Demand for logistics space is fueling rents and slashing availability in the New Jersey industrial real estate market, according to a new report from CBRE.
In its New Jersey Industrial Marketflash for November, the real estate services firm touched on three major points:
- Shrinking availability;
- Rent growth;
- Development pipeline.
In terms of availability, CBRE said the rise of e-commerce and the accompanying demand for rapid home delivery has helped industrial availability shrink from a high of 12 percent in 2010 to a rate of 6.8 percent year-to-date, which would be a post-recession low and mark seven straight years of declines. That mark has, in fact, shrunk to near the pre-recession low, CBRE pointed out.
Rents, meanwhile, are being pushed higher by the mix of strong demand and shrinking availability, breaking through the pre-recession peak in the fourth quarter of 2016 and continuing to rise in 2017. By the third quarter of this year, asking rents are at $6.64 per square foot in the market, capping a five-year climb since they bottomed out in 2011.
The combination of the first two factors has prompted a new wave of development, CBRE said, as 2017’s anticipated completion figures are likely to reach the highest square footage since 2007 — the earliest date in the report — at between 10 million and 12 million square feet. CBRE anticipates another strong year in 2018, projecting about 8 million square feet of completions. Since 2007, only one year has even exceeded 5 million square feet of completions, 2014, pending 2017’s results.
“While several large requirements have been satisfied with recent transactions, demand has tapered off slightly in the near term,” the report concluded. “However, the market looks to remain tight into 2018, with rents expected to stay at or near current levels for legacy product, and continuing to escalate for newer product. The delivery of new space will have little impact on the overall availability rate, which should inspire additional development to proceed into construction in the coming year.”