Real estate experts have noted a strengthening market for industrial and commercial space in the state, with the Exit 8A submarket — centered around South Brunswick — among the hottest locations.
Vacancy in the New Jersey industrial real estate market at mid-year dipped below 8 percent for the first time in more than six years, and occupancy gains finished in the green for the 10th consecutive quarter, according to a report by Cushman & Wakefield. The latest research findings also show continued brisk demand, a modest rise in asking rental rates, and a healthy construction pipeline.
Overall vacancy dropped to 7.6 percent during the second quarter, down 0.4 percentage points from the end of March. Within the warehouse/distribution sector, the rate is nominally lower at 7.4 percent. “The warehouse market has strengthened considerably, with user demand offsetting significant product coming online in the form of new speculative development and large space dispositions,” said Cushman & Wakefield’s Jason Price, research director for the tri-state suburbs. “We expect it will tighten even further during the second half of the year.”
New Jersey posted more than 5.9 million square feet of leasing activity during the second quarter, slightly ahead of the pace set during the first three months of 2015. With 11.8 million square feet of year-to-date leasing, the state is just behind the pace at mid-year of 2014 (12.5 million square feet).
On the pricing front, New Jersey’s $6.38 per-square-foot average direct asking rental rate for industrial space is 3.1 percent higher than it was at midyear, 2014. In the warehouse/distribution sector, the average direct asking rent of $5.73 per square foot represents a hike of more than 13 percent over the past three years. The Lower 287, Port Region, and Exit 8A submarkets saw their average direct rental rates edge higher in recent months.
Improving market fundamentals also continue to support new development. “After reaching a 14-year high in 2014, industrial construction remains steady in New Jersey,” Price said. “Just under 1.2 million square feet of product has been delivered year-to-date, including speculative buildings at 965 Cranbury South River Road (550,050 square feet) and 11 Corn Road (308,276 square feet) in South Brunswick.”
With another 3.3 million square feet currently under construction — heavily concentrated in the Lower 287 and Exit 8A submarkets — industrial space deliveries in 2015 are expected to outpace four of the previous five years in terms of volume. “Much of the product being developed is on a speculative basis,” Price said. “However, with net absorption easily outpacing construction the market is in no risk of becoming overbuilt in the near future.”
Price noted that Cushman & Wakefield anticipates the market will remain on track through the balance of 2015. “Healthy demand, including strong activity involving 3PLs and E-commerce retailers, should drive up rents in key submarkets through the end of the year,” he noted. “And despite a number of speculative space deliveries on the horizon, this demand will also result in space availabilities continuing to tighten — especially along the New Jersey Turnpike.”
Another report by commercial real estate services firm DTZ, a firm which in May announced its intention to merge with Cushman & Wakefield, said the office market in central New Jersey was going strong.
The report noted tremendous improvements in the New Jersey office market with the highest absorption since the first quarter of 2014 and an increase in asking rents to $26.60 compared to $26.28 the same quarter a year ago.
The state experienced employment gains for the 11th consecutive month with 12,200 new private-sector jobs. The greatest growth in May was in the education/health services, professional/business services and financial services industries.
As the central New Jersey market continues to improve, investors are expected to become more active, and leasing activity should rise accordingly. In the second quarter of 2015, central New Jersey experienced strong leasing activity. Availability declined to 23.7 percent with 241,009 square feet of positive absorption. Asking rents dipped slightly to $24.72 per foot from $24.84 in the first quarter.
“We are seeing a growing confidence in the New Jersey office market,” said Raymond Trevisan, managing principal of DTZ. “As demand for high quality office space continues to grow, asking rents should inch up accordingly. Also, the positive impact of the Grow New Jersey investment program should continue to boost job creation within the state.”