The Garden State's Record-Breaking Industrial Recovery
New Jersey’s industrial market took a positive turn in the past 18 months, and now the lack of new development during the downturn has market conditions comparable with any boom period. Occupiers are paying record rents as high as $8 per square foot for new, Class A product, while submarkets such as Port/Airport and Exits 10 and 12 report vacancy below 5 percent. Investor demand for industrial property with credit tenants and decent lease term remaining is literally insatiable.
Central New Jersey closed 2013 with 1.2 million square feet of fourth quarter net absorption and a vacancy rate of 6.6 percent, which is a 170–basis-point decrease compared to the end of 2012. Northern New Jersey’s largest -submarket, Meadowlands, has 78.2 million square feet and the submarket posted 1.7 million square feet of net absorption to finish the year with 6.2 percent vacancy. To the south, where average asking rents are $4.87 NNN per square foot, several Central New Jersey submarkets are at sub-6-percent vacancy, including Exit 8A, the region’s largest industrial submarket, which ended 2013 at 5.1 percent vacancy.
Mom & Pop, Meet Amazon
New Jersey’s traditionally strong base of small- to medium-sized, mom-and-pop end users certainly plays a role in the market’s health, but brand-name national and international tenants — and the third-party logistics providers (3PLs) that serve them — currently drive absorption and development. For example, Amazon, Home Depot, Tory Burch and toy company Melissa & Doug all inked deals exceeding 200,000 square feet in Central New Jersey last year. Fed-Ex, Hudson News and Internap Network Services each leased 100,000 to 232,000 square feet in Northern New Jersey, where average asking rents are $5.84 NNN per square foot.
More recently, international cosmetics company L’Occitane signed on for 176,000 square feet at Forsgate Industrial Partners’ 120 Herrod Boulevard building in South Brunswick, N.J. In the 8A submarket, IndCor has leased 218,000 square feet to a 3PL and Pro-Logis has signed another 3PL to 400,000 square feet in the Exit 12 submarket.
With such strong demand, Central New Jersey has 4.4 million square feet of new industrial development under construction. Northern New Jersey has 1.1 million square feet of new product under construction and strong demand for existing, bulk availabilities such as Woodmont Industrial Partners’ and AEW’s I-78 Logistics Center, a 729,000-square-foot development in Clinton, N.J. Record rents and state incentives to spur redevelopment also drive construction, especially in the Port/Airport submarket in Northern New Jersey and Exit 10 and Exit 12 submarkets in Central New Jersey. Regional and national developers such as Duke Realty, IDI, Hampshire Cos., KTR and ProLogis all have sizable spec buildings underway, and we expect many will be substantially leased within six months of delivery.
Of course, solid tenant demand translates into strong investor demand, and that is the case in Northern and Central New Jersey. Last year closed on a strong note in Northern New Jersey with ProLogis’ $88.15 million sale of its Fairfalls industrial portfolio to The Hampshire Cos., Wilson Associates’ $47.5 million sale of its Meadowlands portfolio to JP Morgan, and Samsung Corp.’s sale of 40 Seaview Drive to DCT for $15.6 million. Similarly, top fourth quarter investment sales in Central New Jersey included Helmsley Enterprises’ $35.25 million deal with Digital Realty Trust for 636 Pierce Avenue in Somerset County and Rubenstein Properties’ $18.5 million sale of 1665 Jersey Avenue in Brunswick to Seagis Property Group.
As we continue to thaw out from one of the worst winters in recent memory, we expect continued, robust performance from the New Jersey industrial market, especially with improving consumer confidence and e-commerce’s inexorable penetration into consumer and business spending. While we hope for a warm, early spring, we have more confidence in the forecast for even better net absorption and rent growth and declining vacancy as we move through 2014.
— By Chuck Fern, Executive Managing Director, and Doug Bansbach, Senior Vice President, with Cassidy Turley. This article first appeared in the March/April 2014 issue of Northeast Real Estate Business magazine.