PARSIPPANY, NJ—With an increasing number of tenants seeking to relocate to New Jersey from parts of New York City, including Brooklyn and the Bronx, the Garden State's industrial market is at its healthiest since first-quarter 2008, according to Transwestern's Third-Quarter 2015 Industrial Market report. Bolstered by its largest year-over-year drop since first-quarter 2014, the market's industrial vacancy rate has reached the pre-recession level of 7.2 percent.

“It is certainly not a new trend, but what we have been seeing more recently, especially with the turnaround in the economy, and the real estate market in general in the greater New York area, we have seen a lot more redevelopment,” Lori Zuck, managing director at Transwestern tells GlobeSt.com exclusively. “In a lot of the industrial areas of New York like Brooklyn and the Bronx, we are seeing less product because it is being converted into residential or some higher or better use, so that those tenants get pushed out.”

Industrial tenants are expanding their search areas further south in New Jersey along Turnpike, she says.

“Generally speaking, industrial tenants from across the river that have considered New Jersey have always wanted to be closer to the city so they begin their search in northern New Jersey at the ports and in the Meadowlands, and the market is tight right now, so those tenants are pushing further south,” says Zuck. “Some of that might also be the flight to quality, because typically the quality product is more modern as you go further south. Industrial occupants from the Bronx and Brooklyn that have been accustomed to paying higher rents in New York don't get sticker shock in New Jersey, especially since they also get newer, more efficient product.”

While New Jersey's industrial rents remain lower than those of New York City, they continue to rise at a steady pace. The market's average industrial rent sits at $5.80 per square foot — a year-over-year increase of 2.1 percent. "Rental rates are going to remain steady, if not go up a little bit," Zuck says.

“In some parts of New Jersey, industrial rents have been pushed through the ceiling and are at never-before-seen levels,” says Transwestern research director Matthew Dolly. “This is due in large part to a resurgent manufacturing sector, which posted its lowest vacancy rate in two years. In addition, New Jersey remains one of the toughest places to find vacant land and one of the most costly in which to build.”

Therefore, construction spending is up in New Jersey, but so are costs, Dolly added. In some cases, buying a vacant building, knocking it down and then building industrial is cheaper than buying land. As a result, tenants are using the entire dimensions of a building, going as far as to request 40-foot-clear ceilings for buildings that are less than 100,000 square feet in size, he says.

Additional findings of the New Jersey Third-Quarter 2015 Industrial Market report include:

• New Jersey recorded its highest level of positive net absorption since third-quarter 2014, and its 10th straight quarter of positive net absorption.
• Year-over-year, net absorption is approximately 14.1 million, marking the eighth-straight quarter in which year-over-year net absorption has been above 12 million square feet.
• Increased third-quarter leasing occurred in various submarkets, including New Jersey Turnpike exits 8A, 9, 13, 13A and 14; the Meadowlands; and Route 287 West.
• The market's average asking rent of $5.80 per square foot is the highest it's been since first-quarter 2009.
• Year-over-year, rent has increased in 19 of 25 submarkets.