There's No Stopping New Jersey Industrial
Northern and Central New Jersey’s industrial sector had its 17th consecutive quarter of positive absorption, unlike anything Cushman & Wakefield’s brokers, some with more than 30 years of experience, have ever seen.
Furthermore, rents continue to climb and speculative construction is also at a 17-year high. The current upswing has been longer due to the e-commerce boom, said Tri-State suburban research director Jason Price, who expects even more of the same throughout the rest of 2017.
Overall, Northern New Jersey had 391K SF of positive net absorption, while Central New Jersey experienced 1.2M SF. Economics are on the sector’s side, with e-commerce sales representing 8.3% of all retail sales in 2016 — up 70 basis points from the previous year — and New Jersey’s unemployment rate falling to a 10-year low of 4.4% in February.
Big-box users continue to face a dearth of quality, vacant space, particularly along the New Jersey Turnpike, Price said. Only eight options of 300K SF or more are available, with only a handful expected to come to market in Q2.
Developers are responding, yet the ones with shovels in the ground are not being reckless with building this time around, he said. Instead, they are employing a long, thorough analysis before building and a strong reliance on pre-leasing; of the industrial product completed during Q1, 65% was already leased.
Nearly 1.7M SF was under construction in Northern New Jersey, while Central New Jersey reported a whopping 7.7M SF. Despite the amount of construction, Price said vacancy will continue to tick lower than the combined average of 4.7%, and half of the space under construction has already been pre-leased.
Overall, rents continued their upswing as well, with some markets experiencing historic highs, Price said. The overall average asking rent for all property types is now $7.47/SF, and while he does not expect a continuation of the sharp increases experienced the past two years, this number will continue to grow slowly and steadily.
If rents continue to rise, Price expects it might force midsize industrial tenants into more tertiary markets while e-commerce and third-party logistic companies dominate the more popular markets. Somerset and Morris counties, as well as the upper-287 corridor, are already benefiting from the lack of land.