Jules Nissim,
Cushman & Wakefield
During 2015, robust demand for modern warehouse space fueled the markets along the New Jersey Turnpike, pushing the state’s warehouse and distribution vacancy to a 15-year low (6.4 percent). This marks a significant five-year drop from a peak of 11.2 percent at the close of 2010. Additionally, the state’s industrial net absorption reached an all-time annual high (12.5 million square feet). Of this, 84 percent occurred within warehouse/distribution product.
Big-box demand continues unabated. Currently, we are tracking multiple 1 million-square-foot requirements — the most we’ve seen in many years. Additionally, and importantly, the heightened focus on last-mile delivery is drawing tenants to small and mid-size infill sites. These range from close-in locations providing immediate access to New York City and Philadelphia, to densely populated hubs all along the New Jersey Turnpike.
As vacancy rates approach all-time lows and available inventory tightens, an increasing number of deals involve Class B assets. This is good news for well-located, second-generation product. While a number of sites have been targeted for redevelopment, the majority of this activity involves projects that are being leased and occupied “as is.” This type of recycling is significant and certainly not something we would have anticipated five years ago.
The volume and diversity of current leasing translates into notably increased competition. We are seeing more bidding wars for spaces of all sizes. Rents are rising quickly as a result. At year-end 2015, the average asking rental rate for warehouse space reached $6.06 per square foot, climbing 8.2 percent year over year to a high not seen since 2000. At Exit 8A, where rents dropped to the $3-per-square-foot range during the recession, deals are being done in the low- to mid-$5 range today and may well go higher. At Exit 12 and north, in some cases we have seen rents exceeding $9 per square foot and expect that trend to continue.
Logically, construction volume also has risen. Just under 3.5 million square feet of industrial product was delivered during 2015, representing the state’s second-highest annual total in the last seven years. Currently, 4 million square feet of additional product is underway with a handful of groundbreakings anticipated during the first half of 2016.
However, this up cycle is distinguishing itself from others in the past. Developers are taking a more thoughtful and conservative approach to their speculative projects. This has kept velocity in check, which is maintaining a healthy supply/demand balance. The market is in no immediate danger of becoming overbuilt; since 2011, absorption has outpaced new construction by more than double.
It makes sense that New Jersey remains a favorite among the tenant types that have always operated here and has emerged as a magnet for e-commerce companies. The state’s location between New York and Philadelphia, mid-way along the Boston-to-D.C. corridor, offers unparalleled access to consumers. The market today is positioned for great progress. We are optimistic about what the coming months and years will bring.
— By Jules Nissim, Executive Vice President, Cushman & Wakefield, East Rutherford, N.J. This article first appeared in the March/April 2016 issue of Northeast Real Estate Business magazine.