By Jason Price, Director, Tri-State Suburbs Research
Another historic year for the New Jersey industrial market is in the books. 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. The industrial market is also coming off the highest two year total for new construction completions this century, which can mostly be credited to the rise of eCommerce, strong import totals at the port, a healthy economy, and robust retail sales.
Despite the scarcity of space in the New Jersey industrial marketplace, vacancy ticked lower by another 20 basis points to 3.2 percent. Warehouse space – which accounts for almost 76 percent of the state’s industrial inventory – finished the year at 3.1 percent. With 14.9 million square feet of occupancy gains, New Jersey has now exceeded 10 million square feet in annual absorption for five years in a row, for a total of more than 67 million square feet. The fourth quarter of 2018 marked the 24th consecutive quarter yielding positive net absorption.
Though industrial leasing reached 25.7 million square feet in 2018, fewer existing space options across the marketplace, especially for big-box options, slowed new activity somewhat during the last quarter of 2018. The fourth quarter’s 5.3 million square feet of new activity included 17 leases greater than 100,000 square feet, yet only five exceeded 200,000 square feet. Current conditions are fueling interest in the state’s tertiary markets, and the Passaic County submarket led the way during the fourth quarter with 1.2 million square feet of new deals transacted.
The average asking rent for New Jersey industrial space ticked lower for the first time since early 2017, slipping to $8.49 per square foot at year-end. This decline was not due to landlords dropping pricing. 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 the industrial sector still finished 2018 4.9 percent higher year over year.
2018 industrial construction completions totaled 9.4 million square feet, only slightly lower than the century high-mark of 9.8 million square feet in 2017. Of the total built in 2018, 87.2 percent was leased either during development or immediately upon completion. Though there is still some room left in the expansion cycle, the expectation is in 2019, we will see moderate improvements compared to the last few years. 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.
As the Tri-State Suburban Director in Cushman & Wakefield’s U.S. Research Services Group, Jason Price is responsible for the research platform in New Jersey, Long Island, and Westchester/Fairfield Counties. Jason is responsible for overseeing, executing and delivering market research and analytics to clients of Cushman & Wakefield’s Tri-State Suburban Region. He directly oversees the New Jersey platform, one of the largest suburban markets in the country, and is responsible for analyzing and reporting on the market trends affecting over 800 million square feet of office and industrial property. Jason has had special reports published in various periodicals such as Globest.com, the Bergen Record, NJBiz, Bisnow, and Real Estate NJ.