Cushman & Wakefield: Demand for Quality Product Propels NJ Industrials in 3Q

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

EAST RUTHERFORD, NJ—With the latest E-commerce boom and growing presence of logistics companies in the Garden State, the need for quick product delivery to the Tri-State area has contributed to another strong quarter for the Northern and Central New Jersey industrial market, according to new research from Cushman & Wakefield.

While demand did not reach the high point seen in the first two quarters of 2016 — likely due to the lack of available quality product — but leasing for industrial space is expected to remain healthy for the rest of the year. Net absorption is also likely to finish in the black once more, even with a robust construction pipeline.

“The need for modern and quality warehouse space, particularly along the New Jersey Turnpike, should offset much of the construction deliveries and dispositions in the near future,” says Andrew Judd, Cushman & Wakefield’s New Jersey market leader. “The Northern and Central New Jersey warehouse market is in no immediate danger of becoming overbuilt. As a result, asking rents will climb steadily as market conditions tighten and landlords remain in the driver’s seat, with full-year leasing on pace to reach its highest total since 2000.”

Overall net absorption reached 13.2 million square feet for the year, marking a new annual high with one quarter left in the year remaining. In addition, the third quarter saw vacancy for warehouse space continue to tick lower yet again to 4.5 percent, while the lack of quality warehouse product along the New Jersey Turnpike pushed rents higher. Development of new product continued, with 1.2 million square feet of industrial product completed during the quarter, while another 1.6 million square feet broke ground, bringing the total development pipeline 7.9 million square feet.

While the industrial market failed to absorb space at the rapid pace of the previous quarters, the market did register 1.9 million square feet of occupancy gains throughout the quarter, most of which were concentrated in the Central New Jersey submarkets.

Overall, industrial vacancy remained flat at 5.0 percent, while warehouse/distribution vacancy inched lower by 10 basis points since 2Q, to 4.5 percent. The Warehouse/Distribution (W/D) vacancy rate has fallen by 260 basis points since a year ago, with Central New Jersey’s rate dropping precipitously to 3.5 percent (-350 basis points). Of the major turnpike corridor submarkets, the Meadowlands and Lower 287 submarkets continued to see demand outpace new availabilities during 3Q.

Meanwhile, warehouse vacancy increased slightly to 3.0 percent at Exit 8A, driven in large part by the delivery of a 496,000-square-foot, fully available warehouse at 2353 Route 130 in South Brunswick, and more than 300,000 square feet of direct space becoming available at 200 Docks Corner Road in South Brunswick.

Furthermore, 41 percent of the total new leasing activity in the Exit 8A submarket consisted of space currently under construction, which had no effect on occupancy numbers. Vacancy for W/D facilities along the turnpike corridor finished the quarter at 4.1 percent, 40 basis points lower than the overall market.

Judd also noted that as quality space continued to tighten, average asking rents further rose to $7.47 per square foot, a 16.4 percent increase since a year ago. For warehouse space, the key segment of the Northern and Central New Jersey industrial market, the average asking rental rate ticked slightly higher since 2Q, to $6.62 per square foot. The ascent was more prominent within Northern New Jersey, where the average rate reached $7.07 per square foot, a recent high, mostly driven by tight space conditions in the Port Region and Meadowlands. Meanwhile in Central New Jersey, asking rents from Exit 8A up through Exit 10 remained relatively flat, at per square foot, albeit at historically high levels throughout the quarter.

Leasing activity was also strong. Slightly more than 6.7 million square feet of new leases were signed during 3Q, pushing the year-to-date total to 23.5 million square feet, up 24 percent year-over-year, with the market on pace to finish with its highest annual total for new leasing activity in 16 years.

For the quarter, Exit 8A, Lower 287, the Meadowlands and the Port Region all recorded 1.0 million square feet or more of activity, with Exit 8A reporting the highest at 1.6 million square feet. Year-to-date, these four submarkets have accounted for 69 percent of the total market total volume. At 13.2 million square feet, year-to-date absorption has already eclipsed last year’s record total of 12.5 million square feet.

“Third quarter lacked some of the larger transactions (400,000+ SF) that were prevalent in the first half of the year due to the decline of available space,” says Jason Price, Cushman & Wakefield’s research director, Tri-State Suburbs. “However, 3PLs continued to lease up rapidly along the New Jersey Turnpike in response to e-commerce demands.”

In an exclusive email interview with GlobeSt.com, Price says the demands of e-commerce companies are playing a key role in keeping demand robust.

“E-commerce has been a huge demand driver in New Jersey and other major markets which serve huge population centers,” he says. “Both size of footprints (square footage) and number of requirements have been on the rise for e-commerce firms, shipping companies (such as FedEx and UPS) and third party logistics companies which serve these e-commerce companies. Many times more than half of the active requirements in the market will either be e-commerce users, shipping companies or 3PLs.”

Price added that leases in the 100,000 – 300,000-SF range fueled 3Q leasing, accounting for more than half of the quarter’s volume, with most leases in this size range occurred along the turnpike corridor within warehouse facilities.

Some of the largest 3Q industrial leases in Northern and Central New Jersey included:

• FedEx, which pre-leased a 340,000-square-foot build-to-suit on Route 130 near Exit 7A in Hamilton. The property is under construction.
• Creative Logistics, which leased 281,000 square feet at the under-development Bridge Point Turnpike 8A in South Brunswick.
• CDS, which leased 250,000 square feet at 301 Middlesex Center Blvd. in South Brunswick

New construction deliveries for the year reached 3.2 million square feet as another 1.2 million square feet of buildings were completed during the third quarter alone. New developments are 23 percent ahead of last year’s 3Q pace, with another 2.6 million square feet of deliveries anticipated in the next three months. Despite this pace, net absorption throughout 2016 has outpaced new developments at a 4 to 1 ratio in terms of square footage, indicating that the demand for space is still strong.

Interest remains high in locations close to the urban core of the New York Metropolitan Area, Price says, although some developers have explored warehouse sites further from North Jersey.

“Geographic searches for Northeastern and Midatlantic super-regional requirements have expanded into not only Central NJ but Southern NJ and PA over the past 10-15 years based on availability of land and more modern product,” he says. “However, there will always be demand (demand has actually picked up recently) for infill location distribution centers, in our case, areas close to NYC (which includes the Port and Meadowlands) to serve the growing urban population, especially with the rise of millennials in recent years.”

More than 7.9 million square feet of product is under development throughout Northern and Central New Jersey. Four projects in the Lower 287 Corridor .w, totaling 2.2 million square feet, account for 28.5 percent of the total square footage under construction. This output includes the 930,000-SF Seagis development on Route 27 and the two warehouses on High Street in Perth Amboy totaling almost 1.1 million square feet. An additional five projects totaling 1.4 million square feet are expected to break ground in the fourth quarter.

“While construction won’t reach the recent historic level of 2014, developers remain bullish on the market,” Price says. “With minimal large-space options available for tenants, construction should remain robust into 2017.”

Price says he is not seeing much repurposing of older warehouse stock at this point in the cycle.

“We have seen some limited redevelopment, repositioning, and roof raisings in New Jersey,” he says. “Rents will have to continue to grow for new product vs. older product in order to see more redevelopments or repositionings. In most cases the difference in rents between the two classes just isn’t wide enough to justify the additional investment unless the facility in question is completely obsolete.”

Cushman & Wakefield: Demand for Quality Product Propels NJ Industrials in 3Q

 

EAST RUTHERFORD, NJ—With the latest E-commerce boom and growing presence of logistics companies in the Garden State, the need for quick product delivery to the Tri-State area has contributed to another strong quarter for the Northern and Central New Jersey industrial market, according to new research from Cushman & Wakefield.

While demand did not reach the high point seen in the first two quarters of 2016 — likely due to the lack of available quality product — but leasing for industrial space is expected to remain healthy for the rest of the year. Net absorption is also likely to finish in the black once more, even with a robust construction pipeline.

 

“The need for modern and quality warehouse space, particularly along the New Jersey Turnpike, should offset much of the construction deliveries and dispositions in the near future,” says Andrew Judd, Cushman & Wakefield’s New Jersey market leader. “The Northern and Central New Jersey warehouse market is in no immediate danger of becoming overbuilt. As a result, asking rents will climb steadily as market conditions tighten and landlords remain in the driver’s seat, with full-year leasing on pace to reach its highest total since 2000.”

Overall net absorption reached 13.2 million square feet for the year, marking a new annual high with one quarter left in the year remaining. In addition, the third quarter saw vacancy for warehouse space continue to tick lower yet again to 4.5 percent, while the lack of quality warehouse product along the New Jersey Turnpike pushed rents higher. Development of new product continued, with 1.2 million square feet of industrial product completed during the quarter, while another 1.6 million square feet broke ground, bringing the total development pipeline 7.9 million square feet.

 

While the industrial market failed to absorb space at the rapid pace of the previous quarters, the market did register 1.9 million square feet of occupancy gains throughout the quarter, most of which were concentrated in the Central New Jersey submarkets.

Overall, industrial vacancy remained flat at 5.0 percent, while warehouse/distribution vacancy inched lower by 10 basis points since 2Q, to 4.5 percent. The Warehouse/Distribution (W/D) vacancy rate has fallen by 260 basis points since a year ago, with Central New Jersey’s rate dropping precipitously to 3.5 percent (-350 basis points). Of the major turnpike corridor submarkets, the Meadowlands and Lower 287 submarkets continued to see demand outpace new availabilities during 3Q.

 

Meanwhile, warehouse vacancy increased slightly to 3.0 percent at Exit 8A, driven in large part by the delivery of a 496,000-square-foot, fully available warehouse at 2353 Route 130 in South Brunswick, and more than 300,000 square feet of direct space becoming available at 200 Docks Corner Road in South Brunswick.

 

Furthermore, 41 percent of the total new leasing activity in the Exit 8A submarket consisted of space currently under construction, which had no effect on occupancy numbers. Vacancy for W/D facilities along the turnpike corridor finished the quarter at 4.1 percent, 40 basis points lower than the overall market.

 

Judd also noted that as quality space continued to tighten, average asking rents further rose to $7.47 per square foot, a 16.4 percent increase since a year ago. For warehouse space, the key segment of the Northern and Central New Jersey industrial market, the average asking rental rate ticked slightly higher since 2Q, to $6.62 per square foot. The ascent was more prominent within Northern New Jersey, where the average rate reached $7.07 per square foot, a recent high, mostly driven by tight space conditions in the Port Region and Meadowlands. Meanwhile in Central New Jersey, asking rents from Exit 8A up through Exit 10 remained relatively flat, at per square foot, albeit at historically high levels throughout the quarter.

Leasing activity was also strong. Slightly more than 6.7 million square feet of new leases were signed during 3Q, pushing the year-to-date total to 23.5 million square feet, up 24 percent year-over-year, with the market on pace to finish with its highest annual total for new leasing activity in 16 years.  

 

For the quarter, Exit 8A, Lower 287, the Meadowlands and the Port Region all recorded 1.0 million square feet or more of activity, with Exit 8A reporting the highest at 1.6 million square feet. Year-to-date, these four submarkets have accounted for 69 percent of the total market total volume. At 13.2 million square feet, year-to-date absorption has already eclipsed last year’s record total of 12.5 million square feet.

 

“Third quarter lacked some of the larger transactions (400,000+ SF) that were prevalent in the first half of the year due to the decline of available space,” says Jason Price, Cushman & Wakefield’s research director, Tri-State Suburbs. “However, 3PLs continued to lease up rapidly along the New Jersey Turnpike in response to e-commerce demands.”

In an exclusive email interview with GlobeSt.com, Price says the demands of e-commerce companies are playing a key role in keeping demand robust.

“E-commerce has been a huge demand driver in New Jersey and other major markets which serve huge population centers,” he says. “Both size of footprints (square footage) and number of requirements have been on the rise for e-commerce firms, shipping companies (such as FedEx and UPS) and third party logistics companies which serve these e-commerce companies. Many times more than half of the active requirements in the market will either be e-commerce users, shipping companies or 3PLs.”

 

Price added that leases in the 100,000 – 300,000-SF range fueled 3Q leasing, accounting for more than half of the quarter’s volume, with most leases in this size range occurred along the turnpike corridor within warehouse facilities.

Some of the largest 3Q industrial leases in Northern and Central New Jersey included:

 

·         FedEx, which pre-leased a 340,000-square-foot build-to-suit on Route 130 near Exit 7A in Hamilton. The property is under construction.

·         Creative Logistics, which leased 281,000 square feet at the under-development Bridge Point Turnpike 8A in South Brunswick.

·         CDS, which leased 250,000 square feet at 301 Middlesex Center Blvd. in South Brunswick

 

New construction deliveries for the year reached 3.2 million square feet as another 1.2 million square feet of buildings were completed during the third quarter alone. New developments are 23 percent ahead of last year’s 3Q pace, with another 2.6 million square feet of deliveries anticipated in the next three months. Despite this pace, net absorption throughout 2016 has outpaced new developments at a 4 to 1 ratio in terms of square footage, indicating that the demand for space is still strong.

Interest remains high in locations close to the urban core of the New York Metropolitan Area, Price says, although some developers have explored warehouse sites further from North Jersey.

“Geographic searches for Northeastern and Midatlantic super-regional requirements have expanded into not only Central NJ but Southern NJ and PA over the past 10-15 years based on availability of land and more modern product,” he says. “However, there will always be demand (demand has actually picked up recently) for infill location distribution centers, in our case, areas close to NYC (which includes the Port and Meadowlands) to serve the growing urban population, especially with the rise of millennials in recent years.”

More than 7.9 million square feet of product is under development throughout Northern and Central New Jersey. Four projects in the Lower 287 Corridor .w, totaling 2.2 million square feet, account for 28.5 percent of the total square footage under construction. This output includes the 930,000-SF Seagis development on Route 27 and the two warehouses on High Street in Perth Amboy totaling almost 1.1 million square feet. An additional five projects totaling 1.4 million square feet are expected to break ground in the fourth quarter.

 

“While construction won’t reach the recent historic level of 2014, developers remain bullish on the market,” Price says. “With minimal large-space options available for tenants, construction should remain robust into 2017.”

Price says he is not seeing much repurposing of older warehouse stock at this point in the cycle.

“We have seen some limited redevelopment, repositioning, and roof raisings in New Jersey,” he says. “Rents will have to continue to grow for new product vs. older product in order to see more redevelopments or repositionings. In most cases the difference in rents between the two classes just isn’t wide enough to justify the additional investment unless the facility in question is completely obsolete.”