The New Jersey industrial market sustained its brisk momentum as e-commerce and third-party logistics companies continue to drive demand, according to Cushman & Wakefield. The commercial real estate services firm released its first quarter 2016 market research findings today, reporting robust leasing activity, falling vacancies and rising asking rents in a market where competition for quality industrial space remains strong.
"More than 6.0 million square feet of industrial space was absorbed during the first three months of the year, the highest quarterly total in recent history," said Andrew Judd, Cushman & Wakefield's New Jersey Market Leader. "Available space continued to shrink as vacancy fell to 5.6 percent. This is the lowest the rate has been since 2000, and marks the second straight quarter in which the state's vacancy rate fell at that pace."
Much of the occupancy gains - 5.1 million square feet - were concentrated in Central New Jersey, specifically between New Jersey Turnpike Exits 8A and 12. More specifically, the Lower 287 submarket recorded a substantial decline in available space, as vacancy fell 3.4 percentage points to 3.0 percent with more than 2.5 million square feet of product absorbed. In Northern New Jersey, the Port Region continued to experience strong demand, recording a 1.5 percentage point decrease in vacancy to 3.7 percent.
"Big-box options have dwindled considerably as demand for large warehouse product shows no signs of slowing down," said Jason Price, Cushman & Wakefield's research director, tri-state suburbs. "Currently there are only 18 blocks of warehouse space in excess of 250,000 square feet available, and tenants in need of 500,000 square feet of quality space have only three options along the New Jersey Turnpike."
With 9.2 million square feet of new deals executed, first quarter leasing topped that of the previous quarter, which had been the state's strongest in over eight years. Leasing demand in New Jersey has now risen each of the last five quarters. The New Jersey Turnpike submarkets and Port Region continued to see robust deal volume. Lower 287 recorded 3.1 million square feet of activity, while Exit 8A recorded 1.7 million square feet and the Port Region 1.3 million square feet.
The state saw 22 new leases in excess of 100,000 square feet completed during the quarter, accounting for 62 percent of activity, as well as four transactions in excess of 500,000 square feet. Highlights included Fabuwood Cabinetry's 706,000-square-foot commitment to 69-71 Blanchard Street in Newark, a future development; FedEx's 695,072-square-foot commitment at 25-53 Talmadge Road, Edison; and Central Garden & Pet's 550,050-square-foot lease at 965 Cranbury South River Road in South Brunswick. Renewal activity also was strong to start the year, with over 3.2 million square feet of tenants opting to remain in their current spaces, including Coca-Cola and Staples.
As available space dwindled, asking rents continued to trend higher. The average asking rent for industrial space has risen 10.1 percent since a year ago, to $7.09 per square foot. The rate for warehouse/distribution space, the key driver of the state's industrial market, now stands at $6.42 per square foot - an increase of 22.0 percent since the start of 2014. The Port Region and Meadowlands saw the average asking rental rate for warehouse/distribution space edge higher by 10.7 percent and 5.1 percent respectively during the quarter. There have been no declines in the primary submarkets since the end of 2015.
Price noted that developers are responding to the lack of modern, quality space. "Projects totaling 3.8 million square feet are currently under construction, with more anticipated to break ground in the next few months," he said. "Tenants also have inked deals on a handful of speculative projects as construction was ongoing, another sign of continuing demand for newer warehouse product in the Garden State." Just over 1.5 million square feet of industrial product was delivered during the quarter, including Cranbury Station Park, a 930,030-square-foot speculative development on Station Road at Exit 8A.
"New Jersey industrial market fundamentals should remain robust as the year progresses," said Judd. "E-commerce and third-party logistics companies continue to grow and occupy more space, and net absorption is outpacing new construction three-fold in major submarkets. We anticipate an ongoing dissipation of Class A and B product that will further exert upward pressure on asking rents."
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