The industrial sector continues to experience seemingly limitless success, and New Jersey is one of the nation’s leading markets. Amid record-setting asking rents, vacancy rates and leasing velocity, it would be tempting for property owners, tenants and investors to become complacent while reaping the rewards of a sophisticated global supply chain, impressive gross domestic product and strong investment returns.
But challenges remain, and real estate professionals should consider them when making decisions. To continue to thrive in the industrial space, it behooves major players to explore solutions to some of the key matters facing the region.
Limited Space for Development
As a general rule, companies are insisting that warehouses be built within a one- or two-day drive of the customer, and from Central New Jersey, companies can reach 130 million consumers within a day’s drive. Therefore, it is no surprise that 75 percent of the industrial leases signed during the past two years for greater than 200,000 square feet occurred in Middlesex County, primarily along the New Jersey Turnpike.
Matthew Dolly
Director of Research,
Transwestern
However, it’s becoming increasingly difficult to find sites for construction. On top of that, when sites are identified, they often come with greater capital needs driven by redevelopment and brownfield issues. Simply put, industrial site selection is very different today than it was a decade ago, and more creativity is warranted to make development dreams a reality.
Poor Transportation Infrastructure
Transportation costs remain a huge portion of the total supply chain expense – much larger, in fact, than real estate. Since the Federal Department of Transportation tightened regulations regarding the number of hours truck drivers can be on the road, investment in autonomous vehicles has increased. Many are optimistic that this innovation will dramatically transform how goods are moved from point A to point B, but the application of the concept is still in the early stages.
At present, poor transportation infrastructure could possibly slow future industrial development. Inadequate roads, deficient bridges and freight-rail congestion need to be addressed. While the Transportation Trust Fund has been stabilized, additional capital is needed to support the growing e-commerce sector.
Lack of Skilled Labor
Greater demand for industrial real estate has put a squeeze on the labor supply. Despite New Jersey’s recent strong job increases in the Manufacturing and Trade/Transportation/Utilities sectors, and slower growth in Construction employment, a shortage of qualified labor remains as it pertains to the state’s vastly growing industrial market.
As such, young workers need to be educated about employment opportunities in the trucking and warehousing industries and trained to step into these roles. Companies looking to hire and retain quality workers within the industrial sector will benefit if they are able to empower new hires with a sense of purpose, as this has been shown to be a key factor in job satisfaction for younger generations.
Challenges Assessing ROI
As investors seek value-add opportunities, return on investment is always of primary importance. There appears to be no ceiling for industrial rents, with market rent growth in core markets expected to continue its upward trajectory. Secondary and tertiary markets, however, make for a riskier investment environment.
Because of its proximity to New York City and Philadelphia, as well as its location between Boston and Washington D.C., most of New Jersey’s industrial geography is considered a primary market. Yet as investors seek atypical development opportunities – for example, sites away from major highways or projects with high remediation costs – concerns exist that even though there is quite a bit of runway left, we are closer to the end of the cycle than the beginning.
Focus on Customer Service
Excellent customer service is perhaps the most important quality of a successful company in any industry and is of growing importance in the industrial market.This begins in the very early stages, such as lobbying for resident acceptance of a new warehouse development in a community – especially in a market like New Jersey with historically tough barriers to entry.
To be a market leader, service must continue all the way through the process, whether it be standing by products manufacturing at your facility or making sure deliveries arrive on doorsteps as promised. Communication and transparency are critical to building a strong brand, especially as the line between retail and industrial blurs.
The industrial sector is evolving at an incredible pace, which is both an intimidating and exciting reality. As we look ahead, those who are able to anticipate and determine tangible solutions for the challenges ahead will remain in the best position for sustained success.