This graphic by Transwestern shows the rising industrial rents along the New Jersey Turnpike.
By Joshua Burd
The old adage is location, location, location. But when it comes to industrial real estate in New Jersey, Alex Previdi feels it’s probably time to mention “location” a fourth time.
Take, for example, the changing food industry — and the changing space needs of its operators.
“In the food business, where it used to be a freezer operation that is delivering dairy products, now you have these organizations that are delivering meals ready to prepared to people’s homes,” said Previdi, an industrial broker with Transwestern. “That industry has changed as well, and what’s happening in that industry is that, like e-commerce, everybody wants the product at their door quicker and faster.
“So, in order to service the population center, which is here, they have to be located here.”
The idea that location has become even more important is fueling the state’s white-hot industrial sector — and it’s one of the driving forces behind what Transwestern says is unprecedented rent growth in the market. Research by the firm has found that rents for warehouse and distribution space, particularly along the New Jersey Turnpike, are shattering the asking prices of landlords, as the competition among tenants becomes especially fierce.
For instance, Previdi said recent leases in the Exit 16W Meadowlands submarket are approaching $10 per square foot. In late 2010, he said, rents were around $5.50.
The real estate firm offered other examples:
- Between exits 14 and 15E, asking rates have averaged $5.77 per square foot, but a recent lease was signed for $9 per square foot.
- In the Exit 10/Edison submarket, a tenant recently paid nearly $4.00 higher per square foot than the asking price.
- In Elizabeth, at Exit 13A, the average asking rent was $6.46 and several tenants paid north of $8.
Landlords have sought higher rents to begin with, Transwestern said, as they develop new state-of-the-art facilities and modernize old ones in response to the demands of e-commerce users, logistics firms and other tenants. But occupiers are willing to shell out higher rents for being along the New Jersey Turnpike and closer to consumers.
“They’re just getting higher and higher,” said Previdi, a managing director in the firm’s Parsippany office. “And what these landlords are doing is either taking older product and refurbishing it to bring it up to modern standards, or they have what I’d call modern product and there’s just not a lot of opportunities out there where there’s availability, which is naturally just driving the price up.”
The firm found that the Turnpike Corridor between exits 8A and 16W has recorded some 7.3 million square feet of net absorption year over year. All nine submarkets have experienced positive absorption.
Larry Schiffenhaus, an assistant vice president with Transwestern, also noted that state incentive programs have allowed tenants to withstand higher rents in some cases. Another reason is that the cost of many of the newest, best-located sites in New Jersey is still lower than many of the older sites in the Bronx or other boroughs of New York City.
And while warehouse developers have been active recently in order to capture the demand, Transwestern said there is still much in the pipeline. Schiffenhaus said those who have yet to break ground are closely following the trends in rental rates, and with a market that is still very active, they are hoping to realize the same success.
“They’re very conscious of what’s going on in and around the market, and they’re going to get market prices for properties where they can,” Schiffenhaus said. “So what the rent is today might change in six or eight months when these buildings are completed.”