By Joshua Burd
Demand for industrial space remains healthy in New Jersey, even as owners and occupiers take a more cautious approach that could impact new construction in the months ahead.
Those are among the findings of a recent report by CBRE, which found that first-quarter leasing activity in the region totaled 6.8 million square feet, up 26 percent from the previous quarter and 9.4 percent higher than its five-year quarterly average. The research, which covers northern and central New Jersey, also found that overall occupied space in the market increased by 1.7 million square feet to start the year, marking the 25th consecutive quarterly gain.
That left the region with a vacancy rate of just 2.7 percent heading into April, CBRE said, while pointing to some signs of uncertainty. For instance, Class A vacancy was slightly higher at 4.8 percent primarily due to several newly constructed properties in Central Jersey not being fully leased at the end of Q1, although the firm expected that to change in the second quarter.
“While some owners (and) developers maintain a positive outlook on the industrial market, concerns over climbing interest rates, bank failures and further financial disruptions has pushed others to take a de-risk (or) stabilize mentality,” said Larry Schiffenhaus, an executive vice president with CBRE. “The higher cost for capital is requiring firms to rethink expansion plans and future investments, and as a result new construction starts for industrial space in New Jersey dropped to 1.2 million square feet during the first quarter.
“While we do see some headwinds on the horizon, we believe the industrial sector is well positioned to sustain overall positive momentum.”
CBRE’s other findings include:
- Asking rents for Class A space increased by 1.2 percent quarter-over-quarter, to $19.25 per square foot, marking the smallest uptick in higher-end buildings since 2018.
- The average asking rent for all classes of industrial space increased by 7.2 percent from the end of 2022, to $16.51 per square foot, indicating owners’ aggressive approach in pricing Class B availabilities.
- The delta between overall asking rents and Class A rents shrunk to 17 percent, down 18 basis points, reflecting the contrasting rent dynamics between Class A and overall rents.
“As owners have become more risk-averse due to recession concerns, a renewed focus on asset stabilization is driving a push for financially stable tenants,” the report’s authors wrote. “The desire for stability can lead to more aggressive concessions for quality tenants. Class B assets continue to position more aggressively as occupier demand for smaller ready-to-occupy spaces remains strong.”
CBRE also found that third-party logistics occupiers were the biggest players in the market, accounting for 48 percent of all leasing in northern and central New Jersey, which represents an increase of 800 basis points from the previous quarter. In contrast, leasing by wholesale or retail companies and e-commerce firms dropped from previous highs, with HongMall’s 63,000-square-foot commitment at 930 New Durham Road in Edison accounting for quarter’s only major lease by an e-commerce company.
