PARSIPPANY, NJ–Industrials will continue to enjoy strong demand in New Jersey as they benefit from West Coast port congestion and the coming Panama Canal expansion that is leading shippers to divert deliveries to the East Coast, according to Transwestern's  First-Quarter 2015 Industrial Market report. But Transwestern officials say most of the benefits will accrue to industrials in the north and central submarkets close to the New York city metro area, even though space is at a premium, and land for more expansion is hard to come by.

During the first quarter of 2015, more than 1.1 million square feet of industrial space was absorbed throughout New Jersey – the best opening quarter since 2008, Transwestern says.

“Prior to the office market boom in the 1980s, New Jersey was largely recognized as an industrial state, and history may be repeating itself,” says Matthew Dolly, research director for Transwestern's New Jersey office. “Developers are currently doing their part to redevelop depreciated industrial properties, and the state has initiated a number of critical infrastructure improvements. As the transformation of the market continues, New Jersey stands to benefit considerably, especially if shippers consider bypassing the congested West Coast ports.”

Dolly tells GlobeSt.com exclusively that the confluence of congestion on the West Coast and the Panama Canal expansion slated for completion next year means high demand for industrials in the port of New York and New Jersey.

“A lot of those companies say they are going to continue to ship to east coast ports even when the west coast figures out all of their problems,” he says. “At the same time, New Jersey doesn't have a lot of land to develop, the vacancy rate is very low. There isn't a lot of space to put these people. The market is going to stay hot because you have so many of these factors going on.” E-commerce distribution and supply chain needs are also putting pressure on warehouse space, he says.

Pricing is on the rise because of the scarcity of product, says Dolly's colleague, Jeffrey Furey, managing director.

“There's a lot of give on the landlord side, a lot of give on the tenant side,” Furey tells GlobeSt.com. “There are a lot of deals out there that are getting done today that two years ago weren't getting made at those numbers. Now they're being forced into it because of a lack of product.”

Furey doesn't think shippers are likely to bypass New York and New Jersey ports, and he remains convinced that Northern New Jersey will continue to hold an edge over industrial development in other parts of the state, like Logan Township in the south, where the Purelands Industrial Park continues to expand, and LogistiCenter, the adjacent Dermody Properties development, where a new 172,000-square foot industrial is going up, as previously reported by GlobeSt.com. These centers are minutes from the Delaware Memorial Bridge with access to the Port of Wilmington or Philadelphia, and convenient to the New Jersey Turnpike for the trip to Washington or New York.

“Population base is everything,” Furey says. Real estate at most is four to seven percent of your cost. Seventy percent of the cost is transportation, that is what's driving it. They've got to come down on their costs, so where do you go. You get closer to the docks, that is the name of the game here.”

Highlights from the Transwestern report include:

•      The 12-month rolling total of square feet absorbed through first-quarter 2015 was 6.6 million – the most since first-quarter 2014, when 7.8 million square feet was absorbed in total, year-over-year. For the past three years, more than 19 million square feet of space has been absorbed.
• Three submarkets reported positive net absorption exceeding 100,000 square feet during first-quarter 2015, with the Meadowlands submarket accounting for nearly 30 percent of the overall activity.
• The overall vacancy rate improved to 7.4 percent, compared to 7.8 percent the previous quarter, decreasing by 40 basis points for the first time since third-quarter 2013. 
• Increased leasing velocity has spurred new development to the tune of 10 million square feet during the past three years. Developers continue to seek new opportunities, despite the scarcity of land.
• Double-digit percent rent increases occurred in six of 25 submarkets during the past 12 months, as limited supply and increased demand continue to put upward pressure on asking rents. 
• Asking rents in the Exit 13A/Elizabeth submarket are 33 percent higher in a year-over-year comparison, as the vacancy rate has tightened to its lowest level since third-quarter 2006.