Demand Slowly Shifting to Secondary Corridors
PARSIPPANY, N.J. – With vacancy levels at all-time lows and asking rents at record highs, the dynamic New Jersey industrial sector has begun to witness a shift to secondary corridors, according to Transwestern’s Fourth-Quarter 2017 Industrial Market Report.
With e-commerce contributing to ever-growing levels of demand – and with consumer confidence hitting a 17-year high in December – retailers and logistics firms drove more than 1 million square feet of preleasing along Interstate 287 during the fourth quarter. Transwestern also notes that e-commerce now accounts for more than 9 percent of retail sales, according to the Census Bureau’s latest figures as of third quarter 2017. E-commerce had only represented 5.5 percent of retail volume when the warehouse market entered full expansion mode in 2012.
“The industrial sector enjoyed an excellent quarter, though some lingering challenges for continued strong leasing velocity remain,” said Lori Zuck, Managing Director at Transwestern. “The shortage of land supply, especially along the Turnpike and near the ports, has remained an issue and is further complicated due to ongoing frustration over a permit process widely agreed to be too lengthy and laborious.”
The I-287 corridor – most notably Piscataway – was the primary beneficiary of the tight Turnpike corridor during the fourth quarter. Best Buy signed the largest lease, preleasing approximately 725,000 square feet at Rockefeller Group’s new development, while freight forwarding company Global Transport Logistics Inc. committed to roughly 254,000 square feet of new construction at a property being developed by Industrial Property Trust Inc.
Amazon continues to plant its flag across New Jersey, taking a 598,000-square-foot building in Robbinsville previously occupied by Grainger. Home Depot signed the largest lease for new construction along the Turnpike during the quarter, preleasing approximately 504,000 square feet at Exit 8A in Cranbury.
Vacancy rates continued their multiyear descent by declining to an all-time low of 4.3 percent by year’s end, representing half its 2012 level when vacancy stood at 8.6 percent. Despite witnessing 23.1 million square feet in new development during the past five years, the market is today home to 28.8 million square feet in vacant industrial space, nearly half that seen five years ago.
On an incremental but steady rise, average asking rents closed the quarter at $7.49 per square foot, another all-time record. Transwestern reported that industrial rents have closed at all-time highs during every quarter during the past two years. The Garden State’s industrial sector saw 5.3 million square feet in net absorption during the fourth quarter, by far the strongest quarter of 2017 and the second-highest ever, exceeded only by second quarter 2000.
Net absorption over the full year amounted to 9.7 million square feet. When combined with the 10.6 million square feet absorbed during 2016, the total of 20.3 million square feet represents the first time since 1997 – 1998 that the net absorption figure over two consecutive years eclipsed 20 million square feet.
“Encircled by several of America’s wealthiest population centers, New Jersey is ideally located to reap the benefits of e-commerce-driven logistics,” said Transwestern’s New Jersey Research Director Matthew Dolly. “Indeed, the e-commerce boom shows no immediate signs of stopping, with some analysts expecting to see it double its share of the retail business overall within the not-too-distant future.”
Additional points of interest in the report include:
- All submarkets remain at single-digit vacancy levels, with 18 of 25 submarkets enjoying rates below 5 percent.
- Nine of 25 submarkets have average asking rents of $8 or higher, with some tenants leasing new construction at levels approaching an eye-opening $10 per square foot.
- Six New Jersey Turnpike submarkets tallied year-over-year absorption exceeding 1 million square feet: Exit 8A, Exit 7A/Trenton-I-295, Exit 11/Perth Amboy/GSP, Exit 13/Linden, Exit 10/Edison and Exit 9/Brunswick.