Henry Steinberg: Not In My Back Yard: How NIMBYism is affecting warehouse building projects in the U.S.
The need for warehouses is booming, but so is the resistance to them being built near residential areas. Henry Steinberg, President of North America at EQT Exeter explains why it is vital to listen and plan carefully
New Jersey, the Garden State, could be renamed the Warehouse State. Hundreds of huge warehouses have sprung up across its landscape over the last two decades, driven by the e-commerce boom, cash-strapped local authorities scrambling for real estate tax revenue, and more recently, the return home of U.S. manufacturing from Southeast Asia.
New Jersey is now home to 3,034 large warehouses — those with a footprint of 50,000 sq ft or more — and together they cover 527 million sq ft, which represents growth of 17% over the last 10 years and 35% over the last 20 years, according to a recent report. At the human level, around one in three New Jersey residents now lives within half a mile of a big warehouse, and these warehouses generate around 380,000 truck trips every day, the same report suggests.
Of course, New Jersey is not alone: the warehouse boom has been felt in communities across the country. This has created an opposing force in the form of the Not In My Back Yarders: residents who oppose real estate development that feels too close to home.
The bigger the proposed warehouse, the more intimidating it is to the local community. A central fear is that trucks will chew up the roads and block traffic. There’s also the question of how many jobs are created by a highly automated warehouse. Meanwhile, NIMBYs simply don’t want to see the creep of industrialization from their backyards.
For these reasons, it’s harder to build warehouses today than it was 15 years ago. Back then, the Global Financial Crisis had left local authorities scrambling to generate revenue, largely because real estate valuations had plummeted and pulled down tax receipts. Building out-of-town warehouses was an attractive means of making up the shortfall because it had a negligible impact on local services such as schools and hospitals and created jobs.
The same local authorities are in far better financial health today so they feel less pressure to permit warehouse builds. This means residents can exert more pressure on politicians to block them, which sometimes leads to political action. For example, earlier this year, Phil Murphy, the Governor of New Jersey, proposed a new $1 tax on every truck trip connected to a warehouse “as a way to mitigate the impact of new warehousing development on traffic and road quality”.
Yet demand for warehouse space is expected to rise considerably in the coming years, driven largely by e-commerce. U.S. e-commerce retail sales are forecast to hit $1.72tn in 2027, up from $1.13tn in 2023. Research suggests an additional $1bn in e-commerce sales requires 1 million sq ft in extra warehouse space. Quite simply, we will need to build more warehouses.
“A potential knock-on effect of NIMBYism and local opposition broadly is that warehouses will increasingly be built further away from urban centers. This could lead to increased automation because of a lack of local labor.”
In today’s market, industrial real estate investors need localized teams that understand the wants and needs of local communities. At EQT Exeter, we’re lucky to have 25 offices across the Americas, giving us the benefit of local knowledge and physical presence.
We’re being more selective about choosing the sites we invest in. For one, we generally avoid investing in projects that involve re-zoning land that isn’t already zoned as industrial. We’d much rather build on land already designated as industrial to minimize the impact on communities.
We also aim to ensure that a site is as close to the highway as possible. When we select a promising site, we figure out how a truck would get from the warehouse to the highway, and vice versa. So we put ourselves in the shoes of local residents and literally drive the roads ourselves. It’s not just about whether the trucks would be too heavy for the roads, or whether they could make the turns. We look at what’s along the route, be it homes, a school, or playing fields, and ask ourselves: “Where does it make the most sense to have a warehouse?”
Once we’ve found the most sensible site, we aim to bring our case directly to residents, explaining what the project will look like and how it will impact their community. We listen intently because there might be things they want us to build for them — maybe landscaping that screens out the warehouse and reduces truck noise. We aim to be transparent and have a two-way conversation. Trying to sneak in and do as you please just isn’t good for anybody.
A potential knock-on effect of NIMBYism and local opposition broadly is that warehouses will increasingly be built further away from urban centers. This could lead to increased automation because of a lack of local labor. Another possible effect is that the supply of new floor space will be constrained in a market where demand continues to rise. This would lift rents and returns. And if it’s harder to build new warehouses, buying older ones becomes an attractive investment prospect.
So even if it’s a little harder to build warehouses today, the long-term investment prospects are sound. The trick is to plan carefully and listen intently to the people who live nearby, whether they’re NIMBYs or not.
Mr. Steinberg is the global head of EQT Exeter. In this capacity, he serves as one of the Co-Portfolio Managers of the U.S. industrial value fund series. Mr. Steinberg oversees a 200 million SF portfolio and has supervised the execution of over 500 lease transactions totaling 64 million square feet since 2020.
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