The interior of Cranbury Station Park, a new 930,000-square-foot distribution center built by the Rockefeller Group and Alfieri LLC — Courtesy: The Rockefeller Group
By Joshua Burd
Industrial leasing in New Jersey kept up its torrid pace through the end of 2016, capping off a year that saw occupancy gains of more than 10 million square feet.
That activity reached a “historic” level, according to researchers with JLL, in that positive net absorption in northern and central New Jersey reached its highest point since 2001. Driven by big-box leases and demand for high-end facilities, industrial vacancy fell to 4.5 percent in the fourth quarter — countering what has been a wave of new construction in the market.
That represented only a small decrease from Q3, JLL found. But the mark was down nearly two percentage points from year-end 2015, when vacancy in the region was 6.5 percent.
“New Jersey’s primary industrial submarkets have posted swift declines in vacancy rates, fueled by an average of 2.5 million square feet of positive net absorption every quarter of the year,” David Knee, senior managing director at JLL, said in a prepared statement. “During the final quarter of 2016, however, vacancy rates were buoyed by an escalation in speculative deliveries, and only ticked down slightly.”
Knee added that speculative development is expected to continue into the foreseeable future, tempering expectations about whether vacancy will record any other dramatic decreases.
Still, JLL’s Q4 research found that large industrial leases — those of 500,000 square feet or larger — accounted for more than 6.4 million square feet in leasing activity and positive net absorption in 2016. E-commerce companies and so-called last-mile operations represented 51.7 percent of big-box space transactions, a trend it expects to continue through 2017.
And while positive absorption may slow in 2017, the recent demand for new space has led to robust rental growth, JLL said. During the past year, overall asking rental rates have increased “an astonishing 13.6 percent,” representing nearly half of the total rental rate growth seen in northern and central New Jersey during the past five years.
The sharp spike in asking rental rates is the product of an imbalance in supply and demand levels, as well as an increase in speculative construction, JLL said. Experts with the firm said they expect that to continue in 2017, citing the continued demand and lack of available space.
Meantime, the brokerage tracked nearly 7 million square feet of new construction activity through the end of 2016. Nearly two-thirds of that space was developed on a speculative base, with central New Jersey serving as the focal point of the new activity.
The largest among them was Clarion Partners’ nearly 1 million-square-foot speculative development on Brick Yard Road in Cranbury. But JLL noted that the lack of developable land is causing builders to look elsewhere, such as the Exit 8 submarket, where projects totaling more than 900,000 square feet have broken ground recently.