Andrew Judd, left, and Jason Price, of Cushman & Wakefield
EAST RUTHERFORD, NJ—New Jersey industrial space continued to tighten in the first quarter, even as the construction pipeline reached historic levels — fueled in large part by tenant demand for e-commerce and last mile product — with the market expected to remain on its current trajectory over at least the next year, says Cushman & Wakefield.
“New construction deliveries for industrial space in Northern and Central New Jersey are anticipated to reach record levels this year,” says Andrew Judd, Cushman & Wakefield’s New Jersey market leader. “Yet demand is so strong—and class A big-box options are so scarce in the Garden State—that much of the new product could already have tenants in place by the time they deliver. Barring any major geopolitical events, the New Jersey industrial sector is in line for another robust year.”
“Long term, land constraints will continue to limit future developments in most New Jersey submarkets,” says Jason Price, Cushman & Wakefield’s research director, tri-state suburbs. “Vacancy should remain steady as a whole, while the rates in some key Turnpike submarkets should tick even lower. We should also expect additional rent growth in both class A and B product as this expansion cycle proceeds, with space in the primary submarkets likely to dwindle further.”
Price noted that the overall vacancy rate ticked lower from five percent to 4.7 percent since the end of 2016, while at 4.4 percent, the warehouse/distribution vacancy rate has fallen 110 basis points since a year ago, fueled by the appetite of large users for quality warehouse space along the New Jersey Turnpike and/or near the Port of NY/NJ. There are only eight big-box availabilities (300,000+ square feet) currently available and only another handful anticipated to become vacant next quarter.
The primary submarkets along the NJ Turnpike recorded a four percent vacancy rate at the close of the first quarter, compared to 5.9 percent vacancy for the remainder of the market. Vacancy for warehouse facilities fell in most core areas along the turnpike with Exit 7A (0.8 percent), Exit 8A (2.5 percent) and the Meadowlands (4.3 percent) reaching historic lows. Conversely, available space edged higher in Lower 287, as 354,000 square feet of speculative new construction was delivered in Perth Amboy and 460,000 square feet at 50 Bryla Street in Carteret came online on a sublease basis.
Overall net absorption remained in the black as the Garden State marked its 17th consecutive quarter of occupancy gains, with Central New Jersey accounting for 75 percent of the 1.6 million square feet of industrial space absorbed during Q1. Exit 8A led the way with almost 700,000 sf of occupancy gains, while most of the primary Turnpike submarkets recorded positive absorption during the quarter. Only the Port Region experienced slight occupancy losses. Class A warehouses greater than 100,000 sf propelled occupancy improvements, with 2.1 million square feet of space gains for the quarter, 24 percent higher than the overall market recorded.
“The need to be in close proximity to the Port or the Turnpike and other major highways to reach the most populous region in the country [NY Tri-State] has helped the local industrial boom remain on its current track,” Judd says. “E-commerce, logistics, and last mile delivery companies have absorbed much of the space during this expansion cycle.”
In lockstep with occupancy gains, leasing remained brisk during Q1 with 6.3 million square feet of signed leases, with Central New Jersey accounting for 76 percent of that activity. Furthermore, Lower 287 and Exit 8A accounted for more than 61 percent of New Jersey’s quarterly total, while the Meadowlands recorded almost 620,000 square feet of new leasing activity.
This marked the second strongest Q1 industrial leasing quarter in recent history, behind only last year’s record 9.1 million square feet. Of the Q1 2017 total, 28 percent occurred in projects not yet built. In fact, 4 out of the 16 transactions greater than 100,000 square feet recorded in the quarter were completed in facilities either about to begin or are currently under construction.
Other notable transactions during Q1:
- Target leased 718,000 square at 980 High Street in Perth Amboy, a newly built facility
- S&S Activewear renewed and expanded for a total of 480,000 square feet at 16 Applegate Drive in Robbinsville
- Automann USA committed to 365,400 sf at the proposed warehouse on Docks Corner Road in Monroe Township.
Price further noted that as the market tightened in most primary submarkets, asking rents there also edged higher. The Meadowlands, Lower 287, and Exit 8A all recorded slight up-ticks since the end of 2016.
Specifically, within Warehouse/Distribution product, the asking rate was relatively steady during the quarter, at $6.94/square foot, although it was up 8.1 percent since a year prior. Meanwhile, class A warehouse product within the primary submarkets reached at $7.22/square foot, a five percent premium over the remainder of the market. While asking rents did not increase during the quarter on average, taking rents on quality space continued to rise as tenant demand remained robust, and space options dwindled.
The continued demand has continued to push the need for new product. “Developers remain bullish on the industrial market as speculative construction is at a level we haven’t seen in fifteen years,” says Judd, who noted that during the first quarter, approximately 2.5 million square feet of new industrial product was delivered, mostly within Central New Jersey. This included more than one million square feet at BridgePort in Perth Amboy and 488,800 square feet in South Brunswick.
Of the industrial product completed during the quarter, 65 percent of the square footage has already leased up. Currently, 9.4 million square feet is under development, most of which should be completed by year-end, marking this total the highest annual new construction total this century, almost approaching the 9.5 million square feet delivered in 2001. Of the 31 buildings under construction, five are 500,000 square feet or greater, while nine are within the 250,000- to 500,000-square-foot range. Furthermore, approximately half of the space under construction is slated to be occupied upon completion, as the need for class A, modern space remains robust in this strengthening market.