Cushman & Wakefield: Banner Year for NJ Industrials

EAST RUTHERFORD, NJ—The New Jersey industrial market sustained its momentum through the fourth quarter of 2015, with continued robust demand, falling vacancies and rising rents for warehouse space, says Cushman & Wakefield in its fourth quarter industrial report.

"The final quarter of 2015 saw robust demand fueled by the submarkets along the New Jersey Turnpike, which pushed vacancy to a 15-year low," says Jason Price, Cushman & Wakefield's research director, tri-state suburbs. "As available warehouse space declined in most major market segments, the average asking rental rate rose to a high we have not seen since 2000."

Net absorption for the year reached an all-time high of 12.5 million square feet, with four million square feet absorbed during the fourth quarter alone.

"New Jersey industrial market fundamentals improved substantially across the board in 2015, and we expect this trend to continue in 2016 at a somewhat more modest rate," says Andrew Judd, New Jersey market leader for Cushman & Wakefield. "Demand should remain strong along the Turnpike as both the national and local economies expand and online sales growth accelerates. Absorption will continue to outpace new developments in the major submarkets, and as occupancy levels rise, asking rents will climb, albeit at a slower pace."

Overall, industrial vacancy statewide is at its lowest level since 2000, Price says. In the fourth quarter, vacancy declined 0.8 percentage points to 6.4 percent, the sharpest quarter-over-quarter drop since mid-2012. Central New Jersey continued to post the most substantial drop, down 1.3 percentage points for the quarter and 2.7 percentage points for the year. Counties with the lowest vacancy rates at year's end were Monmouth (2.4 percent) and Mercer (3.3 percent), while Middlesex County, the region's largest submarket, saw a year-over-year vacancy rate decline of 2.3 percentage points to 6.3 percent.

Northern New Jersey has seen a more modest improvement in occupancy levels since last year, with vacancies declining by 0.8 percentage points, according to Cushman & Wakefield. Bergen County, the largest market with over 86 million square feet, had a 7.5 percent vacancy. The lowest vacancy rates are in the smaller Essex (4.2 percent) and Passaic (5.7 percent) counties.

"Overall net absorption in 2015 reached its highest mark this century," says Price. "Of the 12.5 million square feet of industrial product absorbed, 84 percent of it was warehouse space, the key market driver in the Garden State. Net absorption has climbed each year since 2012, with the market absorbing a total of 35.7 million square feet over the four year period."

Warehouse space finished the year with a vacancy rate of 6.4 percent, down from 7.1 percent at the close of the third quarter. Since peaking at 11.2 percent in 2010, the vacancy rate has fallen by 4.8 percentage points. Four of the five key New Jersey Turnpike submarkets experienced quarterly declines in vacancy, with the Meadowlands, Port Region and Exit 8A all reaching recent lows at the close of the fourth quarter.This was primarily due to strong leasing activity along the Turnpike as the demand for quality, modern industrial space continued to grow.

It was the Garden State's best year ever in terms of leased square footage, with 27.2 million square feet of new leases signed during 2015 – an increase of 18.0 percent compared to 2014. Deal volume grew during each quarter of 2015, with leasing activity exceeding 8.2 million square feet during the fourth quarter. The highest quarterly total in more than eight years was fueled by demand from logistics, warehousing and food and beverage companies.

Central New Jersey outpaced Northern New Jersey by 61 percent during the year, with 16.6 million square feet of completed deals. The most active submarkets during the fourth quarter were the Port Region (2.3 million square feet), where deal volume doubled, and Exit 8A (1.8 million square feet). Demand also remained healthy in the Meadowlands and Lower 287, which both exceeded 1.0 million square feet of activity.

Deals over 100,000 square feet, 21 of which were completed in the last three months of the year, drove the market performance, Cushman & Wakefield says. Eight of those leases exceeded 250,000 square feet, and all but three were concentrated along the five major Turnpike submarkets, which accounted for more than 70 percent of the year-to-date leasing total. 

As available space dwindled and competition strengthened across major market segments, rents rose to an average of $6.64 per square foot statewide, a 3.1 percent increase over last year. The average asking rent reached a recent high of $7.08 per square foot in Northern New Jersey, where warehouse prices average 21 percent higher than in Central New Jersey. The Meadowlands submarket had an asking rate of $6.80 per square foot, while Exit 8A and Lower 287 recorded a slight decline since the third quarter, because some higher quality space leased up.

New industrial developments totaling 3.3 million square feet were delivered in New Jersey during 2015, the second highest annual total in the last seven years. Concentrated in the Lower 287 and Exit 8A submarkets, which accounted for almost 80 percent of the total, virtually all of the 11 new developments were built on spec, as developers remain bullish on the direction of the market.

Nearly four million square feet of new warehouse product is under construction, and a handful of new developments are expected to break ground during the first half of 2016. Despite the anticipated rise in new construction, healthy demand is expected to offset much of the new product coming online in the next year. With upwards of 5 million square feet of active requirements currently in the market, it would appear that the first half of 2016 should continue to build on 2015's momentum.