New Jersey registered 8.6 million square feet of industrial leasing activity during the second quarter of 2018- down from 10.6 million in the previous period as a lack of available space slowed leasing activity, according to Colliers International NJ LLC. The global commercial real estate services firm today released its second-quarter 2018 Market Snapshots, which reports that office leasing during the past three months rose by 31% equating to 2.9 million square feet.
STRATEGIC DISTRIBUTION FACILITIES DRIVE INDUSTRIAL
A 449,880-square-foot lease by Clutter, at 1065 Cranbury South River Road in South Brunswick led the second-quarter activity, followed by a renewal for 371,995 square feet by LA Enterprises at 1 Costco Way in Monroe Township and a 318,389-square-foot sale-leaseback by Freeze at 473 Ridge Road in Monmouth Junction.
"During the first half of the year, ongoing demand for strategic distribution locations helped drive rental rates to historically high levels," noted David A. Simon, SIOR, executive managing director and New Jersey market leader. "Our research revealed a decline in leasing activity during the past quarter; however, the reason for the decline was only based on the fact that there is not enough space to accommodate the demand." During the second quarter, 13 new buildings totaling 5.4 million square feet were delivered, 75% of which had pre-lease commitments. Even with the wave of new deliveries, the availability rate remained flat, closing at 5.3% and helping to spur a 9.3% rise in asking rates from last year, to $7.62 per square foot.
Northern New Jersey's industrial net absorption maintained a strident pace, as 3.5 million square feet of leasing activity outpaced the new space that was delivered to the market. Positive net absorption rose to 1.9 million square feet, representing the highest level in more than a year as the availability rate improved by 50 basis points during the quarter to 6.1 percent. Central New Jersey continued to capture the bulk of the demand in the first quarter, notching 5.1 million square feet of industrial leasing activity despite having less than one-half of Northern New Jersey's available space. The robust activity coupled with limited available space spurred an 11.1% rise in asking rents to $7.19 per square foot.
"As demand for same-day deliveries intensifies, the Meadowlands and other submarkets within close proximity to New York City will continue to receive strong interest from occupiers," Simon noted. "Consistent demand and limited supply has caused pricing to rise, up 6.7% from last year to $7.69 per square foot. As a result of these market conditions, the pool of investors focusing on the industrial sector within New Jersey is expanding as well."
"Fundamentals in Central NJ remain positive", he added. "Despite 5 million square feet of new deliveries, Central New Jersey's availability rate was only 4.4% in the second quarter, remaining below the 5% threshold for the third consecutive quarter." Of the 5 million square feet of new deliveries, 3.8 million square feet were pre-leased, increasing tenant occupancy and driving net absorption to a positive 3 million square feet for the quarter, and 7 million square feet through the first half of the year.
OFFICE POSTS STRONG GAINS, THANKS TO CENTRAL NEW JERSEY
The Northern New Jersey office market activity remained constrained as net absorption in the quarter fell to negative 385,427 square feet, dragging the mid-year total to negative 362,075 square feet. Large blocks of newly available space brought back to the market during the quarter, including Newark Public Schools' 161,399 square feet at 707 Broad Street in Newark, increased the availability rate by 40 basis points from the last quarter to 20.6%.
The Central NJ market was strikingly different with leasing activity achieving a 33.6% improvement from last quarter, fueled by transactions like National Union Fire Co.'s 243,960- square-foot renewal at 100 Connell Drive in Berkeley Heights.
A series of large new transactions, including Integra Life Sciences' 166,791-square-foot lease at 1100 Campus Road in Princeton, and Plymouth Rock's 129,600-square-foot lease at 581 Main Street Woodbridge, illustrate the improved leasing activity; and robust tenant demand led to positive net absorption of 339,617 square feet. The availability rate improved to 18.5%, the lowest since 1Q 2008. Positive movement in the average asking rate also occurred this quarter, closing at $25.63 per square foot, an improvement of $0.11 per square foot over the last quarter.
"Northern NJ's slow start to the year impeded the progress of the market as a whole," said John Obeid, senior director, Tri-State Suburban Research for Colliers. "Despite that, after recording just eight transactions over 100,000 square feet between 1Q 2017 and 1Q 2018, there were seven such transactions in the second quarter alone. Leasing activity increased by 31% quarter-over-quarter to 2.9 million square feet, which brought the mid year total to 5.1 million square feet. Increased activity, together with the ongoing adaptive reuse trend has kept the availability rate below 20% for the third consecutive quarter and, at 19.7%, is an improvement of 100 basis points from last year."
As obsolete office product comes off the market and more owners put money into renovating their buildings, the average asking rent has been steadily rising, particularly in the Class A sector where it improved 6.3% over the last three years to $29.62 per square foot.
"While growth has been slow and steady, the long-term trend remains positive," Obeid added. "New leases were encouraging, including JPMorgan Chase's 148,521 square feet at 480 Washington Blvd. in Jersey City, and the Mars Wrigley Confectionery U.S. lease of 148,460 square feet at 110 Edison Place in Newark, which is currently under construction. Mars will be anchor tenant at that property and will bring 500 jobs to Newark upon completion.