PARSIPPANY, NJ—As leasing activity continues to accelerate, New Jersey's industrial vacancy rate has dipped to 6.8 percent, the lowest level in more than a decade, according to Transwestern's Jeff Furey and Matt Dolly in the firm's Fourth-Quarter 2015 Industrial Market report.

Driven by steady leasing in northern New Jersey – particularly in the Hudson Waterfront, Meadowlands and Morris West submarkets – average asking rents have soared, exceeding $7 per square foot in some submarkets.

Two primary factors in the continued activity are explosive growth in e-commerce and preparations to accommodate increased traffic flows from the Panama Canal expansion, Transwestern's managing director Furey tells GlobeSt.com exclusively.

"Everyone is gearing up for that," Furey says.

Online retailers like Amazon.com have been gobbling up distribution space in the New Jersey markets, adding to the pressure on rents, says Dolly, Transwestern's research director.

"They have over two million square feet in New Jersey, and a company like that is going to attract attention, people are going to feel the need to be around them, they must be doing something right," Dolly says. "I think that drives a lot of the trend. E-commerce and online shopping has really jumped over the past two or three years, and you're starting to see bigger warehouses, more things in one place."

As reported by the US Department of Commerce, e-commerce accounts for 7.4 percent of this year's total retail sales in the country, compared to 6.5 percent a year ago. Additionally, larger cargo ships have resulted in increased global trade. With these factors continuing to create a dearth of industrial space, New Jersey's industrial market experienced its biggest year-over-year drop in vacancy since fourth-quarter 2003.

Retailers are also changing the way they manage their inventories, moving more of the stock into warehouses and distribution centers, out of the retail stores, Furey says.

"Because of the low vacancy factor, if you are working on a requirement in the 800 to 1.3 million square feet range, you have extremely limited existing product out there," he says. "Right now there are four requirements out there in the Exit 8A submarket, and there are only three buildings that meet that requirement."

Even Walmart has indicated it would shrink the size of its stores somewhat and invest more in e-commerce, Dolly says.

"When you hear that, that seems like something that people would pay attention to," he says.

Some alternatives for industrial tenants unable to find space that meets higher requirements are taking short-term space and having build-to-suits constructed, Furey says.

"It's like 'Musical Chairs,' when everyone sits, and someone is not going to have a chair to sit in," he says. "That is what is going on right now in the market."

Consolidation in the distribution and logistics space is likely, Fureyand Dolly say. Recent acquisitions of logistics firms in the New Jersey market by foreign investors, including sovereign wealth funds, suggest that bigger players will have greater influence, the pair say.

"Smaller shops, the mom-and-pops, they can't compete with the larger logistics firms, some of them may be cashing out," Furey says. "They can't keep pace with what's going on with these larger warehouses."

Highlights from the report include:

• The market's low vacancy rate was buoyed by a strong fourth quarter, when two of the year's three largest leases were signed.
• For the second consecutive year, more than 20 industrial lease transactions of 200,000 square feet or greater were executed.
• The Somerset submarket in central New Jersey experienced high levels of activity, as well as the New Jersey Turnpike Exit 8A, Exit 10 and Exit 11 regions. 
• Average asking rents – $5.88 per square foot – are at the highest level since fourth-quarter 2008 and are approaching pre-recession levels.      
• The New Jersey industrial market has experienced positive net absorption in 16 of the past 18 quarters.      
• Product scarcity is prompting new development, as demonstrated by a new 930,000-square-foot speculative development at Exit 8A of the New Jersey Turnpike, as well as a planned 1 million-square-foot project on two sites at the Outerbridge Crossing in Perth Amboy, 5 miles from Exit 11.
• Developers are working with state and local officials to ensure that infrastructure improvements are being addressed. Many consider an investment in the Transportation Trust Fund vital as the majority of transportation from the port is via truck.       
• With rising delivery costs, locating near ports and rail lines has become essential to tenants.