Unrelenting Demand in NJ Industrial Market Drives Rents to New Historic High

On Jul 8, 2016

Demand for industrial space continues unabated, pushing the average asking rent to surpass the historic high set in first quarter. Furthermore, for first time in 15 years, the overall asking rent average is up more than 10 percent year-over-year, closing second-quarter 2016 at $6.33 per square foot compared to $5.73 per square foot during second-quarter 2015.

As retail/wholesale industries continue to drive an unrelenting demand for industrial product, spearheaded by e-commerce and third-party logistics companies, the vacancy rate for New Jersey’s industrial market has improved year-over-year from 7.4 percent to 6.3 percent – its lowest level in 15 years, according to Transwestern’s Second-Quarter 2016 Industrial Market Report.

“With traditional retailers becoming players in the e-commerce market, the demand for industrial space in New Jersey continues to skyrocket,” said Transwestern Managing Director Lori Zuck. “As a result, we’re beginning to see companies sign long-term leases in secondary markets. It almost feels like a bubble until one realizes that there’s minimal risk of overbuilding.”

According to Transwestern research, there is 4.4 million square feet of industrial product currently under construction in New Jersey.

As a result of the high level of leasing activity, attention is being focused on replenishing the state’s Transportation Trust Fund, the government authority tasked with financing the cost ofconstruction and repair of the state’s transportation system. As outlined in a recent Transwestern report, “Cranes and Lanes: The Link between Infrastructure and Commercial Real Estate,”smart investment in infrastructure projects, such as the widening of the New Jersey Turnpike in 2014, have proven to result in industrial rent growth and increased occupancy.

“Improving New Jersey’s transportation infrastructure is absolutely paramount to the future success of the state’s industrial market,” said Transwestern’s New Jersey Research Director Matthew Dolly. “Retailers want to reach the highest percentage of the population within the shortest amount of time, and the infrastructure challenges that we face could make the ‘last mile’ even more critical in terms of finding a location that helps to offset delivery costs.”

Market highlights from the Second-Quarter 2016 Industrial Market Report include:

• In the second quarter, 2.2 million square feet of industrial space was absorbed. It was the fourth consecutive quarter that the market experienced more than 2 million square feet of net absorption.
• Year-over-year net absorption reached 9.5 million square feet – its highest level since fourth-quarter 2002 and 2003.
• The Exit 8A, Exit 10, Exit 12, Hudson Waterfront and Meadowlands submarkets were exceptionally strong performers.
• Speculative construction of smaller buildings is being considered in secondary markets.
• The design of warehouses is changing as developers and tenants contemplate how to get optimal use out of speculative buildings.

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