New Jersey registered 10.6 million square feet of industrial leasing activity during the first quarter of 2018 – 9 percent higher than the five-year quarterly average, according to Colliers International NNJ LLC. The global commercial real estate services firm released its first-quarter 2018 Market Snapshots, which also reports that office leasing during the past three months achieved an incremental improvement to 2.2 million square feet.
Industrial Pace Accelerates
A 975,000-square-foot lease by Ikea at 586 Gulf Avenue in Staten Island’s Matrix Global Logistics Park grabbed headlines, followed by a 459,500-square-foot lease by TJ Maxx at 50 Bryla Street in Carlstadt and a 369,000-square-foot lease by One Stop Logistics at 83 Stults Road in South Brunswick.
“Following strong leasing activity at the end of 2017, steady demand continued in the first quarter, driving the overall availability rate down to 5.3 percent, representing a year-over-year improvement of 120 basis points,” noted David A. Simon, SIOR, executive managing director and New Jersey market leader. During the first quarter, six new development projects totaling 1.9 million square feet broke ground, bringing the construction pipeline to 34 properties comprising 14.1 million square feet. The growing construction pipeline in conjunction with limited available space spurred a continued rise in the industrial average asking rates, which reached a record high of $7.56 per square foot at the end of the quarter, compared to $7.23 per square foot at the end of 2017.
Northern New Jersey maintained a run of healthy industrial absorption, with 5 million square feet of leasing driving positive absorption to 1.2 million square feet, representing the seventeenth quarter of positive absorption and a record-low availability rate of 6.6 percent. Central New Jersey continued to post strong activity in the first quarter, recording 5.7 million square feet of industrial leasing activity as market fundamentals remained positive and new benchmarks in availability and pricing were set.
“In the northern counties, higher-than-average leasing volume coupled with new deliveries that were pre-leased contributed to positive net absorption,” Simon noted. “Activity in Central New Jersey is being driven by tenant demand for new construction, particularly along the turnpike corridor and the Exit 10 submarket. New Class A properties in Central New Jersey are achieving an average of approximately $7.17 per square foot, which is narrowing the pricing gap between the Central and Northern New Jersey industrial markets.”
Office Improves Incrementally
The Northern New Jersey office market was a mixed bag, with overall improvement constrained by positive absorption in only six out of the 13 submarkets. The availability rate improvement was limited to 20 basis points over the prior quarter, to 20.2 percent, as large new blocks of space – in the Meadowlands submarket, 176,000 square feet at 9 Polito Avenue, and in the Western Morris submarket 102,000 square feet at 100 Enterprise Drive — hindered further improvement. Leasing activity in the Central New Jersey market pushed past the 1 million-square-foot mark for the first time in three quarters as health care companies and the TAMI (technology, advertising, media and information) sector drove demand.
Extensions by Niksun in Princeton and Tata Communications in Matawan illustrated this trend within the TAMI sector, while new leases by Summit Medical Group in New Providence and Robert Wood Johnson in Bridgewater led the way in the health care sector. The availability rate improved by 10 basis points from last quarter to 19 percent, led by the removal of 153,000 square feet at 100 and 200 Headquarters Park Drive in Montgomery after the property was purchased by the local government for use by the municipality.
“The lack of large transactions slowed New Jersey office leasing activity during the first quarter of 2018 to 2.2 million square feet,” said John Obeid, senior director, Tri-State Suburban Research for Colliers. “While this figure is up slightly from last quarter, activity is down 26 percent from the five-year quarterly average of 3 million square feet. Renewals were a major driver in leasing activity, accounting for 40 percent of the total square footage leased.”
Despite the lack of large new leases and modest negative absorption in the first quarter, the ongoing adaptive reuse trend continued to help chip away at the availability rate, which improved 10 basis points from last quarter to 19.7 percent. The average asking rent remained relatively flat year-over-year, up just five cents per square foot to $26.34.
“Several large transactions that were projected to close during the first quarter in Northern New Jersey stalled, which resulted in lower than anticipated volume totaling 1.1 million square feet of leasing activity, down 23.9 percent from the prior year,” Obeid added. “Still, renewals offered some hope, including Standard Chartered Bank’s 72,000 square feet at 2 Gateway Center in Newark, and Kuehne + Nagel’s renewal of 70,531 square feet at 10 Exchange Place in Jersey City.”
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