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The Paramus Post - Greater Paramus News and Lifestyle Webzine
Thursday, November 23 2017 @ 08:05 AM EST
The Paramus Post - Greater Paramus News and Lifestyle Webzine
Thursday, November 23 2017 @ 08:05 AM EST
The Paramus Post - Greater Paramus News and Lifestyle Webzine

Developers Race to Deliver New Industrial Product in Northern and Central New Jersey


as Pre-Leasing Soars, Reports Cushman & Wakefield 
EAST RUTHERFORD, N.J., July 13, 2017 – The Northern and Central New Jersey industrial market has remained deep in its current expansion cycle, with no signs of slowing down, reports Cushman & Wakefield. At mid-year 2017, vacancy and rents are at levels not seen in more than 15 years, construction should reach a new historical high, and demand remains healthy despite limited existing options along the turnpike corridor. The industrial market is also benefiting from consumer confidence, employment rates, and retail sales—with a big boost from e-commerce—which have all continued on a positive path.

“Apart from any major geopolitical events, we anticipate that the industrial cycle will continue on its upward trajectory in this prolonged expansion cycle,” said Andrew Judd, Cushman & Wakefield’s New Jersey Market Leader. “Activity on development sites should remain strong as Class A options are limited within the core turnpike submarkets. And despite the anticipated delivery of speculative warehouses in the second half of the year, occupancy levels should improve nominally in many market segments as pre-leasing activity persists. In turn, asking rents along the turnpike should tick higher, albeit at a more modest pace than in the last few years.”

The second quarter marked the 18th consecutive quarter in which the Northern and Central New Jersey industrial market posted net occupancy gains, noted Jason Price, Cushman & Wakefield’s Research Director, Tri-State Suburbs. The quarter saw 3.6 million square feet (msf) of absorption, the majority of which was concentrated in the Lower 287 submarket (1.5 msf). Year-to-date, overall net absorption reached 5.5 msf, with Central New Jersey accounting for 70.9% of the total. The resulting vacancy has continued to tighten—at 4.5%, a recent low—while warehouse/distribution vacancy edged down to 4.2%, as all of the major turnpike corridor submarkets are either at or below the 4.0%-mark.

As a whole, the core turnpike markets boast a 3.5% vacancy rate for warehouse facilities. Price explained that most of these submarkets recorded quarterly declines in vacancy, including Upper 287 (-150 basis points) and the Meadowlands (-70 basis points). Existing big-box space options (300,000 sf+) are limited along the turnpike, with just eight available for immediate occupancy, half of which have clear heights of 32 feet or higher. Furthermore, there are just three such buildings currently under development, some of which are expected to lease up in the coming months.

While asking rents haven’t risen at the same torrid pace as in 2015 and 2016, they have increased 4.4% year-over-year. After a flat Q1, warehouse rents eclipsed $7.00 psf for the second time in recent quarters, and, at $7.08 psf, surged 38.8% since the end of 2012. Quarter-over-quarter, most of the core submarkets experienced rent increases, specifically Exit 8A, which rose 25.1% to $6.04 psf due to robust demand and tight market conditions. As the highest-priced submarket in New Jersey, the Meadowlands now commands an $8.25 psf average rental rate for direct space, a 14.2% premium over the state average, buoyed in large part by its prime location directly across the Hudson River from New York City.

Even as rents tick up, the appetite for industrial space throughout Northern and Central New Jersey remains unprecedented. “Demand during this extended expansion cycle is unlike any other seen before,” Judd said, “as e-commerce has directly and indirectly fueled leasing activity, specifically along the turnpike. Logistics and last-mile delivery firms continue to lease space at a brisk rate while major e-commerce companies have taken some of the largest warehouses along the turnpike in recent years, including facilities which were under construction at the time of the transaction.”

To satisfy demand—and with quality space options dwindling in core submarkets—Price noted that developers have responded feverishly, with more than 5.1 msf of new industrial facilities delivered during the first half of 2017, already exceeding the annual total achieved throughout all of 2016 (4.2 msf). Of that total, 79.2% has already leased up, and of the 18 projects completed, only five are still available for lease. Almost 7.6 msf of developments are currently underway, the majority of which are anticipated to deliver before the end of the year, pushing the 2017 annual total to the highest this century. More than 50.0% of the space is already committed while the majority of these projects are concentrated in Exit 8A, Exit 7A, and Upper 287. Furthermore, there are sites scheduled to break ground during Q3 in Exit 8A, Upper 287, and the Port Region.

Priced added that the second quarter marked the ninth straight quarter in which more than 6.0 msf of new leases were signed. Exit 8A led the way in terms of Q2 demand, with 1.7 msf of deal volume, 57.0% of which occurred in not-yet-built facilities. While year-to-date leasing is down compared to the record breaking 2016, the market remains on pace to finish well above the annual average during this expansion cycle. And of the 7.5 msf of signed leases this year exceeding 100,000, pre-leasing activity accounted for 52.2% of the total.

The largest Q2 industrial deals in Northern and Central New Jersey—all for warehouse/distribution space—included:

 

·         A 991,348-sf e-commerce firm lease at 2 Brick Yard Road in Cranbury

·         A 607,736-sf footwear company lease at 1240 Cranbury So. River Rd. in Cranbury

·         Midwest Air Technologies’ 369,313-sf renewal at 1 Truman Drive in Edison

·         ZT Group’s 202,148-sf lease at 1000 Secaucus Road in Secaucus

·         AEW’s $147 million acquisition of a 1.2 msf portfolio from The Hampshire Cos.

About Cushman & Wakefield

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 43,000 employees in more than 60 countries help investors optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.

 

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