By Ignatius Armenia
The rising demand for sites that will support urban logistics centers has driven growth in Northern New Jersey, while also creating competition among developers, as forgotten industrial markets reemerge. Retailers, parcel carriers and food and beverage companies have all increased their demand for industrial space less than ten miles from Manhattan. Formerly obsolete locations throughout New York’s boroughs are reemerging as competitive alternatives to the New Jersey markets.
Companies such as Amazon, Blue Apron, and FedEx have all increased their industrial footprints around major population centers over the last three years in an effort to maximize speed of delivery. For these retailers, speed to consumer determines their ability to outsell competitors. So while urban logistics centers are reducing shipping times and delivering the added benefit of lower outbound transportation costs, they are also adjusting rental rate expectations.
POPULATION DRIVES DEMAND
Industrial demand in New Jersey markets with immediate proximity to Manhattan, such as the Meadowlands, has accelerated. The impact of that demand has been a 34.6 percent spike in rental rates over the last two years.
With Urban logistics on the rise, markets are shifting for developers who can now justify higher purchase prices on redevelopment opportunities which were once economically infeasible. However, this shift also poses some risks to the New Jersey industrial market.
Traditionally, tenants have been forced to choose between modern industrial product in rural locations, and older facilities adjacent to major metropolitan areas. However, as industrial development reemerges in the boroughs, tenants will have the opportunity to find modern product within city limits. As a result, Northern and Central New Jersey could see increased competition for its product, especially amongst tenants where speed of delivery is key to their business.
Savvy developers have already begun to explore the market for the next wave of development and renovation opportunities despite limited data points regarding Class A market fundamentals. One of the most notable developments within the boroughs has been Matrix Development’s planned construction of four large distribution centers on Staten Island, part of which has already been preleased to Amazon.com. Prologis has also made a large commitment in the urban logistics space with its acquisition of a +/-200,000 square foot, multi-level facility in the Bronx. Prologis recently completed a significant number of renovations to the site, and is expected to receive a warm welcome from tenants seeking space in the outer boroughs.
THE EVOLVING COMPETITIVE LANDSCAPE
With several major requirements circling these re-popularized markets, and rental rates accelerating at a fever pitch, both leasing and investment activity should increase over the short term. As a result, the competitive landscape for the areas adjacent to Manhattan could see fundamental changes, paving the way for new competition in the thriving New Jersey industrial market.
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