The New Jersey industrial market offers a mixed bag as we head into the year's final months. The market north of Turnpike Exit 10 is as strong as it's ever been, boasting relatively low vacancies, high demand and healthy rents. Further south, at exits 8A and 7A, the market is peppered with vacant buildings and little urgency from tenants looking to make deals.
During the first half of 2007, industrial leasing activity totaled 11.9 million sf, off 10% from totals recorded last year. Highlighting activity, LG Electronics leased 751,005 feet at 380 Deans Rhode Hall Rd. in Cranbury. Within the Rockefeller Foreign Trade Zone in Cranbury, Swiss-based logistics company Kuehne & Nagel Inc. took 443,803 sf at the recently completed 324 Half Acre Rd.
Despite these big wins for New Jersey, tenants seem to be holding back from making decisions. A number of factors could be contributing to this drag on the market.
Notably, five warehouse/distribution buildings of 900,000 sf or more are either up or under construction. That, in itself, is enough to paralyze the market a bit. In this day and age, the cost of fitting up these big buildings is monumental–up to $40 million in some cases. As such, the decision to commit is not just about real estate and real estate costs. Rather, it's a major capital investment that requires a long, hard look from management.
Additionally, the amount of activity taking place in Pennsylvania may have drained some demand from Central New Jersey. BMW North America is making a large commitment in eastern Pennsylvania. A few years ago, New Jersey probably would have been the company's choice. Moving forward, the Garden State will need to work hard to maintain its competitive edge through enhanced incentives and streamlined approvals.
The good news is that there are a number of industrial deals out there that, if they land, could quickly swing market conditions to the positive side. Retailers and consumer-products companies are among the most active seekers of warehouse and distribution space.
Where are they looking? Again, locations near the port and Manhattan appear to be the most desirable. Panattoni's one-million-square-foot I-Port 12 building at Exit 12 and Rockefeller Group's 40-acre County Road site in Jersey City are seeing tremendous interest.
We're telling potential users that this is an unusually good time for corporate America to make an industrial real estate deal in New Jersey, especially in the slightly overbuilt Central New Jersey market. There, building owners are working to be more competitive, which is creating great opportunities for tenants.
History dictates that this climate will not last forever, and the coming months will see the current tire-kicking translate into more closed deals. New Jersey will always benefit from its location on the corridor from Boston to Washington, D.C. Our challenge is to keep it attractive to industrial users, so they will continue to be drawn to our state and grow here.
Stan Danzig is executive director of Cushman & Wakefield Inc. in East Rutherford, NJ.
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