Continuing the solid trends post-recession, the New Jersey industrial market once again saw fundamentals strengthen during the third quarter of 2015, with available space dissipating, robust demand continuing, and rents trending upward, according to Cushman & Wakefield. Vacancy for industrial space in the Garden State is currently at a low not seen since 2007.
“As a result, developers have remained bullish as reflected in the fact that almost three million square feet of product are currently under construction in New Jersey, much of which is on a speculative basis,” said Cushman & Wakefield’s Jason Price, research director – tri state suburbs.
The industrial market’s upswing continued despite the fact that the Port of New York and New Jersey, a key driver for the market, saw import container volume increase a modest six percent year-over-year during August after months of double-digit increases.
Overall, the third quarter saw industrial vacancy inch lower to 7.2 percent, down 0.4 percentage points since the second quarter. Central New Jersey recorded a more substantial drop due to brisk demand along the New Jersey Turnpike from Exit 12 down to Exit 8A and has posted a 1.6 percentage point decline since a year ago in overall vacancy to 7.4 percent despite the delivery of more than 3.5 million square feet of speculative projects in that time. Counties with the lowest vacancy rates at quarter’s end were the smaller Monmouth (2.9 percent) and Mercer (3.4 percent) markets. The region’s largest submarket, Middlesex County with an inventory of nearly 200 million square feet, had a 7.1 percent vacancy at quarter’s end.
Northern New Jersey has seen nominal improvement in occupancy levels since last year, according to Cushman & Wakefield, with vacancies declining by 0.5 percentage points to 7.0%. Lowest vacancy rates are found in Passaic (5.7 percent) and Essex (5.8 percent) counties. The largest market, Bergen County, with more than 87 million square feet, saw a 6.4 percent vacancy at quarter’s end.
Absorption remained on the plus side statewide, with nearly 3.4 million square feet of net occupancy gains recorded during the third quarter, “marking the 11th straight quarter in which demand outpaced new supply,” according to Price. Year-to-date, 7.7 million square feet of industrial product has been absorbed in New Jersey, behind last year’s pace at this time by 15.4 percent. Much of the gains in occupied space—five million square feet—have been concentrated in Middlesex County.
Within the state’s key submarkets, the Meadowlands, Port Region, and Exit 8A all experienced declines in vacancy since the second quarter. The Lower I-287 submarket, meanwhile, saw vacancy edge slightly higher despite strong demand, attributed to the fact that almost one million square feet of available speculative product was completed during the period. There is heightened demand for that space, however, as indicated by the fact that at the newly built 50 Bryla Street in Carteret, Serta Mattresses inked a deal for 460,000 square feet, the largest new transaction of the quarter for the state.
Overall leasing activity totaled 6.4 million square feet during the third quarter, marking a recent quarterly high. Much of the demand was concentrated along the Turnpike submarkets, which accounted for 71 percent of the total. The Lower I-287 submarket saw of quarterly deal volume of 1.3 million square feet leased, while both the Meadowlands and the Port Region saw approximately 900,000 square feet of new transactions completed. Deals over 100,000 square feet remain the driving force in the in the market, with 23 such deals inked during the recent quarter alone. Four of those transactions exceeded 200,000 square feet, and overall, logistics and wholesalers/retailers accounted for a major portion of the demand.
As space tightened in many key submarkets, asking rents continued to trend higher, albeit modestly, to $6.42 per square-foot. The increase was more substantial in Northern New Jersey, where asking rents have now climbed 5.5 percent year-over-year. Submarkets such as the Meadowlands, Exit 9, and some of the secondary, more inland submarkets saw rents inch higher since the second quarter, but rents edged lower within Lower 287 and Exit 8A as some quality space was leased up.
The nearly three million square feet of new product under construction as a result of the ongoing strong demand market-wide is, for the most part, situated in the New Jersey Turnpike’s primary submarkets. Of the 15 projects currently under construction, just five exceed 200,000 square feet including 930,030 square feet at Station Road and 488,800 square feet at Davidson Mill Road, both in the Exit 8A submarket.
“With a strengthening economy, healthy retail sales projected, and online sales anticipated to continue rising, the New Jersey industrial market should finish the year trending in the same direction,” said Price. “We foresee demand remaining healthy along the Turnpike as absorption continues to outpace new developments in most areas. As occupancy levels rise further, rents should follow suit as competition for quality space strengthens.”