E-commerce companies and demand for warehouses that rapidly filled spec buildings drove industrial activity with the central New Jersey market recording its second highest absorption ever as the northern and central New Jersey office markets rebounded from a slow first quarter, according to Colliers International Group Inc. The global commercial real estate services firm today released its first-quarter 2017 Market Snapshots, which outline key trends, transactions and expectations.
The northern and central New Jersey industrial market moved in line with the national industrial market’s consistent recovery, absorbing 6 million square feet with a significant portion of that in preleased spec buildings that came onto the market. Of the 10 properties totaling 3.7 million square feet of new space, 3.5 million had been pre-leased. Year-over-year availability improved 100 basis points to 6.6 percent.
“As e-commerce grows, occupiers continue to demand warehouse space in the last mile of their distribution chain,” said John Obeid, senior director, Tri-State Suburban Research for Colliers . “As a result, market fundamentals in northern New Jersey continue to post record improvement in every statistical category, with average asking rent, availability rate and construction activity currently at historical levels.” Net absorption of 1.3 million square feet drove the availability down slightly to 7.2 percent. Northern New Jersey (NNJ) has recorded 23 million square feet of absorption in the past three years as the availability rate dropped from 12.1 to 7.2 percent.
“The central New Jersey (CNJ) industrial market’s momentum carried over into the second quarter and drove net absorption of 4.7 million square feet, the second highest absorption total on record, and was driven by demand for Class A product,” Obeid said. “The dearth of available space and the delivery of new construction increased the industrial average asking rent in central New Jersey by 18.3 percent over the prior year to finish the second quarter at $6.47 a square foot.”
Most of that activity was recorded in facilities along the N.J. Turnpike, especially near Exits 8A and 10. The two submarkets accounted for 72 percent of the 6.8 million square feet leased in the quarter. Two major transactions for the quarter were executed in Cranbury near Exit 8A, where Amazon pre-leased 922,043 square feet in the spec warehouse at 2 Brick Yard Rd. and DMG took 607,739 square feet at 1242 Cranbury South River Rd. Cascade leased 451,800 square feet at 2 Turner Place in Piscataway near Exit 10 of the N.J. Turnpike. Obeid said demand for additional space remains strong, indicating room for growth
While overall leasing office activity rebounded in the second quarter, with the TAMI and FIRE sectors driving a 22.6 percent increase over the first quarter, the northern and central New Jersey office markets turned in contrasting results. The 3 million square feet of leasing activity was up by 544,369 square feet. However, while leasing activity rose by 102 percent year-over-year to 1.9 million square feet in central New Jersey, it dropped 434,782 square feet, 30 percent, to 1 million square feet in the Northern New Jersey office markets.
“There was an interesting shift in demand across the state this quarter as central New Jersey posted its highest leasing total in more than a year while northern New Jersey posted the lowest activity since the third quarter of 2009,” said David A. Simon, SIOR, Executive Managing Director and New Jersey Market Leader. “Northern New Jersey’s slow start to the year impeded the progress of New Jersey’s overall market while the central New Jersey market with 1.9 million square feet of leasing activity is up 70 percent from a year ago.”
Several large blocks of space that came back on the market in the second quarter increased availability rate by 50 basis year-over-year points to 21.8 percent in northern NJ. CNJ’s availability rate dropped by 90 basis points from last quarter to 19 percent. The largest new space to become available was Johnson & Johnson’s 220,000-square-foot block at 185 Tabor Rd. in Morris Plains. In Parsippany, the Medicines Co. added 173,150 square feet at 8 Sylvan Way while Crum & Foster vacated 130,740 square feet at 260 Cherry Hill Road as the company prepares to move back into newly renovated offices in Morristown.
Major corporate recommitments such as AT&T’s 252,000-square-foot renewal at 30 Knightbridge Rd. in Piscataway and Travelers Insurance’s 80,000-square-foot renewal at 445 South St. in Morristown helped drive activity in the quarter. Average asking rents in the north dropped $0.11 year-over-year to $26.79 while central New Jersey office landlords garnered an increase of 2.7 percent to $25.91 a square foot. The contrasting activity in the two markets resulted in a slight overall gain in average asking rents of just $0.04 for the first quarter to $26.33 a square foot, up $0.24 from a year ago.