The industrial market continues to lead the state’s commercial real estate sector, according to CBRE’s Q3 2017 New Jersey Industrial MarketView Report.
Leasing activity was strong in Q3 2017, highlighted by Wayfair’s 1.3 million-square-foot lease at 1 Brick Yard Road in Cranbury.
Availability rates across the state have continued to compress to pre-recession lows, boosting average asking rates to $6.64 per square foot. It was the 11th consecutive quarter to see an asking rate growth.
But supply could cause restraints in market activity in the coming quarters.
There were 15 projects completed in the third quarter, with 86.8 percent of the 4.11 million square feet was pre-committed.
“With rising leasing velocity, diminishing availability and consecutive quarters of rental rate growth, the industrial sector remains the state’s jewel for both tenants and investors,” said CBRE Executive Vice President Thomas Monahan. “The sizable percentage of occupier pre-commitments to the new product pipeline demonstrates the significant appetite for space and the continued dominance of the industrial sector.”
After lackluster leasing last quarter, the state had a resurgence in the third quarter, with new leases up 37.7 percent quarter-over-quarter.
While it outpaced the five-year quarterly average by 11.1 percent, year-to-date velocity is behind 2016.
New Jersey’s market is driven by midrange transactions of between 100,000 and 250,000 square feet.
Those leases rose from eight in the second quarter to 13 in the last quarter.
“Big-box deals receive national visibility, but the New Jersey market is largely driven by midrange transactions, and the uptick in these deals underscores the sector’s continued growth,” said CBRE Senior Vice President Lou Belfer. “With so much new construction pre-leased to big-box tenants, incoming supply doesn’t alleviate the shortage of midsized alternatives for occupiers seeking space. In many ways, the volume of midrange leases actually represents a better indicator of the health of leasing velocity.”
The historically strong Exit 8A and Route 287/Exit 10 submarkets again drove absorption, pushing it up 56.1 percent over the five-year quarterly average after a negative showing in the second quarter.
As some peak asking rates top $14 per square foot, average asking lease rates in the state have registered consistent growth for the past five years and show no signs of slowing down.
Average asking lease rates are up 7.4 percent. Current inventory under construction totals 7.86 million square feet, including two that broke ground this past quarter.
“The leasing velocity we saw this quarter continues to be a reflection of growing demand and constrained supply,” Belfer said. “With so little availability in established industrial markets, a growing portion of New Jersey has been able to benefit from industrial’s unrelenting growth, and all factors point to these trends continuing for the foreseeable future.”