PARSIPPANY, NJ—Buoyed by a strengthening economy, the Northern and Central New Jersey industrial market continued to show improvement into the second quarter of 2015, with fundamentals remaining strong, according to research from Colliers International. As industrial leasing activity outpaces last year's rate, additional favorable indicators include increased absorption, a continuing inflow of investment capital, and vibrant construction activity.

“The Northern and Central New Jersey industrial market continues to demonstrate strong leasing activity and demand from occupiers,” says David A. Simon, executive managing director and market leader for the New Jersey operations of Colliers International. “In order to accommodate requirements in the market, we anticipate seeing owners divide larger units that traditionally they may not have considered previously.”

Leasing activity continues to be robust. The 10.9 million square feet leased in the second quarter was up 67.5 percent from 6.5 million square feet a year ago, and though down 3.2 percent from 11.3 million square feet in the first quarter, the 22.2 million square feet leased by mid-year was nearly three quarters of 2014's full-year total. By region, Northern New Jersey registered 4.4 million square feet of second quarter leasing, down from 5.4 million square feet in the first quarter, but up 41 percent from 3.1 million square feet a year ago. Central New Jersey registered 6.6 million square feet of second quarter leasing, up from 5.9 million square feet in the first quarter, and nearly double the 3.4 million square feet leased a year ago.

This leasing activity led to healthy positive absorption, with 3.8 million square feet absorbed in the second quarter, a 67 percent increase over the 2.3 million square feet of positive absorption a year ago, and a 5.2 percent increase over the 3.6 million square feet the previous quarter. The high positive absorption level also dropped the overall Northern and Central New Jersey's availability rate to 11.1 percent, a 130-basis point improvement over the 12.2 percent rate a year ago. 

The overall second quarter average asking rent for industrial space in Northern and Central New Jersey was $6.15 per square foot, a 1.8 percent rise over $6.04 per square foot in the first quarter, and a 4.1 percent increase from $5.91per square foot a year ago. Average second quarter asking rents in Northern New Jersey reached a five-year high of $6.41 per square foot, a 1.4 percent rise over the $6.32 per square foot in the first quarter and a 4.2-percent increase over the $6.15 per square foot figure a year ago. Meanwhile, average asking rents in Central New Jersey were $5.87 per square foot in the second quarter, a 2.4 percent increase over the $5.73 per square foot in the first quarter, and a 4.1 percent rise over the $5.64 figure a year ago.

The market, however, demonstrated difficulty leasing blocks of space greater than 400,000 square feet. Fourteen blocks of this size are on the market, and have remained unleased for an average of 48 months. The New Jersey industrial market has historically been driven by mid-size transactions, those between 100,000 and 400,000 square feet. This is further evidenced by mid-year 2015 activity, which saw only one transaction greater than 400,000 square feet, while 53 transactions closed between 100,000 square feet and 400,000 square feet. 

Meanwhile, Amazon — one of the largest warehouse occupiers in the Garden State — is playing a prominent role in the New Jersey industrial sector. In the second quarter alone the tech giant leased 1,064,515 square feet at 8003 Industrial Avenue in Carteret, 75,000 square feet at 2 Empire Boulevard in Moonachie, and 64,327 square feet on Dowd Avenue in Elizabeth.

Construction activity also continued its healthy pace, with 16 properties totaling more than 4.2 million square feet under construction, a 17 percent increase over the 3.6 million square feet underway last quarter. Of the current construction, 3.5 million is being built on a speculative basis. Two large developments that broke ground this quarter included: Station Road at Route 130, a 930,030-square feet warehouse/distribution center being developed on spec by Alfieri and Rockefeller Group; and a 315,000-square feet truck terminal build-to-suit for FedEx. The property is owned by Scannell Properties.

In particular, modern-generation buildings and new construction projects continued to attract significant demand, as 30 percent of the second quarter's activity occurred in class-A properties, an asset segment accounting for less than 10 percent of New Jersey's total industrial inventory. In fact, demand for new construction led to several large second-quarter transactions:

• Kubra leased 96,361 square feet at 30 Knox Drive in Piscataway. The 227,042-square feet warehouse property, developed by Trammell Crow and Clarion in third quarter of 2014, is now fully leased. Dawn Foods leased 130,681 square feet last year.

• MXD Group leased 177,705 square feet at 1115 West Middlesex Avenue in Port Reading. The 582,965-square feet property, developed by Prologis in third quarter of 2014, is now fully leased. NFI Industries occupies the remainder of the building.

• Panalpina leased the entire 166,952-square feet warehouse building at 1009 West Middlesex Avenue in Port Reading. The property, completed in the third quarter of 2014, is owned by Prologis.

“Much as in the office market, we are seeing a continued flight to quality in the Northern and Central New Jersey industrial sector,” says John Obeid, Colliers' senior director, research. “Leasing activity and investment sales of modern, best-in-class products are performing particularly well.”

Additional highlights from Colliers International's 2015 second-quarter New Jersey industrial market analysis:

• Industrial sales activity remained strong, driven in large part by growth in the leasing market. The largest second quarter trade came from TIAA-CREF, which purchased 200 Milik Street in Carteret from Hampshire for $49.5 million or $213.36 per square foot;

• Submarkets located near ports or along the New Jersey Turnpike continued to attract the bulk of activity. More than 50 percent of this quarter's leasing occurred in the Meadowlands, Exit 12, and Exit 8A submarkets;

• Other notable lease transactions this quarter included: LA Enterprises' 371,995-square feet renewal at 1 Costco Way in Monroe; Romark Logistics' 359,950-square feet lease at 23 Mack Drive in Edison; and Pioneer Commodities' 218,000-square feet lease at 1665 Jersey Avenue in North Brunswick.

• Activity at the New York and New Jersey port terminals remains strong, which typically indicates growth for the surrounding New Jersey industrial real estate market. Year-to-date loaded container traffic through May was up 8.4 percent over last year's volume.