CBRE: Class A Industrial Properties Driving NJ Market

SADDLE BROOK, NJ—Class A industrial properties in the North and Central New Jersey markets are the driving force behind the hot industrial market, CBRE says in a new report.

“One of the main reasons for the success of the class A industrial market is the consistent growth of e-commerce and, along with it, the growing demand for efficient facilities that can accommodate ‘last mile’ delivery solutions,” says Thomas Monahan, vice chairman of CBRE’s New Jersey Industrial and Logistics Practice. “New generation class A facilities, with their larger size, expanded ceiling heights, wider column spacing, super-flat floors, perimeter security and expanded truck and car parking capacity, are best suited to accommodate the growing demands of e-commerce companies.”

CBRE compared the statistical performance of class A properties (100,000 square feet and greater, built from 1997 to present and with 28+ foot ceiling heights), against the overall market during the past ten years.

The future of the class A industrial market looks bright, as more than 11.4 million square feet of space is currently under construction, approximately 52% of it speculative and 48% build-to-suit. The overwhelming majority of new product, nearly 8.6 million square feet (75%), is in Central New Jersey. Not surprisingly, the largest concentration is in the Route 287/Exit 10 submarket with 2.6 million square feet and in the Exit 8A submarket with four million square feet.

Other key findings include:

• Over the past five years, 75 class A buildings totaling 28 million square feet have been added to the New Jersey inventory; however, class B and C inventories have shrunk by a combined 4.5 million square feet during this period, with many buildings converted to other uses, such as retail and residential. Overall, class A buildings total more than 88 million square feet and comprise nearly 11% of the market’s inventory.
• Class A availability and vacancy have dropped precipitously over both the past five- and 10-year periods. The availability rate has fallen 20% since the third quarter of 2008 to 4.7% in the second quarter of 2018, despite more than 40 million square feet of new Class A product having been delivered to market. Class B/C reductions have not been as steep, so the change has been more muted for the market overall. Since reaching a 10-year peak of 12.2% in 2010, the overall availability rate has since decreased by 520 basis points to 7%.
• Over the past five years, rents for Class A properties have increased by an average of $5.58 per square foot, a growth rate of roughly 110%, from $5.09 to $10.67 per square foot. The large amount of higher-priced, new state-of-the-art construction during this period has contributed to the elevated rates, as it has also pulled up asking rents for second-generation space. In all, the average asking rate for the entire market has risen by $2.74 per square foot, a growth rate of 34%.
• Between 2008 and Q2 2018, class A absorption totaled nearly 49 million square feet, whereas the market overall combined for just over six million square feet. Approximately 60% of the class A net absorption has occurred over the past five years.