The rising demand for bulk warehouse space among e-commerce users is driving the New Jersey industrial market. After climbing to 14.1 percent during the third quarter of 2010, the vacancy rate for warehouse space for the 10-county region in Northern and Central New Jersey has declined to 12.5 percent during the first quarter of 2013.
More than 7 million square feet of inventory has been absorbed since the middle of 2011. Increased demand resulted in rising average asking rents during 2012, the first year of steady increases since 2007. Nearly 90 percent of the net absorption occurred in Central New Jersey, more specifically along the New Jersey Turnpike from exits 7A to 8A, where vacancy rates ascended to as high as 22.5 percent during the third quarter of 2009 and currently stand at 14.4 percent.
Adding to the momentum of activity in Central New Jersey is Amazon’s commitment to open two large fulfillment centers here, demonstrating the significant impact that e-commerce is having on the state’s commercial real estate market. The first of these two warehouses, which is slated to open in 2014 in Robbinsville (Mercer County), will generate an estimated 700 jobs and more than $22 million in tax revenue.
And while Amazon’s decision to build this facility on Interstate 195 at Exit 7A of the New Jersey Turnpike comes as no surprise, the old real estate adage of “location, location, location” has taken on new meaning, with location increasingly becoming a function of logistics, while consumers take advantage of opportunities to shop online, from any location.
Amazon’s plans for a second warehouse in New Jersey are rumored to be in the Avenel section of Woodbridge Township in Middlesex County. This is where investment firm KTR Capital Partners — Amazon’s development partner on projects across the United States — has recently completed an acquisition. This project could bring 500 additional jobs to the area.
According to estimates by eMarketer, sales for e-commerce topped $1 trillion for the first time in 2012, with projections for 2013 approaching $1.3 trillion. The emergence of e-commerce should continue to positively impact the New Jersey industrial market, especially in Central New Jersey where asking rents remain much lower than in the northern part of the state, and concessions are still available. In addition, industrial market demand could increase as major retailers reduce the size of stores, choosing instead to offer showrooms with limited merchandise while keeping much of their inventory in warehouses.
Amazon chose New Jersey in part due to the vast and wealthy customer base between Boston and Washington D.C. and the ability to offer next-day or even same-day delivery.
Amazon isn’t the only major e-commerce retailer to begin housing operations in New Jersey. Additional e-commerce retailers with new locations in New Jersey include Peapod, Fab.com and David’s Cookies.
While Central New Jersey has experienced the most recent success, the port markets in Northern New Jersey are poised to benefit as the need increases for manufacturers and trucking companies to move cargo from the ships to the end-consumer at a much quicker pace. As a result, speculative construction is slowly picking up around the port markets. Of course, the widening of the Panama Canal and the raising of the Bayonne Bridge will also support this need for speedy deliveries.
Perhaps some irony can be found in the recent news that Fortune 500 retailer Best Buy (which successfully sells many of its products online) and internet giant Yahoo both recently rescinded their employees’ telecommuting privileges and are asking workers to come into the office, e-commerce retailers are simultaneously making it much easier for consumers to spend more time at home.
— Matthew Dolly, vice president of research with Avison Young in New Jersey