By Joshua Burd
A lack of supply has kept a lid on leasing activity in New Jersey’s industrial market, as developers race to build new projects that would help meet the robust demand from tenants.
New market reports say interest from users showed no signs of slowing down in the third quarter, with record high asking rents and historically low vacancy rates. Yet leasing velocity in northern and central New Jersey slowed from the second quarter and from last year, given the dearth of high-end space.
“Demand for quality industrial space in New Jersey remains very strong as more e-commerce and last-mile logistics companies look to either expand or relocate their operations in the state,” said William Waxman, executive vice president with CBRE. “Unfortunately, demand has once again outstripped supply. More new construction is needed to keep up with the demand that shows no signs of abating.”
The third quarter saw construction starts for five buildings and 2.63 million square feet, according to CBRE’s market report. The new projects are all in central New Jersey, with three buildings and 1.93 million square feet under construction in the Interstate 287 submarket.
Both CBRE and Cushman & Wakefield found that overall asking rents in northern and central New Jersey averaged more than $9 per square foot in Q3. That has only added to the rush by developers to deliver new space, despite the lack of available sites.
All told, Cushman & Wakefield tracked 8.1 million square feet of warehouse space under development through the end of the quarter, which could push construction volume to a century-high mark in 2020.
“Developers are attempting to help replenish limited Class A supply to the marketplace amidst strong tenant interest in this prolonged expansion cycle,” said Jason Price, C&W’s director of suburban tristate research. He added that 12 of the 17 facilities under construction in the region are larger than 300,000 square feet, with four of them exceeding 800,000 square feet.
Price also noted that more than 40 percent of the space under construction has been preleased. Five developments have been leased in full with heavy interest by tenants on some others.
To date in 2019, developers have completed 6.3 million square feet of new industrial space, including 1.5 million square feet that came online during the third quarter.
“Demand for new product remains strong, evidenced by 69.1 percent preleasing on 2019 deliveries,” Price noted. “This velocity shows no sign of slowing down and the development community is responding. In fact, we are anticipating more than 18 million square feet in the industrial pipeline through mid-2021.”
Both C&W and CBRE tracked industrial vacancy in the low single digits. Andrew Judd, C&W’s New Jersey market leader, said the firm projects vacancy totals to remain relatively steady through year-end and into 2020.
“In the near-term, the local industrial marketplace will remain fundamentally healthy and poised for further growth — driven largely by logistics and e-commerce companies relocating and expanding within the marketplace,” Judd said. “Despite land constraints, developers will continue to add new supply to the marketplace as tenant demand endures and existing Class A space options remain limited.”