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NY/NJ Distribution Market Was The World's Best For Rent Growth In 2017

A rendering of a building in Dermody Properties' LogistiCenter development in Logan Township, N.J.

Industrial real estate, specifically logistics and distribution, is the most in-demand sector, and New York/New Jersey is at the top of the heap in one key category.

The New York/New Jersey logistics market experienced the fastest rent growth of any market in the world in 2017, according to a Prologis report. Rent growth is accelerating for distribution centers all over the world, but nowhere more intensely than the United States.

The U.S. placed seven markets in the global top 10 for rent growth, with Seattle in second place, Southern California in fourth place and the San Francisco Bay Area in fifith. Overall, rents grew 9% in the U.S., compared to 7% globally.

Though demand is higher than ever for distribution sites, users know more than ever the value of location in their supply chains, which means that location within markets is more crucial than ever. That constricts development, since infill locations are so much harder to find than farther out, which has sent rents spiraling upward.

Within the U.S., coastal sites are seeing substantially more demand than farther inland due to the renewed importance of port access. New York/New Jersey's port and unmatched population density have made it the highest-demand market, and even with substantial construction in New Jersey, developers simply cannot find enough land to develop that checks the necessary boxes to attract location-conscious tenants. 

While tenants' exiting leases around now and in the near future may get hit with sticker shock at their newer rents, Prologis predicts that it will not be enough to slow down price increases anytime soon. Even now, rent only accounts for an average of 5% of supply chain costs, which themselves only account for a small share of spending. With how important shipping speed is to retailers, they will likely find more space in their budgets to account for rent growth.

Related Topics: Prologis, distribution centers