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New Jersey’s industrial market is showing signs of continued improvement, as evidenced by increased investment sales activity and the return of speculative development to the region.
A number of significant development projects are already in progress, as well as a few proposed projects, including 2.8 million square feet of new construction at 2450 U.S. Highway 130 and 2.6 million square feet at Cranbury Half Acre Road, both located in Cranbury and within the Exit 8A submarket, which benefits from a central location that provides tremendous access to points both north and south.
The Central New Jersey industrial market continues to have positive momentum with 583,653 square feet of positive net absorption in the third quarter, leading to a decline in the overall vacancy to 7.8 percent from 8.0 percent in the previous quarter. The vacancy rate is now below the 10-year historical average of 8.3 percent, an impressive recovery from a peak vacancy of 10.7 percent in the third quarter of 2009. Overall, market fundamentals remain strong and demand is expected to remain high for the remainder of 2012 and into 2013 based on a sizable number of tenants in the market and pending deals expected to close within the next six to nine months.
The New Jersey Turnpike corridor continues to be the “hot spot” of leasing activity for big-box users and distribution facilities. The Exit 7A submarket is currently at 17.4 percent vacancy, significantly lower than its peak two years ago of 35.7 percent. Two significant deals in the Exit 7A submarket that are expected to close within the near future will push vacancy rates even lower to single-digit territory.
As to be expected, the average asking rent in Central New Jersey slightly increased in the third quarter to $4.26 per square foot. Among the recent transactions include Argix Logistics, which signed a 324,381-square-foot deal at 100 Middlesex Center Boulevard in the Exit 8A submarket, and Ryder Integrated Logistics, which inked a 248,611-square-foot deal at 1165 Cranbury South Rover Road, also in the Exit 8A submarket.
This recent robust leasing activity has fostered a competitive undertone in the market and based on current market conditions, we should see tightening availabilities and a renewed sense of urgency among occupiers. The Turnpike corridor will continue to experience a high velocity of leasing activity, particularly from data, logistics and food-related companies.
Value pricing, attractive landlord concessions and low interest rates for buyers make the current market favorable for tenants. However, as conditions continue to improve and leasing velocity increases, the market will provide fewer opportunities for tenants, which should lead to an increase in rental rates and a drop in overall landlord concessions.
Central New Jersey appeals to e-commerce retailers for many factors including the optimal transportation network and because it’s a central hub to connect with both a highly skilled labor pool and dense consumer population. These companies are having a significant impact on the marketplace and will continue to do so, with industry leader Amazon expected to soon settle on a location in the Garden State. The online retailer is in talks for approximately 2.4 million square feet of proposed space to be utilized as a distribution center. This move could bring have an estimated economic impact of more than $40 million in sales tax revenue alone, not counting full-time, seasonal and construction employment.
In Northern New Jersey, technology/data and logistics remain key industries driving demand for warehouse and distribution space. There have been some positive signs in the Northern New Jersey industrial market with average asking rates having stabilized and now beginning to increase. In the third quarter, the average asking rent increased 10 cents to $5.73 per square foot. Additionally, the investment sales market remained active for Class A and B properties with Class A buildings still in high demand throughout Morris, Essex, Passaic and Bergen counties.
Despite these positive indicators, the Northern New Jersey market ended the third quarter at 814,875 square feet of negative absorption, causing the vacancy rate to increase to 7.9 percent from 7.7 percent in the second quarter.
While challenges in the economy persist, overall, an anticipated increase in East Coast port activity is expected to have a positive impact on New Jersey’s industrial market throughout the remainder of the year and into 2013.
— Chuck Fern, executive managing director for Cassidy Turley in New Jersey.