uses throughout Southern California. Given the high degree of uncertainty in the current regulatory environment and the impacts these updates, we recommend carefully evaluating any jurisdiction’s plans to update its General Plan or zoning code before investing in a particular market or jurisdiction. To discuss specific rules, proposed regulations, or project/property specific impacts, please do not hesitate to reach out to our land use team.