With the latest e-commerce boom and growing presence of logistics companies in the Garden State, the need for quick product delivery to the tri-state area has contributed to another strong quarter for the Northern and Central New Jersey industrial market, according to new research from Cushman & Wakefield. While demand did not reach the high point seen in the first two quarters of 2016 — likely due to the lack of available quality product — but leasing for industrial space is expected to remain healthy for the rest of the year. Net absorption is also likely to finish in the black once more, even with a robust construction pipeline.
“The need for modern and quality warehouse space, particularly along the New Jersey Turnpike, should offset much of the construction deliveries and dispositions in the near future,” said Andrew Judd, Cushman & Wakefield’s New Jersey Market Leader. “The Northern and Central New Jersey warehouse market is in no immediate danger of becoming overbuilt. As a result, asking rents will climb steadily as market conditions tighten and landlords remain in the driver’s seat, with full-year leasing on pace to reach its highest total since 2000.”
Overall net absorption reached 13.2 million square feet (MSF) for the year, marking a new annual high with one quarter left in the year remaining. In addition, 3Q saw vacancy for warehouse space continue to tick lower yet again to 4.5 percent, while the lack of quality warehouse product along the New Jersey Turnpike pushed rents higher. Development of new product continued, with 1.2 million square feet (MSF) of industrial product completed during the quarter, while another 1.6 MSF broke ground, bringing the total development pipeline 7.9 MSF.
While the industrial market failed to absorb space at the rapid pace of the previous quarters, the market did register 1.9 MSF of occupancy gains throughout the quarter, most of which were concentrated in the Central New Jersey submarkets. Overall, industrial vacancy remained flat at 5.0 percent, while warehouse/distribution vacancy inched lower by 10 basis points (BPS) since 2Q, to 4.5 percent. The Warehouse/Distribution (W/D) vacancy rate has fallen by 260 BPS since a year ago, with Central New Jersey’s rate dropping precipitously to 3.5 percent (-350 BPS). Of the major turnpike corridor submarkets, the Meadowlands and Lower 287 submarkets continued to see demand outpace new availabilities during 3Q.
Meanwhile, warehouse vacancy increased slightly to 3.0 percent at Exit 8A, driven in large part by the delivery of a 496,000-square-foot, fully available warehouse at 2353 Route 130 in South Brunswick, and more than 300,000 square feet (SF) of direct space becoming available at 200 Docks Corner Road in South Brunswick.
Furthermore, 41 percent of the total new leasing activity in the Exit 8A submarket consisted of space currently under construction, which had no effect on occupancy numbers. Vacancy for W/D facilities along the turnpike corridor finished the quarter at 4.1 percent, 40 BPS lower than the overall market.
Judd also noted that as quality space continued to tighten, average asking rents further rose to $7.47 PSF, a 16.4 percent increase since a year ago. For warehouse space, the key segment of the Northern and Central New Jersey industrial market, the average asking rental rate ticked slightly higher since 2Q, to $6.62 PSF. The ascent was more prominent within Northern New Jersey, where the average rate reached $7.07 PSF, a recent high, mostly driven by tight space conditions in the Port Region and Meadowlands. Meanwhile in Central New Jersey, asking rents from Exit 8A up through Exit 10 remained relatively flat, at PSF, albeit at historically high levels throughout the quarter.
Leasing activity was also strong. Slightly more than 6.7 MSF of new leases were signed during 3Q, pushing the year-to-date total to 23.5 MSF, up 24 percent year-over-year, with the market on pace to finish with its highest annual total for new leasing activity in 16 years.
For the quarter, Exit 8A, Lower 287, the Meadowlands and the Port Region all recorded 1.0 MSF or more of activity, with Exit 8A reporting the highest at 1.6 MSF. Year-to-date, these four submarkets have accounted for 69 percent of the total market total volume. At 13.2 MSF, year-to-date absorption has already eclipsed last year’s record total of 12.5 MSF.
“Third quarter lacked some of the larger transactions (400,000+ SF) that were prevalent in the first half of the year due to the decline of available space,” said Jason Price, Cushman & Wakefield’s Research Director, Tri-State Suburbs. “However, 3PLs continued to lease up rapidly along the New Jersey Turnpike in response to e-commerce demands.”
Price added that leases in the 100,000 – 300,000-SF range fueled 3Q leasing, accounting for more than half of the quarter’s volume, with most leases in this size range occurred along the turnpike corridor within warehouse facilities.
Some of the largest 3Q industrial leases in Northern and Central New Jersey included:
New construction deliveries for the year reached 3.2 MSF as another 1.2 MSF of buildings were completed during the third quarter alone. New developments are 23 percent ahead of last year’s 3Q pace, with another 2.6 MSF of deliveries anticipated in the next three months. Despite this pace, net absorption throughout 2016 has outpaced new developments at a 4 to 1 ratio in terms of square footage, indicating that the demand for space is still strong.
More than 7.9 MSF of product is under development throughout Northern and Central New Jersey. Four projects in the Lower 287 Corridor .w, totaling 2.2 MSF, account for 28.5 percent of the total square footage under construction. This output includes the 930,000-SF Seagis development on Route 27 and the two warehouses on High Street in Perth Amboy totaling almost 1.1 MSF. An additional five projects totaling 1.4 MSF are expected to break ground in the fourth quarter.
“While construction won’t reach the recent historic level of 2014, developers remain bullish on the market,” Price said. “With minimal large-space options available for tenants, construction should remain robust into 2017.”Related Articles: