Industrial leasing velocity in northern and central New Jersey continued at a torrid pace in the final quarter of 2017, according to JLL. Tenants inked 8.1 million square feet in industrial transactions this quarter, bringing total deal volume in 2017 to 27.9 million square feet, a 35.4 percent increase from the 20.6 million square feet leased in 2016.
Demand for logistics space remained the strongest driver of market fundamentals, resulting in record-setting absorption. Northern and central New Jersey posted 5.8 million square feet of positive net absorption in the fourth quarter, with retailers representing more than 38.5 percent of those gains, led by Amazon taking occupancy of more than 1.6 million square feet across Central New Jersey. The quarter’s strong positive net absorption propelled overall absorption in 2017 to 9.5 million square feet, the second highest level this market cycle.
Developers eager to capitalize on the unrelenting demand broke ground on 5.9 million square feet of new industrial space in the fourth quarter of 2017. More than 12 million square feet of industrial space is expected to be delivered in Northern and Central New Jersey in 2018, making it the strongest year for construction activity in the state since 2001.
“Demand for New Jersey industrial space continues to outpace supply despite significant levels of construction activity,” said David Knee, executive managing director at JLL. “Persistent demand, combined with dwindling existing availabilities, has forced tenants to sign leases early to fulfill their space requirements. In 2017 nearly 90.0 percent of new construction was leased upon delivery, while 60.0 percent of projects currently under construction are build-to-suit”
The imbalance between supply and demand has resulted in an ultra-low vacancy of 3.6 percent, a 90 basis point drop since last year. This has given landlords significant pricing power, demonstrated by average asking rental rates for northern and central New Jersey industrial space rising to $7.48 per square foot, 13.7 percent higher than in 2016. In certain submarkets, the rent growth was even more acute. For example, asking rents in the Meadowlands now average $9.65 per square foot, a 22.0 percent increase year-over-year.