By Joshua Burd
By many accounts, rent growth in New Jersey’s industrial sector continues to be unprecedented.
Research from multiple real estate service firms shows that average rental rates across the market hit several milestones this summer. For instance, a report by CBRE Group tracked an 8.1 percent surge in year-over-year rental rates through midyear, representing the largest increase seen during any four consecutive quarters post-recession.
Average asking lease rates are up 26.6 percent from their post-recession low in the first quarter of 2012, CBRE found. With growth of at least $0.10 per square foot over the past four quarters, the firm said the state’s overall average asking lease rate increased to $6.52 per square foot.
“The New Jersey industrial climate continues to outperform the other commercial sectors and is certainly favoring landlords,” said Thomas Monahan, executive vice president with CBRE. “With low vacancy, limited ‘ready to occupy’ inventory and a speed-to-occupancy tenant mindset, industrial landlords are certainly in the driver’s seat.
“Under market conditions like these, the spread between asking rates and taking rates has been dissipating rapidly.”
Market analysis from other firms tells a similar story. Transwestern has tracked the average rental rate in northern and central New Jersey at $7.26 per square foot, in what the firm says is the first time that the region has eclipsed the $7 mark.
Researchers with Transwestern analyzed 25 submarkets in the state, 15 of which had average asking rents above $7 per square foot at midyear. Four of those submarkets had asking rents above $8 per square foot during Q2.
The firm also found that absorption slowed slightly during the quarter and dipped below 1 million square feet for the first time in three years, but noted that it was mostly due to a lack of quality available inventory. Vacancy through midyear was at 5 percent and had dropped by more than 100 basis points for the fifth consecutive quarter, the longest such streak since 1999.
Transwestern also noted that, for the fourth time in the past six quarters, Amazon signed the largest industrial lease in New Jersey when it committed to nearly 1 million square feet at Exit 8A in Cranbury. But the firm noted that supply is having trouble keeping up with demand, prompting a construction pipeline in the state that totaled 12.1 million square feet through Q2.
“E-commerce continues to drive the tightening of New Jersey’s industrial market, so the significant amount of construction that’s underway will provide welcome relief,” said Matthew Dolly, Transwestern’s New Jersey research director. “With nearly 9 million square feet of space absorbed throughout the market over the past 12 months, there are currently six submarkets with vacancy rates below 3 percent.
“At Exit 8A alone, nearly 4 million square feet was absorbed over the past year.”
The overall tightness of the market has impacted large tenants especially, CBRE found. The firm said that, as of Q2, the state offered no availabilities for industrial space measuring 500,000 square feet or greater, while only five options exist for tenants seeking between 250,000 and 499,999 square feet.
That tightness has caused an uptick in renewal activity, CBRE said. The second quarter saw a 55.8 percent increase in renewals quarter-over-quarter, with tenants staying in place because they often have nowhere else to go and landlords reaping the benefits.
CBRE also said that tenants that have renewed in place through the first half of 2017 have committed to lease rates that are on average 21.3 percent higher per square foot than the commitments they had previously made at the same address.
