Triumphs & Trials for NJ’s Industrial Real Estate Market

The cost of capital and other factors have dampened activity, but the future appears bright.

By George N. Saliba, Contributing Writer On Jul 10, 2024

Home to the East Coast’s largest seaport and featuring more than 107 million consumers located within a day’s drive, New Jersey remains a lodestar for industrial real estate – although higher interest rates, general economic uncertainty and easing consumer demand have slowed the industry from its COVID-era, e-commerce-fueled fever pitch.

The data is clear: According to real estate giant Colliers, northern and central New Jersey industrial availability was just 3.35% in 2022, but nearly doubled to 6.23% by the end of 2023. 

The cost of capital has been a determining factor, such as for companies seeking space in the 500,000- to 1-million-square-foot range, where new robotics, material handling equipment and racking might cost $100 million to $300 million, says Thomas Monahan, vice chairman at the commercial real estate firm CBRE.

“You’ve [also] had negative earnings for the last several quarters, and especially with the retailers, you had general economic uncertainty,” Monahan adds. “[They were thinking]: ‘Is it a soft [economic] landing? Is it a hard landing? Is it no landing?’ And I don’t think many folks really know if we’re going to get an interest rate drop or an interest rate hike, or nothing. So, that creates a lot of uncertainty.”

But the news is not all sour: While CBRE’s Monahan cites a first quarter 2024 4.9% vacancy rate for northern and central New Jersey, he also notes a historically similar vacancy rate for the year 2007. There is today about 65 million more square feet of inventory, indicating a healthy market that is not encountering oversupply. 

New warehouse/distribution centers long in the works and set to soon hit the market may initially add to the current vacancy rate, but Monahan prognosticates that as tenants and prospective tenants feel more comfortable with the economy and with their sales – and as they simultaneously improve their supply-chain models – there will be a supply imbalance, over time. Decreasing supply, he says, will be fueled by the slower construction starts occurring now. 

Tenant’s Market

New Jersey industrial real estate is for now arguably a tenants’ market, with landlords often keenly focused on occupancy and increasing concessions. For example, a 10-year lease may now include 10 months of free rent, Monahan says, whereas a year or two ago it may have included only one or two months. 

Noah Balanoff, vice chair of the Balanoff industrial team at Colliers, tells New Jersey Business Magazine: “If you’re a landlord today and you have vacancy, I would argue it’s much more important right now to get some of those pieces off the board and fill those spaces. I’m not saying under any circumstances; obviously, it still has to make sense. However, don’t go for the last 10 cents, and [do] try to get the vacancy figured out, because we have to start thinking about when the next deal is coming.”

That said, the market is clearly not one of desperation. Cushman & Wakefield’s Senior Research Manager John Obeid speaks favorably about the overall New Jersey industrial real estate market, noting in part that “big box, larger transactions” drove a return for some demand at the end of 2023 and into 2024. 

He also says overall, “For an average quarter, we’ll have about 5 million square feet of new leasing; it wasn’t [the] 6.5 million square feet that we saw in 2020; [but] it’s … on par with pre-COVID demand.”

Various market reports showcase the large transactions that are occurring throughout New Jersey: TJX Companies – the parent of T.J. Maxx, Marshalls and HomeGoods – has leased 1.3 million square feet of industrial space in two separate buildings at the intersection of the New Jersey Turnpike and Route 3 in the Meadowlands. Separately, Prologis Inc. leased 607,400 square feet to warehousing/logistics firm Elogistek in Woodbridge.

Obeid meanwhile says overall, “Bed Bath & Beyond had some struggles; they put a lot of Class A space on the market, and a lot of it has been leased already. So, we’ve seen some good demand for well-located Class A space that was on the market last quarter, but was recently leased.”

The Future

The future of New Jersey’s industrial real estate market seems bright. Balanoff says, “With interest rates being more predictable, and with a little bit more visibility into what they’re going to be doing in favor of consumers and corporations, I think we’ll start to see the activity level pick up probably later this year. There’s going to be an injection of confidence, an injection of just more certainty. So, I think [leasing] decisions will be able to be made with a lot less anxiety.” 

To access more business news, visit NJB News Now.

Related Articles: