Transwestern Research: Turnpike Submarkets Seeing Rising Rents, High Velocity in Deals

Alex Previdi, left, and Larry Schiffenhaus of Transwestern produced the research on the NJ Turnpike industrial submarkets

SECAUCUS, NJ—Industrial space in key submarkets along the New Jersey Turnpike remains tight, with many large users bidding for the same space, and rents are continuing to rise at an unprecedented pace, according to researchers with Transwestern, a major broker of industrial properties.

For example, the actual rent on one recent lease at Exit 10/Edison was nearly $4 per square foot higher than the asking price. At Exit 13A in Elizabeth, the average asking rent was $6.46 and several tenants paid north of $8.00, say Larry Schiffenhaus, assistant vice president and Alex Previdi, managing director, who authored the Transwestern research. At Exit 16W/Meadowlands, rents have climbed to pre-recession levels and now average $7.26 per square foot, after falling to as low as $5.52 during the fourth quarter of 2010.

“We’ve never seen demand like this, and obviously the rents have followed suit,” says Previdi. He and Schiffenhaus work out of Transwestern’s Parsippany, NJ, office.

Transwestern infographic showing Turnpike submarket industrial rent trends

Meadowlands and Port markets are seeing the highest rents, says Schiffenhaus. “You’re seeing for some of the newer developments and class A product up there, rents that are well into the $9 a square foot range, and even some of the older product that may be getting repurposed or redeveloped, they’re well into the mid- to high-$8 a square foot range, and a year ago, rents were probably in the high sixes and low sevens, so the rental landscape in that market has changed in a relatively short period of time. No one knows how long it’s going to last.”

E-commerce is one factor, but Previdi says improvement in the overall economy is also playing a role.

“The economy is clicking along in Manhattan as well, and that’s driving this demand in the Meadowlands, and these companies that service Manhattan are expanding as well,” he says.

Home furnishings, garment warehouses, “a wide range of companies that are locating their operations there,” are making the Meadowlands such a tight market, Schiffenhaus says. “There is a tremendous amount of wealth located in a very dense area, so it makes sense for a lot of these businesses to keep their operations in the northern New Jersey market.”

Southern markets in New Jersey are starting to get interest as well, Previdi says. A more rapid recovery from the most recent recession by larger companies put pressure on space availability and is driving companies to look at the 8A submarket and further south.

“The New Jersey Turnpike is one of the best distribution corridors around, and so as long as you’re in a close proximity to the Turnpike, it makes sense for a lot of folks,” he says.

Landlords are taking advantage of the strong market conditions, recovering rents which were discounted considerably during the most recent recession, they say. Other key points of the Transwestern research:

• 7.3 million square feet of total net absorption year-over-year on this turnpike stretch as all nine submarkets experienced positive absorption.
• Development/redevelopment at Exit 16W/Meadowlands is the one of the highest costs around the country, so when complete, higher rents are needed to offset costs.
• Most of the new construction in New Jersey is along the turnpike and newer buildings command higher rents.
• Though rents are higher, the Turnpike’s superior location results in lower transportation costs because of the shorter distance from product origin to the consumer base.
• Grow NJ incentives are more available in the northern NJ areas around the ports, and the rewards offset higher rents
• Pulaski Skyway, Bayonne Bridge improvements will have a big impact on demand.
• Demand from the Bronx and Brooklyn is driving up prices as they have been used to paying higher rents in NY.