Matthew Dolly, Transwestern
With an increasing number of tenants seeking to relocate to New Jersey from parts of New York City, including Brooklyn and the Bronx, the Garden State’s industrial market is at its healthiest since first-quarter 2008. The amount of vacant space has now reached pre-recession levels, decreasing from 7.5 percent to 7.2 percent during the third quarter of 2015. Moreover, the vacancy rate experienced its best year-over-year improvement since the first quarter of 2014. Strong markets include central New Jersey submarkets Exit 8A, Exit 9/Brunswick, and Route 287 West, while the Meadowlands area remains the strongest submarket in northern New Jersey, followed by Exit 14/Newark near the port, and the Route 46/23/3 submarket.
While transactions by large tenants, such as Amazon, dominated activity during the first half of the year, industrial buildings were filled up by smaller and mid-sized tenants during the third quarter of 2015. Retailers/wholesalers led the way, which is not surprising considering the continually growing e-commerce sector and recent increases in consumer spending. Supporting the recent economic resurgence of the sector, tenants in the manufacturing industry were also very active during the quarter, though many of their leases were small in size. Transportation companies also took space, enhancing the already high level of confidence in the logistics industry.
Increased interest continues from New York City companies, as some end users there are being priced out of their current markets. In New Jersey, logistics are more favorable and occupancy costs are lower. Generally speaking, prospective onlookers from across the Hudson River will begin their search in northern New Jersey near the ports and the Meadowlands, but because of limited options, will continue southward down the New Jersey Turnpike, and go as far as central New Jersey and as deep as Class C. Because of this high demand, it behooves New Jersey to make transportation improvements, not just on roads, tunnels and bridges, but in intermodal-rail infrastructure to support record cargo traffic at the Port of New York and New Jersey.
High demand is driving industrial rents through the ceiling, to prices not seen before in some areas. As a result, the average asking rent for warehouse space has reached its highest level since the first quarter of 2009. For the quarter, the rate increased to $5.80 per square foot, up from $5.73 per square foot during the second quarter of 2015. Year-over-year, asking rents have increased in 19 of 25 submarkets. Demand from New York has contributed to increasing levels. Tenants from the boroughs of the Bronx and Brooklyn that are used to paying higher rents are not dismayed by increased asking rents in New Jersey, especially as they look at newer and more efficient space. The same can’t be said for current New Jersey tenants, which are surprised at the rent increases as they consider renewing their leases.
With a slowly improving economy, surging manufacturing center and unprecedented levels of port traffic, the industrial market in New Jersey is expected to remain strong. E-commerce continues to change development, as e-tailers need every inch of a warehouse to store product in preparation for timely delivery of online orders. An eye will be kept on the world economy as a global slump could have a major impact on the industrial sector. Another setback could result from the delay of the “Raise the Roadway” project Bayonne Bridge project, as navigational clearance is now not expected until late 2017, with additional costs likely. It remains to be seen if this will have an effect on international trade at the port.
— By Matthew Dolly, Transwestern’s New Jersey Director of Research. This article originally appeared in the November/December 2015 issue of Northeast Real Estate Business magazine.