By Joshua Burd
Demand for industrial space in New Jersey held strong in the second quarter, but market experts are warning against a potential pullback by tenants amid growing economic uncertainty.
A new report by CBRE found that asking rents at warehouse and logistics properties in the region climbed at a robust pace in Q2, as availability continued to fall. Northern and central New Jersey saw gains in overall occupancy for the 22nd straight quarter with 1.5 million square feet in so-called net absorption, yet the research described it as a modest bump and noted that leasing activity was slower than earlier periods.
“Looming economic uncertainty created some headwinds for New Jersey’s industrial market, albeit fundamentally sound, causing employment gains to slow as economic conditions have tempered from just a few months ago,” said Thomas Monahan, a vice chairman at CBRE. “The quarter’s leasing volume was softer compared to previous periods, reflecting both the lack of available product but also waning occupier demand.”
The report found that availability at midyear was 4.4 percent, a record low, while average asking rent increased 13 percent quarter over quarter and 56 percent year over year to a new high of $13.86 per square foot. For Class A property, vacancy and availability both fell to 0.8 percent, while rents for higher-end buildings rose 30 percent year over year to $17.54 per square foot.
The gains come amid growing unease about the economy. CBRE noted that employment in the trade, transportation and utilities sector, which includes warehouse and logistics firms that make up a large chunk of tenant requirements, remained well above pre-pandemic levels but saw job growth slow considerably in Q2, as did the manufacturing sector.
That could weigh on tenant demand in the coming months, while the lack of available space will keep a lid on leasing activity. A separate report by Cushman & Wakefield noted that industrial leasing in New Jersey fell to 4.8 million square feet during Q2, as occupiers struggled to find space in the market.
That volume was largely concentrated in Morris County and around Exit 8A of the New Jersey Turnpike. The two submarkets captured most of the space demand, together accounting for 40.1 percent of the overall activity thanks to an 844,373-square-foot deal in Flanders by List Logistics and Best Buy’s 293,420-square-foot commitment in Monroe.
C&W’s John Obeid noted that developers are racing to keep up with the demand in the Garden State.
“The shortage of existing big-box Class A space resulted in a new wave of developments this quarter,” said Obeid, the firm’s senior research manager in New Jersey. “The construction pipeline remains robust, with 41 projects totaling 13.6 million square feet under construction.”
CBRE, which tracked a similar leasing total in Q2, said that figure was down 27 percent quarter over quarter and 45 percent year over year. It was also 29 percent below the five-year quarterly average in the region.
Other key takeaways in the report included:
- Leasing activity through the first half of the year totaled 9.9 million square feet, down 42 percent from the first half of 2021 and 23 percent lower than the average first half totals of the last five years.
- There were 18 deals of 100,000 square feet or greater signed in the second quarter, compared to 33 in the first quarter of 2022.
- Among those large transactions, average deal size decreased slightly to 198,000 square feet from 205,000 square feet in Q1 2022.