At mid-year, industrial leasing, totaled 8.6 million square feet, a considerable decline from last year, when 12.0 million square feet in transactions closed between January and June. Only 2.4 million square feet in leasing deals closed during the second quarter of 2008.
Landlords have become very competitive for the few deals that have closed, causing significant downward pressure on rents. Additionally, the frenzy we have seen for the past few years in the capital markets has decreased; and, therefore, the engine for new product has slowed. The opportunists, mostly the private developers, have surfaced big time.
That said, smaller industrial transactions – those leases around or under 200,000 sf– are driving the market at a healthy pace this year. The largest commitment of the second quarter involved Quebecor World Logistics, which took 239,229 square feet at 11-17 Jensen Drive in Franklin Township. In South Brunswick, Princeton Storage leased 200,000 square feet at 121 Ridge Road. And, in Morris Township, A&M Logistics took 132,000 square feet at 1 Cory Road.
While these smaller transactions really are not enough to sustain the market, they are filling a notable amount of second- and third-generation space. This ultimately will help to alleviate the aforementioned downward pressure on rents that landlords have been feeling this year. Taking that lower-cost space out of the market will force tenants to take newer, more expensive product.
In the meantime, landlords are looking to backfill space wherever they can. They also are willing to do shorter term deals than in the past so they can come back into the market in two or three years when the economy improves. On the tenant side, we are seeing a better-than-average market for renewals and early renewals. Corporate America does not want to make the level of capital commitment tied to relocation.
Looking ahead, it does appear that the market is picking up to some extent, with several new, larger requirements out there. If a few of these potential deals materialize, they will absorb enough space to make landlords more aggressive. That would result in rent increases and a generally more stable market. Optimistically, we are expecting a better second half of 2008.
Stan Danzig is executive director of Cushman & Wakefield in East Rutherford.
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