By Alex Kachris, Research Analyst
Northeast Industrial Region
jll.com
A drought in modern space options is rippling through the New Jersey Industrial market, creating challenges for logistics users while providing opportunities for developers. Class A availability has fallen to cycle lows of 5.5 percent, a far cry from last cycle’s peak when Class A availability reached 27.5 percent.
The lack of quality product continues to plague tenants searching for industrial space in New Jersey. For tenants, not having a distribution network near the population centers of the Northeast can be a severe opportunity cost. However, with availability of Class A product at all-time lows, tenants find themselves competing with one another for spaces that become available, with demand now three times the supply of viable distribution product. This competitive landscape has given landlords significant pricing power, as asking rents have increased 15.1 percent over the past 12 months. As a result, tenants must be prepared to pay increased rates for the limited availabilities in the market. Additionally, tenants with new requirements will need to act sooner to find space, as pre-leasing rates for new product now exceeds 80 percent. Furthermore, tenants will be forced to consider locations further west and south where developable land is more plentiful and Class A availability is subsequently higher.
The space constraints in the market provide several opportunities for developers. Although a record 13.5 million square feet of new product has been delivered in 2018, construction activity has failed to keep up with demand. To compound the problem, projects under construction fell to the lowest level in two years, as limited land sites along the Turnpike Corridor has resulted in a drop-off in ground breakings. However, given the rapid rise in rental rates, more projects have become economically viable. As a result, developers should consider undertaking more redevelopment projects of functionally obsolete industrial facilities and office buildings that are currently vacant. Developers should also look for opportunities to clean up sites that are environmentally challenged which support industrial product. Similarly to tenants, developers will seek more sites along the 287-Corridor and in Southern New Jersey, where there is greater land availability.
The dynamics surrounding the New Jersey Industrial landscape will continue to be transformed by tenants and developers alike. Tenants must be prepared to pay higher rates and act quickly on suitable space. Developers will need to be pioneers, undertaking less traditional projects than they may have considered in the past. Most importantly, both will contribute to the ever-changing landscapes in the western and southern parts of the state.
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