CBRE releases 2nd Quarter 2010 New Jersey Industrial MarketView report- slow and steady improvements across almost all areas
By Mel Fabrikant Wednesday, July 28, 2010, 03:16 PM EDT
Steady lease renewals and a dramatic improvement in sales activity breathe new life into the New Jersey industrial market during the second quarter of 2010 despite a slight increase in availability, signaling a continuing gradual path out of this unprecedented economic downturn, finds CB Richard Ellis' Second Quarter 2010 New Jersey Industrial MarketView report. The report concludes that the New Jersey industrial market continues its way to a slow recovery, with a favorable construction pipeline ahead destined to ease the burden on the market's stubborn availability rates.
"Despite improving demand, especially for blocks below 500,000 square feet, the unabated supply of newly available space continues to leave a negative mark on the availability rate and on asking lease rates in key submarkets like the Meadowlands, Route 287/Exit 10 and Exit 8A," noted Mindy Lissner, senior vice president for CB Richard Ellis. "Still, the availability rate has remained stable in the 11 percent range for five consecutive quarters, and future pipeline activity suggests a slow and steady improvement in that number over the coming quarters."
After three consecutive quarters at 11.7 percent, the New Jersey industrial availability rate dipped 20 basis points to 11.9 percent during the second quarter of 2010. New leasing velocity also fell 1.22 million square feet from last quarter. However, the combined new leasing and renewal activity rose 14.7 percent to 7.23 million square feet, the fourth consecutive quarter in which all leasing transactions increased. Renewals took a larger share of the total than in previous quarters, racking up 3.43 million square feet, nearly matching the 3.8 million square feet of new leases. This suggests a growing tendency for tenants to renew, taking advantage of lower rents and landlord concessions.
In addition, sales activity rose 127 percent over last quarter, climbing to 2.82 million square feet, which represents a stunning leap from the 400,000 square feet recorded during the second quarter of 2009 and is the highest since the first quarter of 2008. Sensing that the market is on its way to recovery, investors and users are taking advantage of the long-term investment opportunities. Out-of-state owner-occupiers will likely feed this trend as they eye the state's strategic location in the supply chain world.
The report also found that the average net asking lease rate decreased $0.05 to $5.45 per square foot in the second quarter, a new 20-year inflation-adjusted low for New Jersey. Northern New Jersey dropped $0.05 to $6.35 per square foot and Central dipped $0.02 to $4.74 per square foot. The spread between asking and taking lease rates stands at 15.2 percent year to date. Sale prices decreased $2.09 to $68.23 per square foot. That number also represents a 9 percent reduction from the second quarter of 2009. The average sale price across the Northern markets declined $1.70 to $75.16 per square foot, while Central New Jersey dropped an average of $2.83 to $61.54 per square foot. Even with lower rates, prices and increased transactions, the 4.2 million square feet of negative absorption put 2.77 million more square feet on the market than in the first quarter. Demand seems to be trending toward smaller facilities, and those transactions are expected to have a positive effect on absorption toward the end of the year.
"The 20-basis-point increase in the availability rate would suggest a further slowdown in the industrial market," stated William Waxman, senior vice president at CB Richard Ellis. "However, other slowly improving fundamentals like increased total leasing activity and sale transactions, as well as a market-friendly construction pipeline, indicate that the New Jersey industrial market will continue to inch its way toward recovery over the next few quarters."
Central New Jersey saw two projects come to market during the second quarter, which totaled 80,510 square feet, and more projects remain under construction, including one project in Northern New Jersey and six in Central New Jersey, which add up to 258,800 square feet. Other notable transaction highlights include a 935,000-square-foot renewal by Volkswagen Group of America at 47 Station Road in Cranbury, a 650,000-square-foot sale to investor A.L.A. Realty Associates at 297 Getty Ave. in Paterson, a 417,159-square-foot sale of 300 Fairfield Road in Fairfield to user Middle Atlantic Products and a 312,412-square-foot renewal by East Coast Warehouse and Distribution Corp. at 202 Port Jersey Blvd., Jersey City.
"Despite improving demand, especially for blocks below 500,000 square feet, the unabated supply of newly available space continues to leave a negative mark on the availability rate and on asking lease rates in key submarkets like the Meadowlands, Route 287/Exit 10 and Exit 8A," noted Mindy Lissner, senior vice president for CB Richard Ellis. "Still, the availability rate has remained stable in the 11 percent range for five consecutive quarters, and future pipeline activity suggests a slow and steady improvement in that number over the coming quarters."
After three consecutive quarters at 11.7 percent, the New Jersey industrial availability rate dipped 20 basis points to 11.9 percent during the second quarter of 2010. New leasing velocity also fell 1.22 million square feet from last quarter. However, the combined new leasing and renewal activity rose 14.7 percent to 7.23 million square feet, the fourth consecutive quarter in which all leasing transactions increased. Renewals took a larger share of the total than in previous quarters, racking up 3.43 million square feet, nearly matching the 3.8 million square feet of new leases. This suggests a growing tendency for tenants to renew, taking advantage of lower rents and landlord concessions.
In addition, sales activity rose 127 percent over last quarter, climbing to 2.82 million square feet, which represents a stunning leap from the 400,000 square feet recorded during the second quarter of 2009 and is the highest since the first quarter of 2008. Sensing that the market is on its way to recovery, investors and users are taking advantage of the long-term investment opportunities. Out-of-state owner-occupiers will likely feed this trend as they eye the state's strategic location in the supply chain world.
The report also found that the average net asking lease rate decreased $0.05 to $5.45 per square foot in the second quarter, a new 20-year inflation-adjusted low for New Jersey. Northern New Jersey dropped $0.05 to $6.35 per square foot and Central dipped $0.02 to $4.74 per square foot. The spread between asking and taking lease rates stands at 15.2 percent year to date. Sale prices decreased $2.09 to $68.23 per square foot. That number also represents a 9 percent reduction from the second quarter of 2009. The average sale price across the Northern markets declined $1.70 to $75.16 per square foot, while Central New Jersey dropped an average of $2.83 to $61.54 per square foot. Even with lower rates, prices and increased transactions, the 4.2 million square feet of negative absorption put 2.77 million more square feet on the market than in the first quarter. Demand seems to be trending toward smaller facilities, and those transactions are expected to have a positive effect on absorption toward the end of the year.
"The 20-basis-point increase in the availability rate would suggest a further slowdown in the industrial market," stated William Waxman, senior vice president at CB Richard Ellis. "However, other slowly improving fundamentals like increased total leasing activity and sale transactions, as well as a market-friendly construction pipeline, indicate that the New Jersey industrial market will continue to inch its way toward recovery over the next few quarters."
Central New Jersey saw two projects come to market during the second quarter, which totaled 80,510 square feet, and more projects remain under construction, including one project in Northern New Jersey and six in Central New Jersey, which add up to 258,800 square feet. Other notable transaction highlights include a 935,000-square-foot renewal by Volkswagen Group of America at 47 Station Road in Cranbury, a 650,000-square-foot sale to investor A.L.A. Realty Associates at 297 Getty Ave. in Paterson, a 417,159-square-foot sale of 300 Fairfield Road in Fairfield to user Middle Atlantic Products and a 312,412-square-foot renewal by East Coast Warehouse and Distribution Corp. at 202 Port Jersey Blvd., Jersey City.
