How AB 98 Will Reshape California’s Industrial Market

February 23, 2026

Effective January 1, 2026, California Assembly Bill 98 (AB 98) establishes a new statewideframework for siting and designing large logistics and warehouse facilities, materially altering coreunderwriting assumptions across industrial development and acquisitions. The law targets“logistics use” buildings and ties its requirements to size, expansion thresholds, industrial zoning,and proximity to “sensitive receptors” such as homes, schools, parks, nursing homes, andhospitals. In practice, AB 98 regulates building orientation and loading bay placement, imposesminimum setbacks, dictates truck circulation and access, and mandates specific buffering whileprohibiting local approval of non‑conforming projects. It applies to new logistics developments andto existing facilities that expand logistics floor area by more than 20%.

From a design and site‑planning standpoint, AB 98 tightens constraints on warehouse layouts,especially near residential or other sensitive uses. Mandatory setbacks, landscaping, andcontrolled truck corridors reduce effective developable area, often lowering achievable FAR and eliminating true cross-dock configurations on constrained parcels. Requirements to orient loadingaway from receptors and route trucks to designated arterials or routes, can push docks to lessefficient sides, lengthen internal drive aisles, and complicate trailer parking. The statute also raisesexpectations for screening, sound mitigation, and façade and landscape treatment, expandingproject scope and requiring closer coordination among civil, traffic, landscape, and environmentalconsultants.

In practical terms, these design constraints can materially reduce rentable building area whilesimultaneously increasing site development costs. For example, a 20-acre industrial site thathistorically supported a 36% site coverage cross-dock layout may now only support 28–30%coverage with single-sided loading, reducing net rentable area by 120,000–150,000 square feetand increasing land cost per buildable square foot by 20–30%.

These design changes drive higher development costs and longer pre‑development timelines. Onthe hard‑cost side, added landscaping and screening, extended paved circulation, sound walls,and adjusted utilities and stormwater systems all increase capital cost. On the soft‑cost side, moredetailed traffic and environmental analysis, health‑risk considerations, and redesign to meet bothstate and local standards elevate consultant fees and extend schedules. For expansion orrepositioning plays, value‑add economics can be diluted by these heightened regulatory hurdles. Inshort, AB 98 pushes total project basis meaningfully higher while simultaneously compressingachievable building efficiency.

AB 98 also reshapes land value. Industrial‑zoned sites with strong arterial or freeway access andmeaningful separation from sensitive receptors stand to command a premium, as they can complywith the new standards with fewer design compromises. Shallow, irregular, or small parcels nearsensitive receptors may shift highest and best use toward lighter‑intensity or alternative producttypes. For pipeline assets, the statute’s timing provisions make entitlement progress a critical valuelever, creating a premium for sites that have “commenced” local entitlements and influencing bothpricing and transaction timing for partially entitled land positions.

AB 98 makes the entitlement and permitting process more demanding but also more predictable. Itadds documentation and supportive analyses around the new requirements, increasing scrutinyand the potential for appeals on large projects. At the same time, it establishes a clearer statewidebaseline, reducing the risk of late-stage regulatory surprises. As one market participant put it, thekey question shifts from “will the city surprise us?” to “can this specific site meet AB 98 standardswhile still achieving target returns?”

For investors, AB 98 presents both risks and opportunities. On the positive side, it raises barriers toentry for logistics supply, supporting rent growth and tighter cap rates for existing assets andwell‑positioned land. It also introduces regulatory clarity and aligns new facilities with ESGobjectives, appealing to capital with environmental or social mandates and potentially reducinglong‑term regulatory or reputational risk. On the negative side, the law increases total project costbasis, reduces buildable area, and can materially compress development and value-add returns.Moreover, not all tenants easily adapt to constrained truck circulation, modified dock layouts, orreduced trailer parking, which can affect rent levels, leasing velocity, and tenant credit selection. Ineffect, AB 98 transforms site configuration, receptor proximity, and truck network access into coreunderwriting variables rather than secondary design considerations.

Why This Matters:

AB 98 fundamentally reshapes industrial land valuation and development risk across California.We expect the largest valuation errors over the next 12 to 24 months to stem from underwritinglegacy site assumptions, overstating achievable building efficiency, and underestimatingentitlement friction. Parcels that once priced interchangeably based on zoning alone willincreasingly diverge in value based on receptor proximity, truck access, and entitlement status.Investors, lenders, and developers who recalibrate underwriting frameworks early will be bestpositioned to avoid basis traps and capture emerging dislocations in land pricing.

About Capright

Capright specializes in institutional valuation and advisory services throughout the United States. As a truly independent third-party, Capright has emerged as the leading provider of mark-to-market valuations for many of the largest privately-owned commercial real estate platforms. In addition to valuation services, Capright offers NAV calculation, daily pricing, valuation process implementation, debt mark-to-market, option and JV interest valuation, compliance review, audit assistance, litigation support, and managed services. In partnership with several of the largest institutional investment managers and data platforms, Capright has pioneered industry-leading analytical tools to set higher levels of accuracy and credibility for assets requiring higher-frequency valuation compliance.

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Capright specializes in institutional valuation and advisory services throughout the United States. As a truly independent third-party, Capright has emerged as the leading provider mark-to-market valuations for many of the largest privately-owned commercial real estate platforms. In addition to valuation services, Capright offers NAV calculation, daily pricing, valuation process implementation, debt mark-to-market, option and JV interest valuation, compliance review, audit assistance, litigation support, and managed services. In partnership with several of the largest institutional investment managers and data platforms, Capright has pioneered industry-leading analytical tools to set higher levels of accuracy and credibility for assets requiring higher-frequency valuation compliance.

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