Andrew Judd, left, and Jason Price, of Cushman & Wakefield Andrew Judd, left, and Jason Price, of Cushman & Wakefield

EAST RUTHERFORD, NJ—E-commerce and a healthy economy helped fuel another strong quarter for the Northern and Central New Jersey industrial market, according to new research from Cushman & Wakefield. Demand for industrial space remained robust during the second quarter of 2016, which helped push the overall vacancy rate to an historical low of five percent, as quality space dissipated, especially along the New Jersey Turnpike. As a result, asking rents trended higher once again, reaching their highest level since 2000, with tenants continuing to seek out space in new, state-of-the-art properties.

Macro-economic trends have had a direct and indirect impact on the New Jersey industrial sector. Despite some concerns about the global economy in recent months, retail sales in the US were steady during the first quarter of 2016 vs. the previous few quarters. E-commerce sales, however, remained on an upward trend, representing 7.8% of all sales during the first quarter, while online sales rose 15.1% since one year ago to $92.8 billion.

Meanwhile, New Jersey’s unemployment rate remained below five percent. Industries such as trade (which includes the interstate commerce, logistics, shipping sectors), transportation, and utilities and manufacturing have had job gains over the last year, with 1,300 and 1,100 jobs added, respectively over the past month alone. This total economic and retailing output bodes well for the New Jersey industrial market.

“As quality industrial space in Northern and Central New Jersey dissipates, demand is anticipated to remain robust through the second half of the year,” says Andrew Judd, Cushman & Wakefield’s New Jersey market leader, who also noted that some tenants in need of modern warehouse space will opt for new construction, as existing options dwindle further. “As a result of declining vacancies, we expect asking rents to ascend even higher. Developers will continue to build new product in response to the lack of quality space, although land constraints are tight.”

“Industrial space, particularly warehouse space in Northern and Central New Jersey, continued to dwindle at a brisk rate during the second quarter, as vacancy fell by 60 basis points (BPS) since the first quarter,” says Jason Price, research director, tri-state suburbs. “The vacancy rate for warehouse space finished the second quarter at a mere 4.6 percent, 280 basis points lower than one year ago.”

Price also noted that most major submarkets either remained stable or recorded occupancy gains, led by the Meadowlands and Exit 8A, both of which experienced strong demand. These two submarkets consequently accounted for the majority of absorbed space during the second quarter.

Industrial leasing activing in Northern and Central New Jersey produced 11.1 million square feet of net absorption year-to-date. “This marks the highest mid-year total of occupancy gains in history, with the market poised to easily outpace the annual record total for 2015 at 12.5 million square feet,” Price says. “Meanwhile, big-box, modern warehouse space remains sparse along the turnpike, with only four spaces exceeding 250,000 square feet (sf) available with a minimum ceiling height of 28 feet.”

As the local industrial market showed no signs of slowing down, the overall warehouse/distribution asking rental rate in Northern and Central New Jersey continued to climb to $6.55 per square foot, a two percent increase from last quarter. The rate has now increased by 26.4 percent over the last three years. Areas around the Port continue to command the highest asking rents for warehouse space due to tenants’ desire for close proximity to the port of Elizabeth, coupled with the lack of space available in the area. Meanwhile, further down the turnpike, both the Lower 287 and Exit 8A submarkets have recorded an increase in asking rents, albeit at a more modest pace.

Robust demand in New Jersey continued as another 7.5 million square feet of industrial product was leased during the second quarter. Large blocks of Class A space continued to lease up along the New Jersey Turnpike corridor submarkets, as e-commerce and logistics activity propelled leasing totals to a new mid-year high. Nine leases were inked in excess of 200,000 square feet with the majority concentrated in the Exit 8A submarket. Furthermore, the historical levels of demand can be attributed to large deals — those exceeding 400,000 square feet — occurring at a brisk rate.

In fact, from 2012 through 2014, there were 14 new completed leases within that size range in New Jersey. Since then, 13 similar deals have closed. Meanwhile, more than 1.7 million square feet of tenants have committed to buildings which have not yet completed construction. During the second quarter, Exit 8A led the pack in terms of demand with 2.8 million square feet of leases, while the Meadowlands recorded 1.5 million square feet of transactions, up considerably since the first quarter.

The top leasing transactions rounding out 2Q 2016:

  • Blue Apron signed a 495,121 square feet lease at 901 West Linden Avenue in the Clark & Cranford submarket.
  • UPS signed a 343,485 square feet lease at 100 Middlesex Center Boulevard in South Brunswick in the Exit 8A submarket.
  • NJ Cal Warehouse signed a 324,540 square feet lease at 26 Engelhard Drive in Monroe Township, in the Exit 8A submarket.
  • O’Neill Logistics signed a 221,092 square feet lease at 130 Interstate Boulevard in South Brunswick, in the Exit 8A submarket.
  • Nestle Waters North America signed a 218,000 square feet lease at 257 Prospect Plains Road in Cranbury, in the Exit 8A submarket.

Developers continue to respond to the robust demand and lack of available quality product in many parts of the Garden State. Almost two million square feet of industrial construction was completed during the first half of 2016, 62.5 percent ahead of last year’s pace. Meanwhile, another 3.3 million square feet of industrial facilities broke ground during the second quarter, pushing the construction total to 6.7 million square feet — 2.4 million square feet of which is anticipated to be delivered before the end of the year.

The bulk of the development, as usual, has been concentrated along the New Jersey Turnpike corridor, with much of the square footage located between Exits 14 and Exit 8A. Six of the buildings under development exceed 400,000 square feet two of which have already been leased in full to Fedway (539,308 square feet ) and Blue Apron (495,121 square feet ).

The investment sales market also showed solid second quarter activity. Key transactions included:

  • IO Data acquired the 831,427-square-foot 3003 Woodridge Avenue from Prologis in Edison for $97,335,552, or $117/square foot.
  • TIAA purchased the 219,049-square foot 1 Lladro Drive in Moonachie from Principal Real Estate Investors for $30,309,000, or $138/square foot.
  • Commercial Realty Group acquired the 452,000-square foot 350 Clark Drive from New Jersey Development Group in Mount Olive for $27,125,000, or $60/square foot.