2016 was an extremely healthy year for the New Jersey industrial real estate market, with overall net absorption reaching an all-time high and new leasing activity hitting a 16-year high, according to the 2016 NJ industrial market recap recently released by Cushman & Wakefield. Additionally, the firm released its Q4 industrial market report citing strong market fundamentals for the quarter, especially along the New Jersey Turnpike.
In 2016, overall demand reached a high that hasn’t been seen since 2000 as the e-commerce boom has spurred expansion for logistics companies and last-mile delivery firms such as FedEx and UPS. During Q3, vacancy reached historically low levels and remained at that mark through the end of the year. Asking rents for warehouse space have trended higher since 2011 with a 15.5 percent increase since the close of 2015.
“2016’s record leasing totals have been propelled by transactions over 300,000 square feet, as we’ve seen more than 16 such deals executed in New Jersey this year in warehouse facilities which is well above the annual average of 10 over the previous four years,” said Andrew Judd, Cushman & Wakefield’s New Jersey Market Leader. “Meanwhile, the tightening market has spurred new construction as developers have been bullish on the local warehouse market resulting in new construction reaching a recent high, only dwarfed by 2014’s historic levels.”
“For the year, 14.9 MSF of space was absorbed throughout the New Jersey Industrial market, 76 percent of which was concentrated in Central NJ. Exit 8A (4.8 MSF), Lower 287 (3.3 MSF), and the Meadowlands (2.1 MSF) led the way in terms of net occupancy gains for the year,” added Jason Price, Cushman & Wakefield’s Research Director, Tri-State Suburbs.
During the fourth quarter, in particular, overall vacancy remained flat at 5.0 percent. This trend was identical within warehouse/distribution space which held steady at 4.5 percent, allowing it to remain at historically low levels.
“All of the warehouse facility submarkets along the New Jersey Turnpike from Exit 16W down to Exit 7A either recorded occupancy gains or remained stable during Q4, with the Meadowlands and Exit 7A experiencing the most notable improvements in vacancy,” said Price. “Furthermore, within Central New Jersey from Exit 12 down to Exit 7A, all of the submarkets boasted vacancy rates at or below 3.0 percent for warehouse and distribution space. In comparison, tertiary submarkets which lie away from the NJ Turnpike Corridor had a 6.1 percent vacancy rate in total, compared to 3.9 percent for the primary submarkets along the Turnpike.”
During Q4, while no submarket recorded more than 500,000 SF of overall net absorption, the Port Region (477,706 SF) and Exit 7A (337,677 SF) finished the quarter with the highest quarterly absorption totals. Conversely, Morris County had 1.0 MSF of net occupancy losses in that time.
After the historic totals recorded during the first two quarters of 2016, leasing activity remained healthy during the fourth quarter with 6.4 MSF of new leases signed. The year-to-date total of 30.2 MSF was a high not seen since 2000, 87 percent of which was concentrated within warehouse/distribution space. Deals greater than 300,000 SF propelled demand throughout the year with 16 such deals signed, accounting for 31.8 percent of the total volume leased within warehouse facilities. Of those transactions, 53.6 percent were by e-commerce related tenants while logistics firms also made up a good portion of the total.
Q4 leasing was concentrated primarily within the Meadowlands, Lower 287, and Exit 7A submarkets. With the e-commerce boom continuing to fuel demand, logistics and last mile delivery companies have been rapidly taking space along the NJ Turnpike to ensure easy access to both the mass population around the NY-Metro area and inland distribution markets. 13 leases greater than 100,000 SF were inked during the fourth quarter, below the total accrued during each of the previous three quarters. However, the lack of transactions was mainly due to the scarcity of large, modern blocks of space options along the turnpike corridor.
Meanwhile, year-to-date, there have been 10 deals completed 200,000 SF or greater in warehouses which have either recently completed construction or are currently under development. Half of those companies are e-commerce related tenants.
The largest leases signed during Q4 included:
Approximately 4.2 MSF of industrial product was built during 2016, 27.3 percent more than a year ago. Much of the new product delivered this past year was concentrated in the Exit 8A submarket. Meanwhile, more projects broke ground during Q4, bringing the total under construction to 11.3 MSF. Almost 60% of the square footage being built is located between Exits 12 and 7A. While most of the square footage under development originally broke ground as speculative projects, only half of the square footage remains available due in large part to the lack of built Class A options throughout the market. Almost all of the projects being built are anticipated to be completed sometime in 2017 and – despite the robust construction pipeline – tenant demand should offset much of the new supply coming online next year.
As space tightened within the major submarkets, asking rents continued to rise, increasing 4.0 percent since the third quarter to $7.75 PSF. Pricing for warehouse space has trended similarly with the market average reaching $7.00 PSF, a 15.5 percent increase since 2015. Since Q3, most major submarkets have recorded increases in direct asking rents due to both healthy demand and landlords responding to the diminishing availabilities. While the Meadowlands and Port Region remain the highest priced submarkets for warehouse space along the NJ Turnpike, the Lower 287, Upper 287, and Exit 9 all boast average rents in excess of $6.00 PSF.
Cushman & Wakefield is anticipating that the New Jersey Industrial market’s expansion cycle will continue into 2017 as the need for modern warehouse space offsets much of the construction deliveries and dispositions on the horizon in the New Year.
“While it may not reach the record levels of 2015 and 2016, demand should remain healthy and steady in 2017, specifically along the NJ Turnpike as the e-commerce boom continues to fuel logistics and last mile deliveries leasing in the region,” said Judd. “We’re projecting that asking rents will trend higher throughout the year as Class A options remain relatively scarce and new construction deliveries come online along the highly sought after Turnpike submarkets.
“Despite the recent influx of new developments, the market is in no danger of becoming overbuilt in the near future,” added Price. “The need for modern warehouse space has been evident as tenant interest in many of the speculative properties under construction has been healthy.”Related Articles: