EAST RUTHERFORD, NJ—Jones Lang LaSalle says investors continued to bet big on New Jersey industrials in the first quarter of 2015, generating $1.76 billion in sales transactions, about the same as in the fourth quarter of 2014. Robust interest from institutional buyers compressed cap rates around the state, and in some instances drove them below five percent, JLL says in its quarterly research report.

“New Jersey's industrial sector started the year out strong, with several notable lease signings at newly developed space near the Port of New York and New Jersey helping to stabilize the Port submarket,” says David Knee, senior managing director at JLL. “A protracted and difficult winter failed to deter building owners and tenants from completing several key transactions.”

Large portfolio investment sales dominated the first quarter, led by Prologis' acquisition of eight properties, 3.2 million square feet in development sites and 2.2 million square feet of retail from The Morris Cos. for $820 million. Singapore sovereign fund GIC Pte Ltd. acquired Indcor Properties from Blackstone, with the sale including 21 Garden State industrial properties totalling 6.6 million square feet.

New Jersey's industrial market posted total positive net absorption of 1.2 million square feet in the first quarter of 2015, compared to less than one million square feet in the same period last year.

The Meadowlands submarket continued to be a hotspot for users looking to locate near New York, recording more than 400,000 square feet of net absorption in the first three months of the year.

More than one-quarter of the 4.1 million square feet of industrial leases signed during the first quarter took place in the Port submarket, where the product of choice was new class A warehouse space. Several transactions were completed at Duke Realty's Legacy Commerce Center warehouse park, which is in varying phases of development on the site of the former General Motors plant in Linden. Southern Wine & Spirits leased 282,400 feet at 1016 West Edgar Road-Building 12, becoming the first tenant at the 494,400-square-foot warehouse, which was completed in the fall of last year. In addition, multiple leases signed at Building 13 brought that 144,000-square-foot building to full occupancy.

The average size of an industrial lease in the Northern and Central New Jersey industrial market increased 32 percent since 2010, representing five years of gathering confidence from the business community. Five years ago, the average size of an industrial lease in buildings larger than 100,000 square feet was approximately 50,000 square feet vs. nearly 67,000 square feet in early 2015.

Since climbing above 9.7 percent in early 2010, New Jersey's overall industrial vacancy rate trended lower over the past five years in response to strong demand for warehouse/distribution space. The state's overall industrial vacancy rate has remained below eight percent for the past six consecutive quarters, as small entrepreneurial tenants leased space in the northern portion of the Garden State, and big box distribution requirements absorbed space farther down the New Jersey Turnpike.

Approximately 2.1 million square feet of space was under construction in New Jersey in the first quarter of the year. With the exception of two smaller facilities, all of the projects under construction are being built on a speculative basis and will be completed in the next two quarters.

JLL also noted that the overall vacancy rate declined 50 basis points from year-end 2014 to 7.3 percent in early 2015. The vacancy rate was 7.6 percent one year ago. In the Northern and Central New Jersey markets, average asking rental rates rose 3.1 percent during the past year to $5.70 per square foot, mainly in response to diminished vacancies.