As COVID-19 and the growth of e-commerce continue to impact the industrial logistics market nationally, New Jersey has reached record-low vacancy numbers in the third quarter, according to JLL’s Northeast Industrial Outlook Q3 2021 Report.
Demand for industrial logistics space in the 1.75-billion-square-foot Northeast Industrial Region, which is comprised of New Jersey, New York, Pennsylvania and Delaware, has swelled dramatically with the growth of e-commerce. The market includes both last-mile distribution submarkets and some of the nation’s preeminent regional distribution hubs.
As of the second quarter of 2021, 85.3 million square feet of industrial demand was searching for facilities in the Northeast, a 20.8% rise over the past two years. Class A vacancy in the Northeast Industrial market plummeted to 1.8%, as accelerated demand outpaced the uptick in construction activity, with markets like New Jersey seeing Class A vacancy plummet to 0.2%.
This hyperlow vacancy combined with inflationary pressures has caused outsized rent growth. Notably, northern New Jersey has seen 30% year-over-year rent increases, while New York City has seen a 26.3% increase. Average rent growth in the region reached 22.4% year-over-year, with infill markets experiencing outsized gains. Leasing velocity has soared past pre-pandemic volumes, suggesting that elevated leasing volumes are here to stay. Over 85 million square feet has been leased in the first nine months of the year, 56.3% higher than the four-year trailing average. Incredible leasing fundamentals, combined with low interest rates have driven industrial values to record heights as cap rates have dipped below 3% in some core markets.
The proliferation of online shopping drove 2020 leasing volumes to new heights, as e-commerce companies sought to expand their network in order to meet the surging online shopping prompted by the COVID-19 pandemic.
“2021 has been a year in which an even larger pool of tenants has been executing go-forward strategies to meet the transformation of consumer shopping patterns,” said Rob Kossar, vice chairman with JLL. “As a result, leasing velocity across the region has soared past pre-pandemic volumes and appear poised to continue in this pattern.”