New Jersey's Rapid Industrial Construction Still Can't Keep Up With Demand
Demand for industrial space in New Jersey is so hot that even unprecedented construction levels are failing to keep up.
By the end of 2017, industrial deliveries statewide are expected to reach 11.2M SF, more than twice the amount delivered in 2016. In different circumstances, such an influx would depress rents, but they keep climbing anyway, according to a CBRE study as reported by the Wall Street Journal.
Average industrial rents broke the record of $6.23/SF set in 2004 last year, and they have continued to climb, reaching $6.64/SF in the third quarter. Vacancy has also declined every year since 2010, with the third quarter's 6.8% a post-recession low despite 7.8M SF of deliveries to date.
The obvious driver of the intense demand is the rise of e-commerce, as online sales have grown in market share for years and brick-and-mortar retailers have struggled to keep up. To compete with Amazon, every retailer has been forced to take a hard look at its distribution chain and figure out how to be more efficient.
A big part of that efficiency has been proximity to population centers, and New Jersey's access to New York gives it perhaps the country's largest advantage.
The rise in demand has only accelerated, as the raising of the Bayonne Bridge between New Jersey and Staten Island has allowed for bigger ships to reach the ports of Newark and Elizabeth, thereby increasing users' need for space to handle incoming shipments. According to the Port Authority of New York & New Jersey, deliveries to New York and New Jersey ports between July and October increased by 7.4% over the same period of 2016.
The effect extends farther south as well — in addition to the still-relatively-short drive to New York, South Jersey's proximity to the Philadelphia area gives it additional appeal. On Wednesday, Dermody Properties announced it had leased 400K SF of its LogistiCenter industrial park in Logan Township to Kenco Logistic Services.
Demand does not look to slow down anytime soon, either. E-commerce still has substantial room to grow within the greater retail market, and its merchants have taken over half of the 500K SF or greater leases signed in 2017. Of the 7.9M SF of industrial space under construction in New Jersey, over 60% has already been spoken for.