"We are bumping along the bottom and we will continue to do that for a couple of quarters, maybe four," Bill Waxman, senior vice president at the CBRE office here, tells GlobeSt.com.
The 802.4-million-square-foot industrial market in Northern and Central racked up nearly 6.5 million square feet of negative absorption in the third quarter. Significantly, two large blocks of space came on to the market in Q3: 489,632 square feet at 228 North Ave. in Elizabeth and 413,000 square feet at 130 Interstate Blvd. in South Brunswick.Leasing velocity is "way down," according to Waxman, with a marked lack of tenant growth and absorption. Leasing volume totaled a little over 3.2 million square feet, 34% lower than Q3 2008.
"What we are seeing is companies that are in 100,000 square feet in two building moving to 80,000 to 90,000 square feet in one building," Waxman finds.Submarkets north of Port Newark are fairing better those south of it. One market that has been particularly hard hit is the Exit 7A submarket, which many consider to be oversupplied.
"Beyond being overbuilt," Waxman notes, "a lot developers didn't understand the nature of the New Jersey industrial market and they built the wrong type of buildings [there]. They built these giant million-square-foot buildings thinking they were going to attract a lot of regional hubs. Although we did get some, most of them went to Pennsylvania or other areas with better incentives and more business friendly government. You can get to the same consumer zone in the same amount of time from the I-81 Corridor in Pennsylvania that you can from the I-95 Corridor in New Jersey."
What's more, the type of users currently active in the market, such as food and beverage companies and third-party logistic firms, typically do not require large facilities. "The Exit 7A and 8A markets have been big regional distribution hubs for consumer products and retailers," Mindy Lissner, senior vice president in the East Brunswick office of CBRE, tells GlobeSt.com. "With consumer spending way down, we are not seeing those large, 500,000- to 800,000-square-foot requirements for regional distribution hubs for retailers. Those requirements have dried up and those buildings that were built on spec at 7A and 8A where built to satisfy the needs of those companies. Because there is no demand in that sector, the big buildings are sitting there vacant."
Lease rates are on a downward trajectory as well. In Q3, the average asking net asking rental rate was $5.66 per square foot, 48 cents lower than the $6.14 figure charted a year ago. However, the true picture of the market is revealed in taking rents, which "are way down compared to what you see in the asking rents," Waxman relates.
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