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certain market, you should probably be waiting. But if you’re building in
a market that’s got a ton of new spec development coming on and it’s all commodity space, it’s time to take the deal.”
Having “more perfect information” also makes it possible to make the right decision, Barnwell said, to the agreement of the other panelists.
“We all have pretty good visibility into the supply pipeline, so you know what your competition is,” said Nick Pell, president and chief investment officer of Link Logistics, Blackstone’s indus- trial real estate arm. “You know what other compet-
itive buildings are rolling off and you can pick your spots, and
The trend will seemingly continue as long as demand outstrips supply at such a pace, as it has in New Jersey and other top-performing regions. According to JLL, Class A vacancy in the Garden State fell to 0.2 percent in the third quarter, while northern New Jersey has seen rents increase by 30 percent year over year.
The real estate services firm also found that Class A vacancy in the 1.75 billion-square-foot Northeast industrial region — which includes New Jersey, New York, Pennsylvania and Delaware — plummeted to 1.8 percent in Q3, as average rent growth in those states reached 22.4 percent year over year. Meantime, as of midyear, tenants in the region were in the market for a combined 85.3 million square feet, a 20.8 percent rise over the past two years, with new demand still well ahead of new construction deliveries.
The thirst for high-end logistics space has only grown during the pandemic, which has accelerated the shift to e-commerce, and amid the uncertainty caused by the nation’s supply chain
crisis. It should come as no surprise, then, that developers are valuing their projects at a price that reflects both the barriers to entry and the difficulty of getting them out of the ground.
“Today that means you’re moving the market,” Pell said. “Every rent that’s getting cut is higher than the last
one, so finding that price discovery and willingness to pay is a process.
It certainly depends on where the development is and how aggressive you want to be on it, but we’re pushing the envelope because we know how hard it is to deliver a lot of this product in key locations for customers.”
The decision of when to lease a spec project also hinges on a developer’s business model, the panelists said, citing the varying needs of a long-term owner versus a merchant builder.
In both cases, however, rents are rising so quickly that developers are increasingly looking to sign shorter- term leases.
“If you’re not growing those rents at a more aggressive level, you’re losing
value every day,” said Peter Schultz, an executive vice president with First
I think all of that
is certainly more
available today
than it ever was
with data and
everything else just being accessible.”
— although such a strategy is better- suited for supply-constrained, high- barrier locations.
In those markets, another option is to push leases with higher yearly rent hikes.
“We’re all seeing that in our business — the bumps are going up,” Schultz said. “The tenants are certainly pushing back on that, but it still gives them certainty.
“We’re not in a big hurry to go long in this environment, but there’s always a risk management and a discipline to that on an asset-by-asset and submarket-by-submarket basis.” RE
Nick Pell
Peter Schultz
Industrial Realty Trust Inc. He added that, “in some markets, we’re not going to sign longer- term leases because we’re better off taking the risk at roll”
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