Central NJ Outpaces Northern Industrial Performance

SADDLE BROOK, NJ-The New Jersey industrial market proved stagnant in the first quarter of 2010, as the availability rate remained flat at 11.7% for the third consecutive quarter, finds CB Richard Ellis' Q1 industrial market report. In addition, the report concludes that leasing velocity continued to rise while sales velocity took a 55% decline from the previous quarter. Ultimately, finds the report, these market fluctuations owe much to disparate performances between Central and Northern New Jersey.

"The difference in performance between the Central and Northern New Jersey markets has become more distinct, with the latter's availability rate actually increasing to 10.6% from 10.3% at the end of last year while Central's rate decreased from 13.2% to 12.8%," says William Waxman, senior vice president at CBRE. "Central's leasing velocity also came in nearly 1.8 million square feet greater than Northern New Jersey's at the close of the first quarter."

Overall, 5.02 million square feet worth of leases were signed during the first quarter, almost double the activity during the Q1 2009. Only one of the largest five transactions, a 221,300-square-foot lease by Menlo Logistics in Monroe, was a renewal; the other four, representing 2.07 million square feet, were new leases. Leading that charge was a 1.35 million-square-foot lease in South Brunswick by Williams Sonoma. By region, Northern New Jersey turned in 1.62 million square feet of total leasing, trumped by the 3.4 million square feet signed for in Central New Jersey, where landlords are offering competitive asking lease rates, greater incentives and increasing free rent.

Statewide, asking lease rates dropped to $5.50 per square foot, though the pace of decline is slowing, signifying that pricing may soon bottom out, despite the 24.9% gap between asking and taking rates. To that end, the negative 1.43 million-square-foot net absorption was 15%, or 212,629 square feet, lower than during the fourth quarter of 2009, marking the eighth straight quarter of negative net absorption. Northern New Jersey lease rates declined by 15 cents to $6.40, a faster fall than Central New Jersey's nine-cent dip to $4.76.

During the first quarter of 2010, statewide sales velocity plummeted 55% from the previous quarter's particularly strong 2.73 million square feet. However, the average asking sale price rose 43 cents per square foot to $70.32, the first increase in four quarters--though still $12.65 a square foot lower than the high of $82.97, reached in the fourth quarter of 2007. Central New Jersey's average asking price declined 24 cents per square foot to $64.61, while Northern New Jersey's average asking price rose $1.29 a square foot to $76.86. Availability of financing remains a hurdle to completing deals across the map.

No construction projects came on line during the first quarter of 2010, though four projects totaling 139,500 square feet broke ground, bringing the total amount under construction to 339,310 square feet in the Route 287/Exit 10, Exit 8A, Monmouth, Hudson Waterfront and Trenton/295 submarkets.

"Despite differing strengths and weaknesses, both the Central and Northern New Jersey industrial markets continue to be flooded by large amounts of space becoming available for both sale and lease," says Mindy Lissner, senior vice president for CBRE. "However, it is clear that occupiers are still hoping to take advantage of favorable pricing opportunities in Central New Jersey submarkets, leading to stabilization of the market here in late 2010."

In addition to Williams Sonoma's 1.35 million-square-foot lease at 340 Middlesex Center Blvd. in South Brunswick and Menlo Logistics' 221,300-square-foot lease renewal at 24 Engelhard Dr. in Monroe, the state's other three largest industrial transactions were also leases: Five Star Distributors took 324,445 square feet at 1500 Rahway Ave. in Woodbridge, Work Flow One leased 200,000 square feet at 7 Costco Way in Monroe Township and GMB signed for 192,400 square feet at 100 Herrod Blvd. in South Brunswick.