Array of Industries Drives New Jersey Industrial Market’s Growth
New Jersey’s industrial market continues to expand, driven by a plethora of industries, including retail, manufacturing, food companies, transportation and logistics.
As the popularity of e-commerce shows no signs of abating, New Jersey has become a key location for distribution centers and last-mile delivery hubs to serve the entire Northeast region. E-retailers are scooping up available industrial space, taking advantage of New Jersey’s excellent air, freight, port, and rail infrastructure that links it to the rest of the region and the country.
After taking a slight breather during the first quarter of 2019, in part due to a lack of available high-quality space, total leasing activity has increased by 20 percent during the past three months, bolstered by more than 20 leases exceeding 100,000 square feet.
Absorption was widespread, with occupancy level increases in 16 of 25 submarkets for both the quarter and year over year. In total, 2.4 million square feet of positive net absorption was recorded during the second quarter of 2019, the highest level since the third quarter of 2018.
Moreover, occupancy levels increased by 8.6 million square feet during the past 12 months, the eighth consecutive quarter where more than 8 million square feet was recorded year over year. Manufacturing buildings continue to perform consistently well, accumulating more than half a million square feet during the past 12 months, pushing total positive absorption during the past five years to nearly 4 million square feet.
Further, the demand for industrial space in New Jersey is causing rents to continually rise, with the overall average clocking in 7.8 percent higher on a year-over-year basis, including 10 submarkets recording rent increases of more than 10 percent.
The largest transactions continue to be from e-commerce retailers in the Turnpike corridor. However, activity is beginning to expand to submarkets farther west, most notably in the Route 46/23/3, Fairfield and Morris East submarkets, with leasing in non-Turnpike submarkets representing 27 percent of the total year-over-year net absorption.
Despite these benefits, there are headwinds facing the industrial market on a national level. One prevailing challenge is the limited supply of trucks, coupled with a shortage of drivers.
The American Trucking Association reported that the dearth of truck drivers in the United States could climb to 175,000 drivers by 2026, and the problem is compounded by the industry’s aging workforce. However, technology and design improvements — self-driving truck, reductions in cab space — have the potential to reduce freight costs in the future.
The Port of New York and New Jersey continued to set records for cargo volume during the first half of 2019, climbing to No. 2 in the U.S. by cargo shipped thus far this year, the first time in decades it was ranked as the second-busiest port.
Traffic and road repairs also continue to present problems to the area’s industrial growth. The Port Authority is doing its part, preparing a new master plan in preparation for an anticipated doubling of cargo volume over the next 30 years.
That said, the industrial real estate market is still ripe with opportunity. New technologies are making significant advancements in operations and efficiency within the industry. Warehouses are becoming smarter and automating more tasks. Drones and virtual reality capabilities are allowing more out-of-market and international investors to close transactions remotely, facilitating faster deals.
Mobile commerce has contributed to an increase in online shopping. E-commerce sales recently surpassed the 10 percent mark of total U.S. retail sales for the first time, contributing to the aforementioned cargo volume records. Therefore, any improvements to mobile phones will likely lead to more online shopping, in turn causing an increased demand for industrial space.
New Jersey continues to reinvent itself to meet growing demand. While much of the primary region is built out, virtually the entire state is a core market. New developments throughout the state will help stave off regional demand, but it is still not enough to fully satisfy the appetite.
New Jersey was once largely considered an industrial market focused on manufacturing. The state’s slogan was “Trenton Makes, the World Takes.” Over the last few decades, the New Jersey office market grew considerably, especially in the technology, telecommunications and pharmaceutical sectors.
Recently, the office market has been undergoing a slight makeover, and the focus is shifting yet again. Now, New Jersey is one of the primary warehouse and distribution centers of the world.
—BY Matthew Dolly, director of research, Transwestern. This article first appeared in the August-September issue of Northeast Real Estate Business magazine.