By Matt Leonelli, Sheldon Gross Realty
As we progress throughout 2022, New Jersey’s industrial real estate market continues to face the supply and demand imbalances that have been endemic since the Covid 19 pandemic began. In many of the state’s submarkets, tenants and prospective purchasers must contend with vacancy rates below 1 percent, unprecedented month-over-month rental rate hikes, and average sale prices far exceeding $200 psf. So while the residential market may be showing signs of cooling, we can expect the industrial market to continue its upward trajectory for the remainder of 2022, and likely beyond.
Pandemic lockdowns certainly provide an easy explanation for why e-commerce sales soared during 2020, but the continuation of this growth through 2021 and now most of 2022 indicates what we’re witnessing is nothing less than a permanent behavioral shift among consumers. With every brick-and-mortar retail location that closes, part of its square footage must be made up for in a “last mile” distribution facility, thus furthering increasing demand for industrial space. Combined with an ongoing trend of companies relocating from New York City to New Jersey, the strength of e-commerce sales is further exacerbating industrial supply issues. And while the construction and delivery of larger distribution facilities continues, little is being done to increase the supply of smaller and mid-sized facilities, for which demand seems nearly insatiable.
As historic price increases and scarcity impact not only existing buildings, but also industrially zoned land, developers and users alike are increasingly turning to unorthodox solutions. These include repurposing underperforming retail and office assets to meet the demands of modern distribution companies. However, such repurposing creates multiple new challenges, including demands to change zoning in locations where local residents staunchly oppose new industrial development.
Given such unprecedented market conditions, now is a fantastic time to own industrial real estate. Sellers and landlords find themselves firmly in the driver’s seat when it comes to negotiations, and they can dictate the terms of most deals. In such a climate, sellers are squarely focused on rigorous screening of potential purchasers, to ensure the selected party has the financial resources and wherewithal to close on the sale. Similarly, the primary focus of most landlords who are choosing a new tenant is ensuring that whoever they select has the capacity to weather future economic storms.
With both demand and appetite for investment stronger than ever, it appears the industrial sector of New Jersey’s commercial real estate market will continue its historic run at least into 2023.
Matt Leonelli is assistant vice president, commercial sales & leasing at Sheldon Gross Realty.
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