This graphic by Transwestern shows the growth of the Interstate 287 industrial corridor from 2012 through 2016.
By Joshua Burd
Running from the crossroads of Edison to the New York State border, the 70-mile stretch of Interstate 287 is an active but sometimes-overlooked piece of the state’s industrial market.
That corridor has not only grown considerably in recent years, but is in line for continued interest from developers, tenants and investors as an alternative to the booming big-box markets along the New Jersey Turnpike.
Research by Transwestern found that the I-287 industrial corridor recorded 5.1 million square feet of net absorption from 2012 through 2016, including 1.8 million square feet last year. Meantime, the firm said average asking rents have rebounded from a post-recession low of $5.32 per square foot to $6.77 per square foot.
According to brokers based in Transwestern’s Parsippany office, that activity is being driven by a mix that includes pharmaceutical firms, food service companies and smaller third-party logistics operators. Those tenants make up a group that require substantially smaller footprints and lower rents than those found along the Turnpike, which has become dominated by outsized requirements and large developments in recent years.
“You’re talking about a whole different type of industrial,” said Jeffrey Furey, a managing director with Transwestern. “And that’s back to the bones of what our industrial market used to be like until this last wave, with e-commerce just taking huge boxes.”
While the southern end of the corridor thrives off its connection to Exit 10 on the Turnpike, each section of I-287 appears to have found its own niche, Transwestern found. For instance, a swath that the firm identified as northwest Bergen County has seen rents grow by nearly 36 percent over the five-year period, driven by requirements from light manufacturing and flex tenants.
Just south of that submarket, an area including the eastern half of Morris County saw more than 400,000 square feet of absorption during that time. Lori Zuck, a managing director with Transwestern, said both are infill markets that are attracting a range of companies.
“You’re getting users from the east that are moving out in that direction and it’s very diversified and not bigbox,” Zuck said, noting that users are smaller to medium in size. “But you’re getting very reasonable rental rates in this market.”
All the more reason that Matthew Dolly, Transwestern’s director of research in New Jersey, said that the I-287 corridor “is not to be overlooked.” Vacancy along the 130 million-square-foot corridor was 4.8 percent heading into 2017, versus 5.8 percent for all of northern and central New Jersey.
“This market is still vital to the industrial market in New Jersey,” Dolly said. Sometimes the corridor is overlooked, he said, given that “it’s one of the last markets to come back, because it’s a little farther away from New York City. But the markets have benefited from the access to the Turnpike on the southern end and the access to (Interstate) 80 on the northern end.”
The Piscataway and South Plainfield area saw rent growth of about 44 percent from 2012 to 2016, Transwestern found, perhaps playing a key role in attracting new development. In Piscataway alone, at least three projects totaling more than 1 million square feet were under construction earlier this year, including projects by Adler Development and F. Greek Development that will result in buildings of about 278,000 square feet and 450,000 square feet, respectively.
That pipeline grew considerably larger in late June, when Lincoln Equities Group and Real Capital Solutions sold a 228-acre development site to Rockefeller Group. The developer now plans to start construction this summer on the first pieces of a 2.2 million-square-foot warehouse and distribution complex.
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It remains to be seen if the developers will go after big-box users that might be getting pushed off the Turnpike or if they will cater to the smaller and midsized tenants that dominate the I-287 corridor. But the Transwestern brokers believe they will build in the flexibility to appeal to both.
“I think the design of some of their buildings were meant to divide down into smaller units, but I think some of these builders are now thinking of attracting the larger users (in the 100,000-square-foot range),” Zuck said. “I think they will look at both scenarios. Because the market is so tight on the Turnpike, tenants may not have a choice but to look at these kinds of buildings.