Continued Growth By E-Commerce Companies Drives Unprecedented Increase In Rates
Saddle Brook, NJ - Driven by the insatiable appetite from e-commerce companies for quality warehouse space, New Jersey’s industrial market continued its robust pace, exemplified in the third quarter by both record high average asking rents and the best level of quarterly absorption CBRE has ever tracked. According to CBRE’s Q3 2018 industrial market report, leasing velocity totaled over 6.8 million sq. ft. Total velocity was up nearly 14.6 percent quarter-over-quarter, pushing the market to an increase of 6.3 percent on a year-over-year basis. At the same time, the third quarter total was 11.8 percent higher than the five-year quarterly average.
During the third quarter, net absorption for the New Jersey industrial market was 6.4 million sq. ft., the highest recorded level since CBRE began tracking the market in 2001. As a result, net absorption for the year reached nearly 7.5 million sq. ft., a massive 4.8 million sq. ft. ahead of the same period last year. The Exit 8A submarket posted the highest net absorption at 3.5 million sq. ft., while the Rt. 287/Exit 10 submarket also cracked the million-sq.-ft. barrier at 1.1 million sq. ft., which helped propel Central New Jersey to a grand total of nearly 5.3 million sq. ft. for the quarter. This was an astounding turnaround for a submarket that had negative net absorption the previous quarter.
“Due to favorable economic conditions and record-breaking activity at the Port of New York and New Jersey, the New Jersey industrial market continues to favor owners and developers of warehouse and distribution facilities,” said Thomas Monahan, Vice Chairman, CBRE. “The market’s continued strength was exemplified by both record high average asking rents and the best level of quarterly absorption. Moreover, given the recent market dynamics, rent pricing is rising very rapidly, especially among the most sought-after prime properties. We certainly expect this to continue well into 2019.”
This strong demand for space helped average asking rents to once again hit an all-time high of $7.09-per-sq.-ft., $0.09 greater than the second quarter’s $7.00-per-sq.-ft., an increase of $0.08-per-sq.-ft. quarter-over-quarter and $0.48-per-sq.-ft. year-over-year. This current rate was $1.07-per-sq.-ft. above the five-year average for the market. With its close proximity to Manhattan, Northern New Jersey recorded a higher average rate at $7.84per sq. ft., compared to Central New Jersey at $6.28-per sq. ft. The Northern New Jersey rate reflects an increase of $0.83-per sq. ft. over the second quarter, a growth rate of nearly 12 percent.
Despite a total of 7.7 million sq. ft. market-wide either completed during the third quarter or still under construction (the majority of which is pre-committed), the continually rising rents show that the market is not yet close to equilibrium. However, CBRE expects that many projects in the pipeline will ultimately come to fruition to meet the growing demand from third-party logistics operators, e-commerce companies, food and beverage distributors and others.
On the investment sales front, the market experienced 43 sales during the third quarter, a significant increase from the 24 transactions that closed during the second quarter. The total size of the 43 properties was just over six million sq. ft., more than 62 percent of which were in Northern New Jersey. While down from the $97-per-sq.-ft. average sale price, the $83.96 per sq. ft. recorded during the third quarter was roughly on par with the first quarter of 2018.