Real Estate

NJ Industrial Construction and Renewal Activity Strengthen During 3Q19

Cushman & Wakefield Reports Historical Fundamentals in Prolonged Expansion Cycle

Despite global economic crosswinds, trade wars and tariffs, the New Jersey industrial market continued to thrive during the third quarter of 2019, according to Cushman & Wakefield. The commercial real estate services firm released its latest industrial research findings – showing historically high asking rents ($9.29 per square foot) and record-low vacancies (3.2%) heading into the final months of the year. Further, the market now boasts 8.1 million square feet of warehouse product under development – potentially pushing construction volume to a century-high mark in 2020.

“Developers are attempting to help replenish limited Class A supply to the marketplace amidst strong tenant interest in this prolonged expansion cycle,” noted Jason Price, Cushman & Wakefield’s director of Suburban Tri-State Research. “12 of the 17 facilities under construction are larger than 300,000 square feet; four exceed 800,000 square feet.”

  • More than 40% of the space has been preleased; five developments have been leased in full with heavy interest by tenants on some others.
  • 6% of this new product is concentrated within the Exit 8A and the Upper 287 Corridor submarkets.

To date in 2019, 6.3 million square feet of new industrial space has been delivered, including 1.5 million square feet that came online during the third quarter. “Demand for new product remains strong, evidenced by 69.1% preleasing on 2019 deliveries,” Price noted. “This velocity shows no sign of slowing down and the development community is responding. In fact, we are anticipating more than 18.0 million square feet in the industrial pipeline through mid-2021.”

The scarcity of available existing warehouse product led to a decline in new leasing during the third quarter, with activity falling to just below 4.4 million square feet – marking just the second time in six years that saw quarterly demand lower than 5.0 million square feet. Highlights included eight deals larger than 200,000 square feet, led by Home Depot’s 1.3-million-square-foot, build-to-suit commitment at Steel Run Logistics Center in Perth Amboy. That two-building lease marks the state’s largest in two years and only the fifth industrial lease deal greater than 1.0 million square feet since 2010.

“With 19.4 million square feet of new transactions signed year-to-date, new leasing activity has fallen behind last year’s pace by 4.7%,” noted Cushman & Wakefield’s Andrew Judd, New Jersey market leader. “At the same time, renewal activity rose markedly during the past three months, with 3.9 million square feet of completed lease extensions.” This included several deals in excess of 200,000 square feet, highlighted by Barnes & Noble’s 1.1 million-square-foot renewal at 1 Barnes & Noble Way in Monroe Township.

Absorption totals also reflect the scarcity of available industrial inventory. Net occupancy gains totaled just 1.3 million square feet during the third quarter, bringing the year-to-date total to 7.2 million square feet – well behind last year’s pace of 14.5 million square feet. Still, industrial vacancy diminished modestly (10 basis points since mid-year) to 3.2%. Within warehouse space, the rate dipped back to the historical low of 3.0%. Four NJ Turnpike Corridor submarkets currently boast rates under 1.5%, including Upper 287, Exit 9, Exit 8 and Exit 7A/8.

Cushman & Wakefield projects vacancy totals to remain relatively steady through year-end and into 2020. “In the near-term, the local industrial marketplace will remain fundamentally healthy and poised for further growth – driven largely by logistics and eCommerce companies relocating and expanding within the marketplace,” Judd noted. “Despite land constraints, developers will continue to add new supply to the marketplace as tenant demand endures and existing Class A space options remain limited.”.

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