Vacancy in the New Jersey industrial real estate market at mid-year 2015 dipped below 8.0 percent for the first time in more than six years, and occupancy gains finished in the green for the tenth consecutive quarter, according to East Rutherford-based Cushman & Wakefield. The commercial real estate services firm’s latest research findings also show continued brisk demand, a modest rise in asking rental rates and a healthy construction pipeline.
Overall vacancy dropped to 7.6 percent during the second quarter, down 0.4 percentage points from the end of March. Within the warehouse/distribution sector, the rate is nominally lower at 7.4 percent. “The warehouse market has strengthened considerably, with user demand offsetting significant product coming online in the form of new speculative development and large space dispositions,” noted Cushman & Wakefield’s Jason Price, research director – tri state suburbs. “We expect it will tighten even further during the second half of the year.”
New Jersey posted more than 5.9 million square feet of leasing activity during the second quarter, slightly ahead of the pace set during the first three months of 2015. With 11.8 million square feet of year-to-date leasing, the state is just behind the pace at mid-year 2014 (12.5 million square feet).
Fourteen new commitments in excess of 100,000 square feet were executed during the second quarter; half of these transactions were 200,000 square feet or greater. The largest involved Amazon’s 1.1 million-square-foot lease at 8003 Industrial Avenue in Carteret, Romark Logistics’ 359,950-square-foot lease at 23 Mack Drive in Edison and FedEx’s build-to-suit commitment for 315,000 at 1075 Secaucus Road in Secaucus. Renewal activity was strong as well, with 10 renewals in excess of 100,000 square feet. Among them, National Packaging Services signed a 300,000-square-foot renewal and expansion agreement at 1000 New County Road in Secaucus.
“This activity resulted in more than 3.3 million square feet of industrial space being absorbed year-to-date,” Price said. “Tenants absorbed 946,195 square feet in the second quarter alone. The Lower I-287, Upper I-287 and Meadowlands submarkets each recorded over 300,000 square feet of occupancy gains during the past three months.”
On the pricing front, New Jersey’s $6.38 per-square-foot average direct asking rental rate for industrial space is 3.1 percent higher than it was at mid-year 2014. In the warehouse/distribution sector, the average direct asking rent of $5.73 per square foot represents a hike of more than 13.0 percent over the past three years. The Lower 287, Port Region and Exit 8A submarkets saw their average direct rental rates edge higher in recent months.
Improving market fundamentals also continue to support new development. “After reaching a 14-year high in 2014, industrial construction remains steady in New Jersey,” Price said. “Just under 1.2 million square feet of product has been delivered year-to-date, including speculative buildings at 965 Cranbury South River Road (550,050 square feet) and 11 Corn Road (308,276 square feet) in South Brunswick.”
With another 3.3 million square feet currently under construction – heavily concentrated in the Lower 287 and Exit 8A submarkets – industrial space deliveries in 2015 are expected to outpace four of the previous five years in terms of volume. “Much of the product being developed is on a speculative basis,” Price said. “However, with net absorption easily outpacing construction the market is in no risk of becoming overbuilt in the near future.”
Price noted that Cushman & Wakefield anticipates the market will remain on track through the balance of 2015. “Healthy demand, including strong activity involving 3PLs and e-commerce retailers, should drive up rents in key submarkets through the end of the year,” he noted. “And despite a number of speculative space deliveries on the horizon, this demand will also result in space availabilities continuing to tighten – especially along the New Jersey Turnpike.”