Philadelphia, Southern New Jersey Industrial Market: Everything Investors Need to Know
By Marc Isdaner, senior managing director, principal, Colliers International; and Ian Richman, senior managing director, Colliers International
Strong job and population growth in recent years have caused the Philadelphia/Southern New Jersey industrial market to continually rise on the radars of both investors and developers.
As the nation battles COVID-19, we see demand for industrial space growing as more users look to service last-mile customers in densely populated areas. This market is no exception. With the right guidance and counseling, investors can achieve strong returns here, even as variables like user demand and land/construction costs continue to rise, bringing valuations and sales prices along with them.
Projects Get Bigger
We continue to see developers take down large tracts near major thoroughfares in this region, oftentimes building on speculative bases.
Examples of such a project is Mansfield Logistics Park, a 960,000-square-foot, two-building spec development by Clarion Partners off Interstate 295 in Burlington County that is nearing completion; and The Cubes at East Greenwich, a two-building spec development located off I-295 in Gloucester County.
The latter project is being developed in an area that was largely inactive until 2018, as land sites and established industrial parks such as Pureland were essential built out. Scout Capital Partners is also building the first speculative cold storage facility in the region. Scout Cold Logistics Center South Jersey will total 332,000 square feet, and a portion has already been preleased with 235,000 square feet remaining.
Major Players To Watch
The most active players in the Philadelphia/Southern New Jersey industrial market comprise a mix of locally based owner/developers and new-to-market investors.
Delran, New Jersey-based Whitesell Construction Co. remains the largest industrial landlord in Southern New Jersey. Three years ago, Prologis sold most of its South New Jersey holdings, but through its subsequent acquisitions of the DCT and IPT portfolios, as well as Liberty Property Trust, San Francisco-based Prologis is now the second largest landlord in the area.
Blackstone/LINK Industrial represents another investor that did not have any Southern New Jersey properties until 2018, when it purchased a portfolio from GLP and acquired Gramercy Property Trust’s and Colony Capital’s assets.
Philadelphia-based Exeter Property Group has been actively buying, selling and developing properties in the region. Exeter is currently constructing two spec buildings totaling 536,000 square feet at Turnpike Exit 7 in Bordentown and has a development site on Route 130 in Burlington County for 704,700 square feet.
Matrix Development has been active at Gateway Business Park in Salem County. Matrix also developed 1 million square feet for Amazon in Burlington Township in 2018 and recently completed a 569,145-square-foot building in Bordentown that was leased to GoPlus.
New Kids in Town
Chicago-based CRG, Clayco’s private real estate development arm, recently entered the market with its aforementioned Cubes-brand industrial project. Greek Development, an established owner in Central New Jersey and Bucks County, Pennsylvania, has also expanded into Gloucester County.
Greek acquired the 520-acre Logan North development site in 2017 and has landed a major build-to-suit tenant in Target. Across Route 322 from Logan North, J.G. Petrucci owns a 200-acre development site that would support four buildings totaling 1.8 million square feet. Petrucci recently finished a 95,872-square-foot spec building in LogistiCenter at Logan and has additional land at Gateway Salem.
Carson Cos. recently entered the South New Jersey market with the purchase of 486,812-square-foot development site in Burlington. Blue Water Capital Group purchased a 129,175-square-foot building in Burlington County in 2019 and a 131,500-square-foot asset in Camden County this year and recently acquired land for a 480,000-square-foot development.
Black Creek Group is finishing a 528,000-square-foot spec building in Burlington County, its first in Southern New Jersey, and recently purchased two land sites to support a combined 578,290 square feet of new construction. STAG Industrial has been acquiring single-tenant buildings including the 1-million-square-foot former GSA warehouse in Burlington. STAG completed a 253,500-square-foot spec building in Burlington earlier this year that has reportedly been leased to Amazon.
Industrial Investments has also increased its holdings in South New Jersey with the purchase of a 21-building portfolio in West Berlin. In addition, Wharton Industrial, an affiliate of Walton Street Capital, recently acquired a 32-building, 1.1 million-square-foot portfolio in Pennsauken. Velocity Venture Partners has also been acquiring net-leased and value-add properties.
For bulk warehouse product, most deals are taking place in submarkets where there is new supply, particularly northern Burlington County.
Logan Township in Gloucester County is always a high-demand location, both for existing buildings and new construction. The established industrial parks with highway access in Pennsauken, West Deptford and Logan Township continue to attract tenants and owner-occupiers to spaces under 100,000 square feet.
Well-located, infill locations in areas like Pennsauken, Bellmawr, Logan Township and Mount Laurel continue to draw investor interest both for their in-place occupancy and redevelopment potential.
Alliance HSP purchased the aging industrial plant at 175 DeRousse Avenue in Pennsauken in 2019, and is starting and extensive revitalization that will result in 174,074 square feet of new industrial space. Velocity Ventures acquired a 1960s-vintage facility on River Road in Pennsauken and is retrofitting the rebranded Pennsauken Logistics Center.
Amazon has been steadily leasing buildings over 200,000 square feet since 2019, and at least one more large deal is expected in the near future. Another national retailer is looking for 1 million-plus square feet.
There are multiple land sites under contract in Burlington, Gloucester and Salem counties, where potential developers are working through the entitlement process. There are numerous infill locations along Route 130 from Pennsauken to Burlington that are in play. Two of these sites, in Palmyra and Cinnaminson in Burlington County, have proposed buildings of more than 1 million square feet.
These are examples of locations that had not previously been considered for distribution operations but which have gained interest as sites with more desirable interstate access dwindle.
Vacancy will continue to decrease in 2020. As more spec building are completed and additional projects commence, there may be fluctuations in vacancy as new space comes on line. Yet there is a lack of quality space between 25,000 and 50,000 square feet, particularly for companies that want to buy buildings. Most space in this size range is pre-1990 construction with ceiling heights under 24 feet.
Despite low interest rates to spur investor demand, there is very little product to buy. In addition, value-add investors have been offering more for vacant buildings, further shutting out potential owner-occupiers. Southern New Jersey also has a large presence of retail distribution centers.
As retailers, particularly apparel and home furnishing companies continue to slash their store footprints, there could be distribution buildings back on the market if the companies do not adopt e-commerce models.