SADDLE BROOK, NJ——The New Jersey industrial market ended the second quarter of 2014 with positive momentum, as increased demand for large blocks of space continued to drive net absorption and kept vacancy rates low, CBRE Group tells GlobeSt.com exclusively in a preview of its Q2 2014 New Jersey Industrial MarketView.
The second quarter closed with positive net absorption of 2.64 million square feet, and availability at 9.2 percent, the lowest since 2008. The most active areas were the Meadowlands and Hudson Waterfront in Northern New Jersey and Exit 8A in Central New Jersey. Total leasing activity was 6.26 million sq. ft., a 39-percent increase over the first quarter.
Demand for industrial space was driven mostly by logistics, food, and apparel companies, which accounted for more than 24 percent, 14 percent, and 8 percent of total occupier transactions, respectively. Amazon.com expanded its New Jersey footprint, bringing its total occupancy throughout the state to 1.92 million square feet. Expansions by Ferguson Enterprises and Marcraft Apparel also demonstrated the strength of the market.
“Activity at the New York and New Jersey port terminals remains strong, which typically spurs growth for the surrounding New Jersey industrial real estate market,” says CBRE's Mindy Lissner, an author of the report. “The Port Authority is continuing to upgrade port infrastructure in preparation for the larger cargo vessels that will pass through the Panama Canal starting in 2015, adding to the strengthening fundamentals in the sector.” As the largest port on the East Coast and the third largest in the US, the Port of New York and New Jersey is a passageway to one of the largest and most important consumer markets in the world.
Class A properties continue to outperform the overall industrial market, with 6.5 percent availability vs. 8.6 percent last quarter, and compared with New Jersey's overall current availability of 9.2 percent.
Class A leasing accounted for a disproportionate 38.6% of the state's total leasing activity. Class A product accounts for just 7.7% of the total inventory.
With the supply of Class A industrial properties limited, industrial construction continues to rise. In the second quarter, developers broke ground for five new projects totaling 1.18 million square feet. That brings New Jersey's current total to 26 projects totaling 10.24 million square feet under construction.
“Speculative development continues to account for approximately 60 percent of the total square footage under construction. However, despite an aggressive delivery schedule for new warehouses, there are several companies like Dawn Foods and Amazon.com that have committed to these new spaces prior to construction being completed,” says CBRE's Matt Corpuel. “With several significant requirements still focusing on the New Jersey market, the demand pipeline is strong and will minimize any negative impact from new supply.”
The average asking lease rate for industrial space in New Jersey continued climbing steadily once again in the second quarter. At $5.49 per square foot, this is the highest rate seen in four years. Supply constraints and demand for modern, high-priced facilities will continue to be a driving force behind lease rate increases. With only three of the State's 24 submarkets reaching or exceeding their 2007 peak lease rates, there remains significant upside potential for rental rates. The spread between industrial asking rates and taking rates is also at its lowest point since the financial downturn.
New Jersey's average asking sale rate for industrial space is now $63.40 per square foot. Northern New Jersey's rate dropped slightly to $69.85 per square foot, and Central New Jersey's rate increased to $57.69 per square foot. While sales activity in 2013 was the highest volume of investment purchases the New Jersey industrial market has seen historically, the sales activity in Q2 2014 can mostly be attributed to an increase in user acquisitions.
New Jersey's industrial market has recovered significantly since registering nearly 50 million sq. ft. of negative net absorption from 2007 through 2010.
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Steve Lubetkin
Steve Lubetkin is the New Jersey and Philadelphia editor for GlobeSt.com. He is currently filling in covering Chicago and Midwest markets until a new permanent editor is named. He previously filled in covering Atlanta. Steve’s journalism background includes print and broadcast reporting for NJ news organizations. His audio and video work for GlobeSt.com has been honored by the Garden State Journalists Association, and he has also been recognized for video by the New Jersey Chapter of the Society of Professional Journalists. He has produced audio podcasts on CRE topics for the NAR Commercial Division and the CCIM Institute. Steve has also served (from August 2017 to March 2018) as national broadcast news correspondent for CEOReport.com, a news website focused on practical advice for senior executives in small- and medium-sized companies. Steve also reports on-camera and covers conferences for NJSpotlight.com, a public policy news coverage website focused on New Jersey government and industry; and for clients of StateBroadcastNews.com, a division of The Lubetkin Media Companies LLC. Steve has been the computer columnist for the Jewish Community Voice of Southern New Jersey, since 1996. Steve is co-author, with Toronto-based podcasting pioneer Donna Papacosta, of the book, The Business of Podcasting: How to Take Your Podcasting Passion from the Personal to the Professional. You can email Steve at [email protected].
