By Joshua Burd
Big box leases continued to drive New Jersey’s industrial market to start the year, keeping a lid on vacancy as speculative construction carries on throughout the region.
Newly completed market reports show a first quarter that was marked by sustained rent growth and healthy absorption, even with a wave of newly delivered space. For instance, two projects in the Exit 10 submarket were preleased for a total of 1.6 million square feet, including a nearly 720,000-square-foot commitment by Target in Perth Amboy.
One of the reports, by JLL, found that 57.4 percent of the 6.5 million square feet currently under construction in northern and central New Jersey is now preleased, significantly above preleasing rates for previous construction cycles. Separate research by Colliers International Group highlighted the large volume of deals, citing 14 transactions of more than 200,000 square feet during the first three months of 2017.
Both firms pointed to strong market fundamentals after what was a record year for the state’s industrial market, driven by e-commerce, consumer products and other sectors that need to be close to the ports and the nation’s largest consumer base.
“Economic indicators and market fundamentals remained positive, benefiting owners and developers,” said David A. Simon, executive managing director with Colliers and the firm’s New Jersey market leader. He noted that the lack of available warehouse and distribution space has pushed rent growth and led developers to accelerate their construction schedules.
Colliers and JLL tracked average asking rent in Q1 at $6.74 and $6.76 per square foot, respectively, up nearly 12 percent from the start of last year.
The market saw a total of 11.4 million square feet of leasing activity, according to Colliers, which is 13.2 percent higher than the five-year quarterly average. The firm, which measures availability, said that rate fell to 7.4 percent in northern New Jersey and held steady at 6.4 percent in Central Jersey.
Colliers said build-to-suit projects for tenants such as Driscoll Food, FedEx, Pilot Freight Systems and SeaFrigo added to the inventory and contributed to 2.7 million square feet of positive absorption in the northern region during Q1. North Jersey leasing activity totaled 3.5 million square feet, which was down 19.1 percent from the previous quarter because of a scarcity of options.
“Tenant demand remains healthy; however occupiers have had difficulty finding available space for lease that meets their needs,” Simon said. “As a result, this has delayed some transactions from being completed.”
Simon also said the lack of options pushed tenants to renew at an accelerated pace, with renewals accounting for 35 percent of all activity during the three-month period.
JLL, meantime, pointed to sticker shock by tenants that renewed and were met by rates that were more than twice what they had paid under their previous leases.