A shift away from e-commerce sees more development at the periphery of metro areas; higher wages help attract workers to new facilities.
If shippers are serious about keeping a healthy proportion of their diverted West-Coast cargo in the east, as many claim, they need to be supported by a growing inventory of warehousing options to accommodate those increases. In the Northeast, investors and logistics operators appear to be responding, by growing capacity in a region with tight vacancy rates.
So much so, that things are getting a little crowded, motivating the build-out of properties on the region’s periphery. Also crowded is the labor market, but in the Northeast, the ability of industrial workers to command higher wages actually assures that employers will be able to staff their new facilities.
The Port of New York and New Jersey in 2022 became the second busiest port in the country, moving ahead of Long Beach. With retailers and manufacturers investing in new facilities in the New Jersey port region, the vacancy rate ticked higher in the first part of this year to 3.6%, “due to the delivery of new product to the market,” according to John Obeid, senior research manager at the real estate firm Cushman & Wakefield.
Positive net absorption—how many more square feet were leased than was made available on the market—approached 2.5 million in the region last year, according to Obeid, and, in the fourth quarter alone, over 1.2 million square feet became available in the port area. This year, logistics players such as UPS and major importers like Samsung moved into large facilities in the port region.
But, with the robust building seen in the last few years, “developable sites are limited in New Jersey,” noted a Cushman & Wakefield report.
Elsewhere in the New York metropolitan area, demand for space in Long Island saw a spate of groundbreakings in 2022. Warehouse completions neared 2 million square feet last year, and the pipeline included another 1 million, most slated for completion in third quarter of 2023. “New developments are breaking ground quarterly,” said Dimitri Mastrogiannis, a Cushman research analyst. “The proposed pipeline has surpassed 12 million square feet with over two-thirds of that located in Eastern Suffolk.”
The lack of vacant land in Nassau County, which is closer to New York City, “has caused developers to search for opportunities further east on Long Island,” meaning, Suffolk County, noted Mastrogiannis. “Historically, the Eastern Suffolk submarket has had little warehouse development.”
The same phenomenon is being seen in the Boston area, where the logistics needs of the metropolitan region are increasingly being satisfied from New Hampshire. In late 2022, the commercial real estate developer Trammell Crow Company closed on land for a Class A industrial facility, its first in the Granite State. The 43-acre site in Merrimack will include 323,750 square feet of industrial space, to be delivered in the fourth quarter of this year.
“The Greater Boston industrial market is severely supply constrained right now,” noted Elisha Long, a TCC senior vice president. “Southern New Hampshire offers a logical expansion path for users looking to enter, expand, or maintain their logistics footprint” in metro Boston.
This geographical shift to the periphery also reflects a change in the use of these new properties. E-commerce accounted for a high percentage of industrial leasing over the last two years, but many that now are coming on line are being taken by a more diverse group of logistics players. E-commerce growth is hardly over, but distribution and 3PL operations are taking up a larger proportion of available industrial space, according to a recent report from JLL, the real estate services company, accounting for 25.8% of total leasing volume nationally during the fourth quarter of 2022.
These facts may explain why warehousing growth in eastern and central Pennsylvania stand high in JLL’s rankings, with over 35 million square feet absorbed in 2022 and nearly 31 million under construction, the only northeastern region to make those standings. The other national leaders are Dallas/Fort Worth, Chicago, Phoenix, Houston, and Atlanta.
Growth in warehousing activity in the Northeast will be dependent upon labor availability, representing a challenge for employers, thanks to “prospects of an economic slowdown, flattening e-commerce sales growth, and Amazon pausing its rapid expansion,” noted a report released by the Leeds School of Business at the University of Colorado Boulder. “Employment in the warehouse and storage sector, which soared to record levels in mid-2022, has now had a string of monthly declines.”
According to the Bureau of Labor Statistics, e-commerce added 695,000 workers between April 2020 and June 2022, but has since lost tens of thousands. Besides Amazon’s retrenchment, “a tight labor market,” noted a report from Commercial Edge, “is allowing workers to find higher-paying jobs.”
But in the Northeast, logistics and distribution jobs command higher wages than in other regions, which benefits the growth in logistics by allowing employers to attract the necessary labor, even though, according to a Cushman report, “the substantial growth in industrial operations has outpaced the growth of the workforce.”
Wages for industrial occupations throughout the region, including Boston, where they “are significantly higher than the U.S. average,” provide “a differentiator employers can leverage to attract talent in a tight national labor market,” the Cushman report said.
In Central Connecticut, which includes Hartford and New Haven, “wages for production and warehouse workers outpace the national average,” in Long Island, “average wages for both material moving and production occupations exceed the national average,” while wages in “Northern New Jersey’s material-moving occupations are among the highest in the Northeast.” Wages for industrial workers in New York City’s outer boroughs, outside of Manhattan, “are the highest in the region.” Wages for warehouse workers in Philadelphia are 8.9% higher than the national average.
A few years ago, the diversion of substantial volumes of ocean cargo to the Northeast at the expense of the west coast would have been hard to imagine. Equally surprising would have been the extremely tight labor market, putting workers in the driver’s seat. But as industrial capacity expands in the Northeast to accommodate the new normal, higher wages make the region attractive for workers, and benefits employers as well.