Port-Driven Industrial Demand Remains Strong in New Jersey
The strength of the New Jersey industrial market continues to evidence itself through consistent demand, rising rental rates and record low vacancy rates across the region.
Much of the recent success has been the result of e-commerce growth and expansion among distribution and light manufacturing businesses looking to tap into the market’s port, air cargo, and major transportation networks.
While developers have been working to bring new inventory to the market, the new space is being absorbed quickly, leaving tenants with limited options for space. The New Jersey industrial market has seen significant demand for the past 20 quarters and a steady, often rapid, rate of absorption. The market saw 13.6 million square feet of absorption in 2018, according to research from Avison Young.
The epitome of this market expansion trend and the most obvious to investors is the activity along the New Jersey Turnpike, from Exit 8A where the market was at a staggering 1 percent vacancy rate at the end of 2018 up to the Exit 10 Edison Market, where rents may soon reach $9 per square foot net.
A little farther north into the Carteret /Avenel and Linden/Elizabeth markets much of the activity is focused on Port, airport and food related users. Recent notable deals in these markets include:
- Medical supplier Concordance signed a 208,000-square-foot long-term lease at 60 Distribution Blvd. in Edison, illustrating the continued growth in the medical supply industries.
- First Energy Corp. sold a 15-acre parcel at 351-369 Deans Rhode Hall Road in South Brunswick located directly along the New Jersey Turnpike to a user who plans to develop the site for a 200,000-square-foot warehouse, distribution and corporate office functions space.
- STG Logistics’ 241,000-square-foot sublease to an import/export group requiring access to the ports. This sublease was engaged on the day the property hit the market and took no more than three weeks to reach completion, illustrating the importance of market knowledge in this competitive environment.
Activity is also expanding north along the turnpike into the Meadowlands submarket, a coveted area that is extremely supply constrained that continues to attract both users and investors. In an interesting twist, Blackstone’s Gramercy Property Trust purchased an office building on 5 acres at 1290 Wall St. in Lyndhurst with plans to demolish the building and add up to 85,000 square feet of modern warehouse space.
In areas where land is especially scarce such as the Newark, Meadowlands and the Jersey City markets, opportunities to capture sizable tracts of land for redevelopment may become more frequent.
Another example of this is the recent purchase of the former Ballantine Brewery site in Newark. A joint venture of Turnbridge Equities and institutional investors advised by J.P. Morgan Asset Management acquired the 22-acre site with plans to redevelop it into a 1.1 million-square-foot multitenant industrial complex. This is a rare opportunity for redevelopment of such a large parcel in the Iron Bound area of Newark.
When completed, this development would create significant opportunities for small to mid-sized industrial tenants looking for modern space with proximity to the Port.
This type of property redevelopment and repositioning should continue for the foreseeable future, as developers and investors look for creative ways to fill market demand. Tenants can expect a continued dash for prime space that can support businesses’ needs for efficient warehousing and distribution.
Optimism and continued momentum in New Jersey’s industrial market should continue for the foreseeable future as long as interest rates remain reasonable. Prime locations along the New Jersey Turnpike and in key urban areas allow for efficient logistics that service the modern economy. With no end in sight to the efficiencies provided to the consumer through product or service delivery, the warehouse sector appears as though it will continue its successful trajectory.
Matthew C. Turse, CCIM, is a Senior Vice President with Avison Young, specializing in industrial leasing in the New Jersey market.