By Joshua Burd
While industrial space remains in short supply, New Jersey is seeing a spike in new sublease offerings as smaller logistics firms feel the economic pinch of the pandemic.
Those are among the findings of a new report by Colliers International, which noted that the industrial market has largely thrived during the COVID-19 outbreak, even as other asset classes have stumbled. Growing demand from e-commerce users has fueled continued leasing and development activity, the report found, although headwinds remain for certain segments of the market.
For example, Colliers pointed to smaller logistics firms that are tied to hard-hit industries such as leisure, hospitality and restaurants and have put significant amounts of sublease space on the market in recent months. The report identified 1.7 million square feet of new sublease space that became available in New Jersey during the third quarter, up from 652,230 square feet in the second quarter, when including spaces that are 20,000 square feet or larger.
The Q3 total is more than double the five-year quarterly average of 810,000 square feet, according to the report by Colliers’ John Obeid. The 1.7 million square feet spans 16 individual spaces across northern and central New Jersey.
“New sublease space returned to the market at a rapid pace during the third quarter as certain businesses have been affected by the pandemic,” Obeid wrote, noting that most of the users were smaller tenants with less than 100,000 square feet. However, there were larger blocks that were made available, including nearly 153,000 square feet at 51-53 Hook Road in Bayonne by I. Halper Paper & Supplies, along with 253,000 square feet at 942 Memorial Parkway in Phillipsburg by clothing retailer Uniqlo.
The good news? Industrial space is in demand, regardless of the size. Obeid cited recent subleases such as Tri-State Warehouse & Distribution’s 125,000-square-foot commitment at 207 Pond Ave. in Middlesex and a deal by ZB Importing, which is taking 84,000 square feet at 850 Randolph Road in Somerset.
“Despite these new additions, demand for industrial product remains strong amid the pandemic, particularly from e-commerce and logistics users,” said Obeid, Colliers’ senior director of research in New Jersey. “Moreover, some of the new subleases have already been leased in the third quarter, proving that new sublease blocks can move.”
Broadly speaking, the state’s industrial market has continued to flourish during the pandemic. With e-commerce leading the way, Amazon has now leased nearly 8 million square feet in New Jersey since late 2019, including just under 2 million square feet in the current quarter.
Obeid’s report also pointed to the growing need for cold storage space, which far outpaces supply in the Garden State. The lack of options has forced smaller users to retrofit dry warehouse space to fit their needs, while larger players are limited by the lack of speculative development and the complex process of building refrigerated facilities.
“Demand for cold storage space and e-commerce distribution centers will continue to fuel positive momentum in the near future,” Obeid wrote. “The pandemic has accelerated the shift toward e-commerce purchases, a trend that will likely stick and be a permanent part of consumer buying habits. This is anticipated to offset the wave of new subleases to return to the market over the next (12 to 18 months) as restaurants and retailers feel the full effects of the pandemic-related closures.”