Industrial demand in New Jersey has picked up dramatically over the past year, in tandem with a clear shift in corporate America’s mindset to get serious about dealmaking while conditions remain favorable.
During the market downturn, tenants with two or three years left on their leases frequently tested the market, making offers that expected property owners and developers to assume the trailing liability of existing lease terms. Most owners simply were not willing to do that, and deals regularly fell apart or remained stagnant.
Beginning in mid-2010 and through the first three quarters of 2011, we have experienced a promising increase in real commitments. In fact, during the first six months of this year, some 11.1 million square feet of new industrial leasing took place in Northern and Central New Jersey — a 74 percent year-over-year increase. This included 12 transactions over 100,000 square feet during the second quarter alone. The largest involved Wakefern Food Corporation’s impressive 1 million-square-foot lease at 8001 Industrial Ave. in Carteret.
Why the jump? While we are seeing the stock market decimated what seems like every other week, corporate America for the most part is flush with cash. At this point, companies have extracted about as much inefficiency from their supply chains as possible. They are left with options to consolidate or upgrade the quality of their buildings, or reinvent their materials handling systems (which generally is part and parcel of a facilities change). They recognize that the market is turning around in favor of landlords, and they know that they need to make that move they have been considering now, before rents begin to rise markedly. Incentives, including the Urban Transit Hub Tax Credit program, also continue to drive larger transactions.
The increase in Garden State dealmaking had resulted in 2.5 million square feet of overall net absorption at mid-year 2011, as compared to negative 4.8 million square feet at mid-year 2010. This is most noticeable in what we can now call the formerly overbuilt Exit 8A and Exit 7A submarkets. In early 2010, seven or eight buildings of 500,000 square feet or more sat vacant between them. Today, that number is down to three, and several large requirements remain active in the market. Some users also are considering land purchases and the development of their own facilities.
While average asking rents held steady through the second quarter of 2011, at $5.62 per square foot, the tightening market is placing upward pressure on rents, which are now beginning to climb.
In another phenomenon, as the market reaches equilibrium, speculative construction is reemerging in New Jersey. Petrucci is getting ready to start a 570,000-square-foot building in Edison, while Prologis is talking about launching projects in Carteret and/or Elizabeth.
Looking ahead, we expect to see a continued flurry of companies and investors wanting to make deals, which will make for even more robust industrial fundamentals. Ultimately, New Jersey landlords will become increasingly bullish and less apt to grant free rent and excessive tenant work letters as the market continues to shift in their favor.
— Stan Danzig, executive director with the East Rutherford, New Jersey, office of Cushman & Wakefield, Inc.