The New Jersey industrial market has hit another year of record numbers, according to Cushman & Wakefield‘s most recent fourth quarter 2018 research report.
The commercial real estate services firm said its report revealed vacancy hit a record low and net absorption hit an all-time high by the end of the year.
“The three-year stretch from 2016 to 2018 has been the strongest run for New Jersey industrial market occupancy gains and one of the most robust stretches for leasing in recent history. We also are coming off the best back-to-back years for new construction completions this century,” Andrew Judd, Cushman & Wakefield’s New Jersey market leader, said. “Much of this can be credited to the rise of eCommerce, strong import totals at the port, a healthy economy, and robust retail sales.”
Although there’s not too much space in the industrial market, Cushman & Wakefield said, vacancy did tick lower by 20 basis points to 3.2 percent. And warehouse space, which accounts for about 76 percent of the state’s industrial inventory, ended 2018 at 3.1 percent.
“Central New Jersey warehouse vacancy fell to 2.2 percent, fueled by diminishing Class A and B space from Exit 12 down through Exit 7A,” Judd said. “Northern New Jersey’s rate has declined to 4.2 percent, with the Port and Meadowlands submarkets tightening notably.”
By the end of the year, there was 14.9 million square feet of occupancy gains, Cushman & Wakefield said. For five years in a row, the state has exceeded 10 million square feet in annual absorption for a total of more than 67 million square feet. The fourth quarter of 2018 also marked the 24th consecutive quarter with positive net absorption.
Although leasing activity hit 25.7 million square feet for the year, last three quarters of the year were slow, Cushman & Wakefield said, due to fewer existing space options across the marketplace, especially for big-box retailers.
The fourth quarter had 5.3 million square feet of new activity, with 17 new leases greater than 100,000 square feet and five new leases more than 200,000 square feet. Passaic County led the way in the quarter, with 1.2 million square feet of new deals. This included Gucci’s 418,000-square-foot commitment in Wayne and Corbion’s 391,515-square-foot deal in Totowa.
Asking rents in the industrial space slipped to $8.49 per-square-foot in the quarter. This is the first reversal since early 2017, Cushman & Wakefield said.
“This decline was not due to landlords dropping pricing,” Jason Price, director, Tri-State Suburbs Research, Cushman & Wakefield, said. “It ties to the lease-up of higher-quality warehouse space throughout the market and the fact that many Class A options are listed without asking prices. The trend was similar for warehouse space, which has dipped to $8.16 per-square-foot, though it is important to understand that that sector still finished 2018 4.9 percent higher year over year.”
Cushman & Wakefield said industrial construction completions in the quarter totaled 9.4 million square feet, which is only slightly lower than the 9.8 million-square-foot high in 2017. Of the total built, 87.2 percent was leased during development or immediately once completed. Meanwhile, industrial development hit 6 million square feet with 42.5 percent already leased, mostly concentrated in the Port Region, Upper 287 Corridor and Exit 8A.
“There is still some room left in the expansion cycle, however we expect comparatively moderate improvements in 2019 compared to the last few years,” Price said. “The lack of existing available space options in core submarkets will return leasing to more normalized levels yet continue to push up rental rates. On the construction front, approved land sites will dissipate further, making redevelopment plays more common for developers in primary submarkets.”