Industrial Sublease Glut Grows in New Jersey, Eastern PA
The decline in consumer spending has pushed owners to reduce asking rents and offer concessions.
Real estate investors in New Jersey and Eastern Pennsylvania are in a tough spot as millions of square feet of prime warehouse space built after the pandemic flood back into the market. According to a new report from CBRE, the post-pandemic boom in consumer spending that pushed developers to add Class A and B industrial properties along the New York City-Philadelphia corridor has fizzled out. And those lessees—largely retailers, manufacturers, and logistics firms—have begun offloading millions of square feet as economic conditions soften, leaving the region with an oversupply problem.
CBRE’s analysis found that more than 32 million square feet of space available for sublease have been added to the market since the first quarter of 2023 in New Jersey, Philadelphia, and the I-78 and I-81 corridors in Pennsylvania.
The Central New Jersey region alone has added more than 2.5 million square feet to the market in the third quarter of the year, while 1.5 million square feet of space for sublease were added in Philadelphia, Northern New Jersey, and the I-78 corridor in Pennsylvania.
“Asking rents in the Northeast peaked and are showing signs of softening in markets with high vacancy,” CBRE found. “Landlords looking to fill longer-term vacancies or needing to increase occupancy numbers for year-end reporting are becoming more aggressive in their efforts to fill vacancies and are increasingly open to concessions for tenants with good credit or entertaining leases with tenants that lack traditional domestic capital.”
The availability of industrial sublease space and rent concessions has allowed third-party logistics firms from Asia to begin penetrating prime submarkets in the region, despite their long-term impact on slowing down new development and rising rents.
The analysis by CBRE comes two months after the firm reported that 2 million square feet of vacant industrial space were delivered to Central and North Jersey in the second quarter, when sublease availability reached 6.5 million square feet. That figure, the firm noted, actually underestimates the total warehouse space available for sublease because it excludes a significant amount of “shadow inventory.”
CBRE reported that same week that the sublease availability rate along the I-78 and I-80 corridors in Pennsylvania reached 5.8 million square feet—approximately five times higher than in mid-2022 before the market entered the current high-interest rate regime.