The New Jersey Industrial market has proven to continue its trend of being scorching hot. Leasing velocity at 8A has once again landed big tenants for big blocks of space. The Blau & Berg Company procured 343,485 s/f for UPS for its ecommerce fulfillment, Central Garden & Pet assumed 550,050 s/f and Wayfair leased 1,240,000 s/f. Not to be outdone, Amazon forged ahead to absorb 809,000 s/f at exit 12, which brings their total New Jersey footprint to +/- 7,000,000 s/f.
There is no doubt that e-commerce is leading the surge in absorption, but also in record price per square foot leases. This allowed speculative construction to the tune of nearly 3,000,000 s/f to break ground over the next two years.
With same/next day delivery becoming the norm for these companies, it has become all too important that their warehouses and distribution centers be situated as close as possible to densely populated areas.With the drop in vacancy and increase in demand, the average asking lease rate is back to the highs of 2009 and peak prices have far surpassed those rates. Overall net absorption for the year has surpassed 13,000,000 s/f with no signs of slowing down, thus projecting 2016 to be the best single year on net absorption in modern times. 2,600,000 s/f of new construction deliveries are expected in the fourth quarter of 2016 alone, yet net absorption for the year is still expected to outpace this new construction four to one.
While e-commerce has been the driving force for the better part of this absorption, it is important that we acknowledge logistic companies such as FedEx, Creative Logistics and CDS for taking on over 800,000 s/f in the third quarter of 2016 alone.Retail sales, however, have remained relatively unchanged over the past year. This is mainly due to a shift in the way consumers are now buying their products and goods. Brick and mortar retail stores are losing volume to e-commerce as consumers are finding better pricing and convenience with online shopping. Next and same day delivery is relieving the need for the consumer to go to a brick and mortar store for goods. This has caused a slowdown in retail leasing velocity, especially those geared towards the sale of goods and not services. While simply buying goods such as clothing, electronics and housewares with immediate and free delivery as well as returns can and has shifted away from brick and mortar, services such as hair salons, restaurants and automotive repair simply cannot go. The need for big box retail has therefore dwindled to smaller boutique retail stores. The similarities between warehouses and big box retail stores are so close that one could expect to see some of these big box retail stores convert into warehouses for e-commerce and logistic companies as industrial space continues to dwindle.
The New Jersey industrial market forecast for the foreseeable future is strong due to continued need and lack of inventory on the market. With net absorption continuing to outpace deliveries there is little reason to expect a slowdown or recession in the coming year.
Jason Crimmins, CCIM, SIOR is president of The Blau & Berg Company while Alessandro Conte, CCIM, SIOR is senior executive director.