With the third quarter of the year over, New Jersey’s industrial market has maintained being one of the strongest in the U.S., according to Cushman & Wakefield’s most recent findings.
In the state’s industrial sector, leasing activity reached a new historic high in the third quarter, totaling 8.8 million square feet, despite a low vacancy rate of 3.4 percent, C&W said. Industrial absorption was more than 5.6 million square feet, pushing the year-to-date total to 13.6 million square feet — the highest point on record for 2018. There was also approximately 2.8 million square feet of warehouse product completed.
“With very little existing available space in almost every New Jersey submarket, industrial tenants have become much more decisive in their approach to leasing. Every worthwhile building has multiple prospects. Tenants who recognize this are getting out into the marketplace sooner, and with their budgets approved up front. In turn, deals are reaching the LOI stage much more quickly. Labor — both cost and supply — is also top of mind, especially with so many new, high-population e-commerce facilities. The drive to tap into the region’s most fertile labor markets is resulting in the spread of development to previously untapped markets,” Stan Danzig, vice chairman at C&W, said.
According to the firm, leasing activity in New Jersey’s office sector totaled more than 1.9 million square feet in the third quarter, mostly fueled by the life sciences sector (25 percent). Office absorption was also positive for the second quarter in a row, which marks the first time the market has achieved back-to-back positive quarters in two years. Office vacancy ticked lower to 18.1 percent, its lowest point this entire year.
“New Jersey’s tax incentive programs continue to be essential drivers for the larger lease transactions taking place across the market. Tenants making moves are gravitating largely to Class A properties offering the types of amenity-rich environments that provide competitive advantage when it comes to attracting and retaining talent. Additionally, existing leases are being addressed well in advance of expiration. By working on renewals up to 24 months early, landlords are looking to mitigate the risk of losing their tenants, and tenants are utilizing this time as leverage themselves in the market in order to achieve the best possible deal terms,” Dan Johnsen, managing director, said.
Investments into industrial spaces continued at a record pace, David Bernhaut, executive vice chairman, said.
“(The record pace) is reflective of the current market fundamentals in northern New Jersey. In general, the market is benefiting from record low vacancy rates and double-digit rental rate growth, which has certainly attracted the attention of the investment community. Office sales activity remains robust. Although dominated by private capital, the market participants are seeking everything from value-add, low basis opportunities to core, Class A buildings with durable cash flow as debt financing remains plentiful and attractively priced,” Bernhaut said.
Looking ahead, Andrew Judd, New Jersey market leader, said he thinks there won’t be enough Class A industrial space.
“Moving into the final months of the year, Class A industrial space will remain scarce, despite construction deliveries. While options are limited, tenant demand for modern warehouse space is anticipated to persist, which will help keep developers confident in building on a speculative basis. On the office front, the industries that have typically been at the core of New Jersey commerce will continue to drive the office market. Deals will come in a range of sizes and stem from the life sciences industry (both pharma and biotech), financial services, the TAMI sector and health care,” Judd said.