New Jersey Industrial Market Hits Records for Low Vacancy and High Rental Rates

EAST RUTHERFORD, NJ—The New Jersey industrial market, fueled by robust demand, recorded a record low vacancy rate for the second quarter of this year and historically high asking rents as well. The office market also ended the second quarter on a high note, according to Cushman & Wakefield.

According to a report released by commercial brokerage firm Cushman & Wakefield, the statewide industrial vacancy rate hit a record low of 3.3%, while asking rents ended the second quarter at $9.27-per-square-foot, a record-high.

“New Jersey industrial conditions remain among the strongest in the nation,” says Cushman & Wakefield’s Andrew Judd, New Jersey market leader. “Growth in online sales and the need for next-day and same-day delivery persists for retailers. This was a major driver in year-to-date leasing activity reaching its highest total in three years.”

Cushman & Wakefield tracked more than 15.1 million square feet in new industrial transactions during the first six months of 2019, a 27.9% year-over-year increase. Eight leases that were greater than 300,000 square feet fueled the high volume.

This big-box activity was once again fueled by e-commerce, retail and logistics companies. The largest new deals of the second quarter included a confidential tenant taking 593,720 square feet at 117 Interstate Blvd. in South Brunswick, Performance Team leasing the newly built, 444,940-square-foot 3 Brick Yard Road in Cranbury, and CEVA Logistics committing to 338,954 square feet at 152 Route 206 in Hillsborough.

The activity and deliveries of some build-to-suit warehouses (included facilities for Arizona Iced Tea, H&M, and De’Longhi) helped push the vacancy rate down to well below the national average. Positive absorption continued in the marketplace as well, with 3.2 million square feet of second-quarter net occupancy gains bringing the year-to-date total to 5.6 million square feet.

“Our market is once again on pace to exceed 10.0 million square feet of annual industrial absorption,” Judd notes. “New construction deliveries continue at a modest rate, with 1.8 million square feet completed during the past three months for a year-to-date total of 4.7 million square feet. Of the square footage delivered thus far in 2019, 72.5% was pre-leased, with a handful of other warehouses leased in full a few months after delivery.” An additional 3.6 million square feet of industrial product remains under construction, 46.8% of which has already been committed to by tenants.

Judd says that all indicators point to the New Jersey industrial market remaining strong going forward with the vacancy rate remaining near historic low levels despite some large speculative projects set to be delivered later this year.

“Demand will persevere, likely pushing asking rents to new record levels in some submarkets,” Judd adds. “While land constraints have become more evident in recent years, developers continue to find sites, including redevelopment opportunities and brownfield sites. We expect construction totals to remain solid, albeit not at the historical levels of 2017 and 2018.”

Office Market Fundamentals Strengthen

The Garden State’s office sector finished the second quarter with positive net absorption for the fifth straight quarter, with more than 888,000 square feet of occupancy gains year to date. During the second quarter alone, the market experienced 512,000 square feet of net absorption, all within Class A properties.

“The continuous flight to quality has proved that many owners who invest capital and upgrade their assets will see better results,” says Jason Price, Cushman & Wakefield’s Tri-State suburbs research director. “The suburban office market in New Jersey has seen a slow and steady recovery as a whole, which could be somewhat due to millennials beginning to make their moves back to the suburbs as they age and have families.”

The office has yielded vacancy improvements across all classes year over year, with the overall rate falling 130 basis points to 17.1%—its lowest point since 2007. After a strong start to the year, office leasing demand moderated slightly during the second quarter, with just under 1.9 million square feet of new deals signed. However, the 4.1 million-square-foot year-to-date leasing total is the strongest in three years, C&W states.

“Nearly 60% this activity has occurred within Class A properties,” Price said. “Small and mid-size leases continue to propel demand, with 72.6% of office activity year-to-date involving deals under 50,000 square feet. The most active industries have included life sciences, technology, legal, healthcare and educational services.”

Among the major deals in the second quarter, IBM renewed for approximately 131,000 square feet at 194 Wood Ave. South in Iselin, IQVIA subleased 115,500 square feet at 77 Corporate Drive in Bridgewater, and biotech firm GenMab leased 90,000 square feet at 777 Scudders Mill Road in Plainsboro.

As market conditions strengthen, office rents are trending higher. The overall asking rental rate for New Jersey rose to $29.59-per-square-foot at mid-year. Class A asking rents climbed $0.24 during the second quarter, to $33.84-per-square-foot, a 1.0% year-over-year increase.

Cushman & Wakefield anticipates office leasing activity should remain healthy, with a pipeline of both large and mid-sized transactions slated to close in the coming months.

“Some large vacancies in the second half of the year could cause a brief pause in the occupancy improvements,” Price warns. “However, the office market should rebound once again in the short term as touring activity has remained healthy. The future of state incentives will play a key role in the real estate decisions of large corporations looking to expand or relocate here.”