PARSIPPANY, N.J., Jan. 23, 2017 - Bolstered by ongoing demand for strategic distribution locations, New Jersey's industrial real estate market fundamentals exceeded pre-recession levels during the final months of 2016, according to Colliers International Group Inc. (NASDAQ: CIGI, TSX: CIG). On the office front, continuing economic strength drove generally positive momentum in most submarkets, although the return of large blocks during the fourth quarter dampened occupancy gains.
Colliers today released its year-end 2016 Market Snapshots, which outline key trends, transactions and expectations.
New Jersey developers delivered 10 new industrial buildings totaling 1.7 million square feet during the fourth quarter. "Half of this new product was pre-leased, which helped retain positive net absorption for the 16th consecutive quarter," said Colliers' David A. Simon, SIOR, executive managing director and New Jersey market leader. "This strong momentum will likely continue in 2017 as the shift toward online shopping spurs further demand for well located, modern industrial space."
The added inventory did cause a minimal, 100-basis-point increase in the state's industrial availability rate, which ended 2016 at 7.2 percent. It also impacted the average industrial asking rent, which jumped 4 percent during the quarter to $6.43 per square foot.
In Northern New Jersey, more than half of the 4.4 million square feet leased during the fourth quarter occurred in the Port and the Meadowlands submarkets. Significant regional transactions included UB Distributors' 302,727-square-foot build-to-suit at 46 Meadowlands Parkway in Secaucus, and Iron Mountain's 261,377-square-foot renewal at 100 Harbor Drive in Jersey City. "Increased container traffic in and out of Port Newark and Port Elizabeth is a key contributor to this robust activity," Simon noted.
Central New Jersey tenants leased 6.7 million square feet during the fourth quarter, with notable transactions including Amazon's 923,000-square-foot pre-lease at 2170 State Route 27 in Edison and Home Depot's 772,000-square-foot renewal at 61 Station Road in Cranbury. "The Central industrial market saw remarkable progress during 2016," Simon commented. "A lack of available space has led many developers to accelerate their timing. In recent months, 13 new projects broke ground, bringing Central New Jersey's total construction pipeline to 27 properties totaling 8.6 million square feet."
New Jersey office availability rate increased slightly quarter-over-quarter, ending 2016 at 20.2 percent. Still, that number is below the 20.4 percent recorded at year-end 2015, according to Colliers. Additionally, the average asking rent increased year-over-year from $25.74 to $26.17 per square foot.
Large blocks of space returned in the Hudson Waterfront and Somerset/Route 78 submarkets during the fourth quarter - the largest involving Chubb Insurance's 535,000-square-foot headquarters at 15 Mountainview Road in Warren. "This contributed to 636,072 million square feet of negative fourth-quarter absorption," said John Obeid, senior director, Tri-State Suburban Research for Colliers. "It also cast something of a shadow over encouraging results in the other submarkets in the final months of the year."
For example, in Northern New Jersey nine of 13 submarkets recorded positive absorption in the fourth quarter, and the overall availability remained unchanged at 21.0 percent. And in Central New Jersey, six of eight submarkets recorded positive net absorption, while availability crept up modestly from 18.4 to 19.0 percent.
"New Jersey office leasing activity slowed to 2.6 million square feet in the fourth quarter, as tenants postponed major decisions and delayed the closings of transactions," Obeid noted. "That said, several large commitments scheduled for completion in the coming months should boost demand and reverse this decline in 2017."
In the interim, transactions like T-Mobile's 105,135-square-foot renewal at 4 Sylvan Way helped the Parsippany submarket account for 23 percent of all activity in the Northern portion of the state. The Princeton submarket dominated leasing in the Central market in the fourth quarter, hosting the state's largest office transaction: Mathematica's 141,176-square-foot renewal at 600 Alexander Park.