The Northern and Central New Jersey industrial market started red hot once again in 2018, with continued robust demand, healthy development activity, and further occupancy gains, according to Cushman & Wakefield.
“As the New Jersey industrial market lies within the largest consumer base and one of the busiest ports of entry in the United States, market fundamentals should remain strong throughout the year,” said Andrew Judd, Cushman & Wakefield’s New Jersey Market Leader. “We anticipate that leasing totals will remain on pace with previous recent quarters, as some large deals are expected to close in the coming months, helping to further bolster absorption. And while some geopolitical issues are evident, demand for space is so robust that the local industrial market may see even more growth in 2018.”
Due to strong leasing activity throughout most of the key submarkets, overall vacancy in Northern and Central New Jersey fell another 20 basis points (bps) to 3.6 percent. For warehouse space, vacancy reached another historic low of 3.5 percent, down 90 bps year-over-year. Many of the primary Turnpike submarkets south of Exit 13 experienced quarterly declines in vacancy, while Exit 8A’s vacancy for warehouse and development (W/D) space ticked lower by 40 bps to 1.5 percent, with the Lower 287 Corridor’s vacancy rate falling 140 bps since the end of 2017. And the Upper 287 Corridor now boasts a vacancy rate 0.7 percent for warehouse space, the lowest in the Garden State (down 610 bps over the last two years).
The industrial market posted another 3.9 million square feet (msf) of net absorption during the Q1, marking the fourth straight quarter in which New Jersey has experienced more than 3.8 msf of net occupancy gains. New Jersey Research Director, Jason Price explained that the robust absorption totals for Q1 stem not just from healthy demand within existing product, but also the deliveries of leased up new construction, with much of the positive quarterly absorption concentrated in Central New Jersey. The Lower 287, Exit 8A, and Upper 287 markets accounted for 3.2 msf of the total.
Price further noted that another 2.5 msf of industrial product was delivered in Q1 — predominantly in Central New Jersey — with 68 percent of the new product already leased. The largest project was a 305,020-sf warehouse in Exit 8A by Adler Development. Meanwhile in Northern New Jersey, Snow Joe recently committed to a full-building lease of the newly constructed 271,195-sf warehouse at 100 Performance Drive in Mahwah.
Even with these new deliveries, another 8.5 msf of industrial product is under construction, of which 54 percent has already been leased up. The bulk of the new developments (4.7 msf) are located in traditional industrial corridors — Exit 8A or Upper 287 — but with space being gobbled up in those areas, two large developments have now broken ground further west. More than 515,000 sf is under construction in Totowa at 150 Totowa Road, while more than 510,000 sf is being built in Hillsborough at the Midpoint Logistics Center. Both projects are being built on spec.
Approximately 6.4 msf of new transactions were completed in the first three months of the year, with Exit 8A and the Lower 287 Corridor (exits 10-12) both recording sharp quarterly increases in tenant demand (at 1.2 msf and 1.4 msf, respectively). Interest in the Upper 287 submarket remained healthy as another 646,000 sf of industrial space was leased up, bringing its total for the last year to almost 3.0 msf.
Meanwhile, the Meadowlands submarket remained a premier destination due mainly to its close proximity to New York City, having recorded 760,000 sf of transactions during Q1, on par with the previous few quarters.
Eight new leases greater than 200,000 sf were signed throughout New Jersey this quarter, much of which occurred between Exit 8A and Exit 14. Logistics companies represented many of the larger transactions, as they expand in the area to help support the growing eCommerce boom.
The largest deals inked during Q1 included:
As a result of robust demand and dwindling supply, asking rents once again ticked even higher. New Jersey experienced a 9.2 percent increase in average asking rents for industrial space over the last year, ending Q1 at $8.21 psf, another historical high. For warehouse space, the annual increase was even more notable, at 14.3 percent, bringing rents to $7.93 psf, new heights for W/D space. In addition, the Meadowlands rents ticked nominally higher to $10.41 psf since the close of 2017, while the Port Region, Upper 287 Corridor, Lower 287, and Morris County all experienced quarterly rises in average asking rents for warehouse space.
Price concluded that barring unforeseen events, the overall Northern and Central New Jersey industrial market is poised for another banner year, although the rate of growth may temper slightly. “Despite some large blocks of space potentially becoming vacant later in the year, demand should offset much of the new availabilities and speculative development,” he said. “And while asking rents in the core submarkets are projected to rise further, they could begin to grow at a more moderate pace due to the lack of available, modern, Class A space. Finally, developments will persist along the NJ Turnpike and a little further west. The strong appetite for modern warehouse space will likely continue to keep occupancy rates high in newly built facilities.”
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