Amazon is, of course, the largest elephant in that room, and it seems everyone in industrial real estate in New Jersey wants to talk about it right now. The world's largest online purveyor of books, electronics, furniture, food, etc. announced two projects here in the first quarter—and it is believed by some to already be hot on the trail for more. While Amazon is big-footing all over the country with million-square-foot projects, the push in New Jersey is intensified by the company's aspiration to same-day delivery capacity in the metropolitan New York area.

Location, location, location for quick deliveries in the Metro Region? That's how New Jersey became an industrial hub in the first place, back in the post-WWII era.

“With e-tail, we are only in about the third inning of a total transformation of the supply chain,” says Jones Lang LaSalle's Robert C. Kossar, who oversees both New Jersey and Long Island, “but this is the inning where we are going to see a lot of scoring.” He notes that Amazon has been “pretty public” about pressing forward with same-day/next-day service goals, and that it has agreed to start paying sales tax in New Jersey this July. It's a trade-off the company was willing to make, he notes: All online companies will eventually have to ante up sales tax anyway, if the Marketplace Fairness Act now before Congress is passed. Meanwhile, Amazon is set on a path of rapid growth and was willing to trade the 7% sales tax advantage it enjoyed over bricks-and-mortar stores in New Jersey to negotiate for strategic locations for its fulfillment centers.

Kossar guesses that Amazon will put another two fulfillment center projects in the Garden State before it is done with its expansion here. Of the two that have been announced, the first to open will be a pick-pack-and-ship center in Robbinsville, just outside Trenton at NJ Turnpike Exit 7A, which will open by March 2014. Amazon's development partner, KTR Capital partners, acquired land in a Matrix Development Group industrial park for that project in January. After the sale, Matrix principal Alexander B. Taylor was positively jubilant, touting the deal as proof of vitality at a site established more than a decade ago, which had remained half-empty during the recessionary years.

Amazon received a package of state economic assistance grants to encourage its investment of $130 million in the million-square-foot, state-of-the-art Robbinsville facility, plus its commitment to a second facility. In March, KTR acquired a 900,000-square-foot, two-building complex in Woodbridge that it will renovate to suit Amazon. The Woodbridge facility was previously owned and occupied by C&S Wholesale Grocers, which relocated last year to Pennsylvania. The Keystone State is a perennially pesky rival to the Garden State in the industrial development game, adding a little sweetener to the deal for Jersey market partisans.

All the Amazon activity came on the heels of an ingenious deal consummated in late 2012, which seemed to launch a new era of high hopes and multiple prospects for industrial real estate. In Jersey City, a former Superfund landfill site under the Pulaski Skyway bridge was recovered as valuable real estate, and pre-leased to the online grocer Peapod for a cutting-edge distribution center. Imperial Bag & Paper Co. will occupy the other half of the 800,000-square-foot project, now under construction.

During Q1, a total of five million square feet of new industrial leases was signed in New Jersey, up from 4.6 million square feet the year before.

The 2.3 million square feet of absorption led to the industrial sector getting dubbed with all sorts of comeback sobriquets: “Industrial, the new multi-family,” said Gabriel at an April RealShare conference. “The good-news sector,” piped up his C&W confrere, Gil Medina. Taylor, talking about Exit 7A: “Never, never say die.”

CBRE's Scott Belfer says industrial's resurgence thanks to e-commerce definitely does not mean that the retail sector has to die. It does, however, mean that growth will be limited. “There was a huge oversupply of retail space prior to the recession,” he says. “There's a lot of space that probably should never have been built. The advent of e-tailing has only amplified the problems.”

The need for consumers to “see and touch what they are buying” will be eternal, he adds, and brick-and-mortar stores will always find tenants. However, the typical store footprint has begun shrinking and, he says flatly, “It will shrink further.”

Belfer and other real estate pros are plain-spoken preachers about a new reality for retailers: They must adapt or fail. As e-tailers step up their game to be more like shops establishing a “personality,” as the design site Fab.com has done with ads and videos, or sending thank-you notes, like office supplier Poppin.com – retailers must parry by stepping up their e-commerce capabilities.

“Enlightened retailers are recognizing that the e-commerce part of their business is part of a very different supply chain,” says Kossar. “As a store grows—and it better grow, or else the retailer is in big trouble—then it has to change its supply chain to add or expand e-tail because pretty soon it just won't work anymore to only have a store.”

Even the big-box retail brands that have thrived so far must make e-commerce a part of their basic strategy to hold their position, in Kossar's view. Many have already taken first steps to build e-tail muscle over their big-box frames—allowing customers to order online and pick up items up at the store, for example, or setting up display kiosks at malls where online orders can be placed. Most will be compelled to go further, expanding their storage, distribution and fulfillment center operations, he predicts.

The retail real estate market has gotten hurt—and will feel further pain—as retailers downsize store space and expand into (far cheaper) industrial space. But the e-tail/store relationship can cut both ways, to a certain extent, says Transwestern's retail specialist, Rick Rizzuto. “A lot of smaller-sized e-tailers, founded on a laptop and somebody's kitchen table, are starting to set up shop space in New Jersey right now, in order to have a showroom or distribution space close to New York City,” he says. “They might have started up a business in Manhattan,” he says, “and now they want shops or showrooms in the 2,000- to 3,000-square-foot range. There's opportunity for New Jersey landlords in that.”

The deals for industrial property right now are mostly plus-size. In Q1, there were 15 deals for 100,000 square feet or more, and those accounted for more than half of all deals, according to C&W. “Anything standing in a major market that is 500,000 square feet and above gets taken,” says HFF's Michael Nachamkin. He mentioned IDI's ongoing construction of a 750,000-square foot warehouse and distribution center at its Middlesex industrial park at Turnpike Exit 8A. Home products retailer Williams-Sonoma already occupies 1.4 million square feet in the park, but decided last month to lease the new building when it comes online too.

“Over the next 24 months, demand will keep pushing the trend to speculative development forward,” says the industrial market investment specialist. Matrix is planning one or two speculative starts this year, its principals tell Real Estate Forum. “I think anybody who designs big boxes at this point has consideration for the online retailers,” says Taylor. “The buildings we put up will work for e-commerce or for non-e-commerce.” Another sizable speculative development of 570,000 square feet is under construction as a redevelopment project in Perth Amboy, with a flexible design.

New Jersey had quite a bit of small- and medium-size space available in modern industrial buildings, built before the economy went slack. Even with a big post-recession comeback at Turnpike Exit 8A, there is still almost 10% vacancy in the 66-million-square-foot submarket. Six to seven million square feet of that might be divisible for smaller users. Belfer says a number of start-up e-tailers, some very new—that is, created within the past six months—are looking in New Jersey at this time. Several health-and-beauty e-commerce businesses are also searching, he says.

Fab.com, founded in Manhattan, has operated a warehouse in Keasbey for more than a year. Fab bills itself as the “world's fastest-growing e-commerce site,” having started in June 2011 with 175,000 account members and claiming 10 million members by December 2012. This kind of wildly unpredictable growth means that e-tailers require “highly expandable” space, Belfer notes. “These companies come into the marketplace looking for 25,000 square feet, expandable to 250,000 square feet.”

Nevertheless, e-tailers may have very specific requirements in terms of the type of space and building features they're seeking. “They want state-of-the-art, with minimum 32-foot-clear ceilings, up to 36 feet and even 40 feet,” according to Belfer. (State-of-the-art is generally considered to be 36 feet, to accommodate e-tailers' need for two or three mezzanine levels that can be dedicated to specific tasks such as gift-wrapping or handling returns.) As Jones Lang LaSalle put it in its recent “Big-Box Outlook,” e-business is “disrupting physical space and site requirements” all over the place. In Northern New Jersey, for instance, brokers say there is currently a serious shortage of big boxes available with 250,000 square feet or more and high ceilings.

And because almost all e-businesses are labor-intensive operations, they require more parking than a typical industrial user. If a big e-tailer moves into an existing modern facility with truck-loading doors on both sides, it will probably only use the doors on one side of the building, and put employees' cars on the other side, said JLL's Kossar. If a company is developing its own facility, then it may need extra acreage for parking. Then again, if the e-tailer is highly automated, or thinks it might become that way in the future, maybe not.

CBRE's Belfer cites a retail industry prediction that the e-commerce sector will grow by 61% by the year 2016. “It has already been climbing consistently every year, without a plateau,” he says. “It really is a whole new game for commercial real estate to try and figure out the patterns and the plays. Obviously, no one can say precisely how it will all shake out.”