By Joshua Burd
As tenants adopt a more regional approach to industrial space, New Jersey brokers must do the same and expand their focus to the Lehigh Valley and other neighboring markets.
That was the message from developers last week during an event hosted by the Society of Industrial and Office Realtors, which highlighted a major shift by users of warehouse and logistics space. Brokers now have an opportunity to provide their clients with additional options beyond the core submarkets of northern and central New Jersey, they said, noting that many regional tenants have already grown comfortable with casting a wider net.
“I think it’s incumbent on everybody,” said Jim Petrucci, the president of J.G. Petrucci Co. Inc. “If you’re a North Jersey broker and you’ve never traveled across 80 or 78 to figure out what’s going on on the other side, you’re really missing something. I think you need to, at this point.”
Both Petrucci and Josh Adler, principal with Adler Development, said tenants in recent years have explored eastern Pennsylvania as a lower-cost alternative to New Jersey’s Exit 8A submarket. Users can find savings on labor in the Lehigh Valley, they said, which also contributes to lower development costs for modern industrial space.
For instance, Petrucci noted that the Lehigh Valley has had 18 speculative developments of at least 1 million square over the past three years. And it has drawn major users: FedEx Ground has just built an 800,000-square-foot facility that is its largest warehouse and logistics hub in the country, while UPS is debuting its own 1 million-square-foot facility in Palmer Township.
The growing interest has led to an uptick in rents. Landlords in the Lehigh Valley are now asking for more than $5.20 per square foot on average, according to JLL, marking an increase of more than $1.10 from 2015.
That also means that the gap between the Lehigh Valley and Exit 8A has narrowed in recent years, but Petrucci said “there’s still some real value, comparatively speaking.”
The developers said New Jersey and the surrounding areas have become more like the Inland Empire, a vast regional market in California with more than 500 million square feet of inventory.
“If you’re familiar with what’s happened in California, you’ve got the port area around L.A.-Long Beach and as you go further east, it’s just like it is here going further west,” Adler said. “Whether it’s the Lehigh Valley, whether it’s 8A, whether it’s down to Burlington, whether it’s down to South Jersey and out to Harrisburg, it’s all serving the same thing. Different clients want different things and they want those different places for different reasons.”
SIOR’s New Jersey chapter hosted the Oct. 1 event at Ninety Acres in Peapack, drawing a crowd of industry professionals. Brokers and developers are in fact responding to tenants that have widened their search in an effort to find better facilities and fine-tune their supply chains.
That has led some brokerage firms to view the Northeast as one large, interconnected region that could even dwarf the Inland Empire in total square feet. And as Adler noted, the fact that the Northeast includes so many different states could seem daunting and complex, but also add to the opportunity.
“On the West Coast and Inland Empire, you’re all in one state, so you’ve got one set of rules that are consistent across the board. We don’t have that here,” he said, pointing to different dynamics in New Jersey, Pennsylvania and places such as Orange County, New York, and New Castle, Delaware. “So it’s a little different on this side and you’ll see different pockets because of that in different places, but that’s why it’s important to explore all of them.”