New Jersey’s industrial market has experienced one of the best years on record while the state’s office sector has also steadily improved, reaching its best position in 12 years since before the last recession, according to commercial real estate services firm Cushman & Wakefield.
New Jersey industrial
In 2019, industrial activity hit its highest mark of the decade, with absorption ending the year strong while both vacancies and asking rents reached new lows and highs, respectively.
“As one of the nation’s gateway industrial markets, New Jersey is being propelled by the strong regional job market, healthy consumer confidence, robust port activity and increasing eCommerce sales,” Jason Price, director of suburban Tri-State Research, Cushman & Wakefield, said. “Momentum shows no signs of slowing down, as demand for both major distribution centers and last-mile delivery facilities perseveres in the region.”
Narrowing the sector down:
- 7 million square feet of new industrial leases were made in Q4, pushing the annual total to 26.6 million square feet (second largest of the decade).
- There were seven transactions greater than 700,000 square feet in Q4, led by LG Electronics’ 926,362-square-foot commitment in Franklin Township;
- Annual industrial absorption totaled 9.8 million square feet, falling short of 10 million square feet for the first time since 2013;
- Overall industrial vacancy hit a record low ending the year at 2.8%, down 40 basis points from year-end 2018;
- Seven of the eight primary New Jersey Turnpike submarkets have sub-3% warehouse vacancy;
- Warehouse asking rents ended the year at $8.90 per-square-foot, up 27.1% over the last three years;
- The Meadowlands submarket was the most expensive in the state at $11.18 per-square-foot.
In this context, 6.6 million square feet of new warehouse product came online last year and 76.3% of it was pre-leased. Another 10 million square feet of industrial development is underway and most of it is expected to be complete by the end of 2020.
“eCommerce and logistics companies continue to drive the bulk of big-box activity and the appetite for last-mile and local distribution centers persists along the New Jersey Turnpike’s infill markets,” Price said. “With Class A options limited, pre-leasing in 2020 is likely to remain at historic levels.”
New Jersey office
The office market, according to C&W, has lost millions of vacant square footage in the last five years as outdated products have been redeveloped. This has contributed to the region’s stabilization. In Q4 2019, improvements continued, as absorption remained positive, vacancy was low and overall asking rents hit a new high.
Fourth quarter office leasing surpassed 2 million square feet, bringing the annual total to 8.3 million square feet, a 6.6% increase from 2018. Seven submarkets experienced more than 120,000 square feet of leasing activity in the quarter, fueled by mid- and large-sized deals. Four leases of more than 100,000 square feet also transacted, led by Summit Medical Group’s 270,000-square-foot sale/leaseback in Berkeley Heights.
“Healthy tenant demand has spurred our market’s steady improvement,” Andrew Judd, New Jersey market leader, Cushman & Wakefield, said. “Corporations continue to opt for Class A product that offers the best quality of life for their employees. Many of the fourth quarter’s largest leases occurred within well-amenitized, renovated and/or newly constructed properties.”
Strong occupancy gains were seen in the last three months of 2019 in the Newark, Parsippany and I-78 Corridor submarkets. Class A net absorption accounted for nearly 70% of the 1.3 million square feet in total.
Office vacancy rates ended the year at a 12-year low of 17%. A number of submarkets experienced vacancy declines over the year, including Morristown’s 460 basis point drop to 15.2% and Bergen County’s 200 basis point drop to 14%.
The overall average asking rent hit a historic high of $30.01 per-square-foot, up 1.9% year-over-year. This can be attributed to more expensive Class A office space available within the Hudson Waterfront and landlords reacting to market conditions in the Woodbridge/Edison and Newark submarkets. Class A asking rents rose to $34.39 per-square-foot, up 2.1% year-over-year.
“The New Jersey office market performed well throughout 2019 despite some crosswinds, such as the Grow NJ incentive program expiring,” Judd said. “With the future of state incentives still unknown, we could see a temporary lull in velocity. However, with the healthy national and local economies as the backdrop, we ultimately expect vacancy rates to remain stable while asking rents for lifestyle-centric Class A suburban office tick up further in the coming months.”