PARSIPPANY, NJ—Bolstered by unabated demand and new development, New Jersey’s industrial market saw its average rental rate continue to skyrocket during the second quarter, eclipsing the $7 level for the first time ever, according to Transwestern’s Second-Quarter 2017 Industrial Market Report.
At $7.26 per square foot, the average asking rent is up 15 percent from a year ago, and $2 per square foot higher than it was five years ago. The $7 level was broken in 15 of the 25 submarkets Transwestern examined, and four submarkets even recorded asking rents above $8 per square foot during the second quarter.
Absorption slowed slightly during the quarter, dipping below one million square feet for the first time in three years, mostly due to a lack of quality available inventory. However, it was the 17th consecutive quarter with positive net absorption. Furthermore, while vacancy improved only slightly during the quarter, the year-over-year vacancy rate dropped by more than 100 basis points for the fifth consecutive quarter – the longest such streak since 1999.
To meet the sustained demand, 12.1 million square feet of warehouse space are currently under construction throughout New Jersey – the largest amount ever recorded.
“As demand from third-party logistics companies for small-to-midsized industrial buildings persists, the large majority of the deals continue to take place along the Turnpike corridor, although secondary submarkets continue to be active,” says Transwestern managing director Jeffrey Furey. “As the new projects under development are specifically designed to meet the pent-up demand from e-commerce distributors, the industry must find a way to meet the corresponding need for construction workers and truck drivers.”
For the fourth time in the past six quarters, Amazon signed the largest industrial lease in New Jersey, committing to nearly one million square feet at Exit 8A in Cranbury. With supply unable to keep pace with the unrelenting demand from e-commerce companies in the land-constrained state, developers are focused on secondary submarkets, where opportunities for value-add redevelopment still exist. This is evidenced by Rockefeller Group’s $225 million acquisition of a 228-acre site in Piscataway, where it plans to build a 2.2 million-square-foot logistics center.
“E-commerce continues to drive the tightening of New Jersey’s industrial market, so the significant amount of construction that’s underway will provide welcome relief,” says Transwestern’s New Jersey research director Matthew Dolly. “With nearly nine million square feet of space absorbed throughout the market over the past 12 months, there are currently six submarkets with vacancy rates below three percent. At Exit 8A alone, nearly 4 million square feet was absorbed over the past year.”
Other market highlights include:
- New Jersey continues to be a life sciences hub to the benefit of the industrial market. The latest example is Lupin Pharmaceuticals, which expanded its manufacturing facilities by 100,000 square feet in Somerset.
- Sixteen submarkets experienced positive net absorption when compared year over year.
- Quarterly absorption was particularly strong at Turnpike exits 8A, 9, 12 and 13.
- Developers are converting manufacturing facilities in tertiary markets to mixed-use projects.