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Demand-Build-Repeat Cycle Characterizes Southern New Jersey Industrial Market

Runnemede-Corporate-Center

Investment demand for industrial assets in Southern New Jersey that can service last-mile consumers in Philadelphia remains strong. Pictured is one such asset, Runnemede Corporate Center, which sold for $29.3 million at the end of 2020.

By Scott Mertz, SIOR, president, NAI Mertz

The industrial sector has proven to be the only entity with innate immunity to the coronavirus.

The onset of the virus has had nary an impact on the soaring demand, rising lease rates and rapid pace of new construction in the major industrial markets throughout the nation. If anything, the increased reliance on home delivery due to stay-at-home orders has only elevated the need for well-located warehouse space from e-commerce companies.

That’s been the story in Southern New Jersey, where demand remains high and inventory is in short supply. The vacancy rate has dropped below 4.5 percent, and market rent has been on a steady ascent, standing at $6.55 per square foot at the end of 2020.

Scott Mertz, NAI Mertz

Scott Mertz, NAI Mertz

With more players than open seats, it’s no surprise that developers are seeking to build on any viable plot of land in the region. Construction start activity reached a crescendo in the third quarter of 2020 with 4.2 million square feet entering development. All told, there is 7.1 million square feet of new construction on the way in Southern New Jersey. Many of these facilities will be delivered to market fully occupied. Over the past five years, the average rate occupancy at delivery has exceeded 65 percent.

Sustained high demand over the past decade has enticed developers to break ground outside of the traditional industrial hotspots. Most notably, the northern tier of Salem County has emerged as a locus of big box development due to its access to the New Jersey Turnpike and I-295, as well as its favorable climate for PILOT programs. Matrix Development Group was an early mover in this area, delivering its first 250,000-square-foot building in Gateway Business Park in 2008. The park has now grown to over 5 million square feet with another 107,000-square-foot facility proposed.

Further south in Carneys Point, Amazon intends to unveil a 1.2-million-square-foot fulfillment center late this year. The instant legitimacy that comes from attracting Amazon as a tenant has spurred further interest in development in the Carneys Point/Pennsville area, with D2 Organization seeking final approvals on two facilities totaling 1.7 million square feet to be built at the base of the Delaware Memorial Bridge.

The region continues to hold the attention of investors as well. The fourth quarter of 2020 saw a record number of sales, with more than 45 buildings changing hands for over $425 million in transaction volume. The sales price per square foot hit a new high of $93. The largest single transaction was STAG Industrial’s sale of 1900 River Road in Burlington to a joint venture between Clarion Partners and MRP Industrial for $110.5 million. Clarion and MRP plan to demise the existing facility and build two Class A distribution facilities on the 116-acre site.

Investor interest hasn’t been restricted to big box distribution facilities. In a sign that the strength of the overall market extends beyond simply large warehouse users, portfolios of multi-tenant industrial buildings have changed hands as well.

In the fourth quarter of 2020, NAI Mertz represented Faropoint Ventures in its $29.3 million purchase of a seven-building portfolio in Runnemede Corporate Center. Faropoint has been an active buyer in the area, purchasing four other industrial assets in the second half of 2020.

In January 2021, Camber Real Estate Partners purchased Whitesell Construction’s multi-tenant holdings comprising 1.2 million square feet over 25 buildings throughout southern New Jersey and neighboring Bucks County, Pennsylvania.

In other acquisition news, EQT AB, a Swedish private equity firm, purchased Exeter Property Group for $1.9 billion. Exeter, based in metro Philadelphia, has industrial holdings throughout the country and recently entered the European market. Their Southern New Jersey portfolio consists of over 1.4 million square feet across 10 buildings.

The strength of the industrial sector has been a certainty in a time of unprecedented uncertainty. The durability of demand and the scramble to meet it on the part of developers point toward another strong year for industrial in southern New Jersey in 2021.

Content Partners
‣ Bohler
‣ Lee & Associates
‣ Lument
‣ NAI Global
‣ Walker & Dunlop

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