SADDLE BROOK, NJ-A significant uptick in New Jersey industrial leasing is a sign that tenants are beginning to worry about rising rents, according to CBRE New Jersey's Fourth Quarter 2011 New Jersey Industrial MarketView Report.
In the fourth quarter, there was 5.77 million square feet of new leasing, resulting in an annual velocity of 25.78 million square feet, the highest volume of leasing in seven years and a 34.8% increase from 2010, the report says. Tenants focusing on consumer products, in particular, saw increased activity and locked up space sooner rather than later, Mindy Lissner, CBRE executive vice president, tells GlobeSt.com.
“Tenants who were sitting on the sidelines wanted to see when we’d hit bottom,” Lissner said. “Then they decided to act before rents went up significantly.”
For 2011, overall absorption totaled 10.56 million square feet. Northern New Jersey sites absorbed 850,000 square feet, while the Central section absorbed 9.71 million square feet. The fourth quarter’s absorption of 3.59 million square feet surpassed historical records set in earlier quarters of 2011. It is also the largest quarterly volume of absorption in more than 10 years, the report says.
Rents, however, have yet to follow the trend. The average asking lease rate for industrial property in New Jersey was $5.15 per square foot, $0.03 lower than the third quarter's rate of $5.18. Northern New Jersey experienced a $0.08 drop, while Central New Jersey's rate decreased by $0.02. But that may reverse quite soon as tenants continue to fill up even class B and C space.
“I think we’ll start to see rents go up,” despite a late-year slowdown, Lissner says.
The result, according to William Waxman, CBRE executive vice president, is that the market is “racing to equilibrium,” between supply and demand. But eventually, demand will outpace supply.
Five construction projects were completed in the quarter, CBRE notes, including a 298,000-square-foot build-to-suit for Coca-Cola at Exit 8A, and a 190,000-square-foot speculative construction project in the Hudson Waterfront. Seven properties totaling 901,000 square-foot are under construction in the state.
“After equilibrium space becomes difficult to find and construction becomes possible,” Waxman adds. “In about a year, we will see new construction.”
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