Surging demand for warehouses and other industrial property drove rents to record highs and vacancy rates to record lows in northern and central New Jersey during the second quarter of this year, according to a new survey.
The data from Newmark, a commercial real estate advisory firm, also found some 14 million square feet of industrial space under construction in the latest quarter, up from 8.4 million in the first three months of the year, as developers scramble to meet strong demand from logistics companies, indicating New Jersey’s warehouse boom won’t be ending anytime soon.
Warehousing accounts for about three-quarters of overall available industrial space and is driving the current trend of rising rents and falling vacancy rates as supply struggles to keep up with demand.
For warehouses specifically, the vacancy rate dropped to 3.5% in the second quarter, even lower than the 3.8% for the industrial sector as a whole, and below a 4% rate in the first three months of the year. The average asking rent for warehouses rose to $10.17 per square foot from $9.67 in the first quarter and $9.04 in the last quarter of 2020.
The biggest transaction was by a logistics provider for the fashion industry, which signed a lease for 607,000 square feet of warehouse space in Phillipsburg, where plans for another warehouse on a riverside site have roused community opposition. Another distribution company took space in a newly delivered 480,000-square-foot building at the Linden Logistics Center, where an additional 1.6 million square feet is under construction, Newmark said in the report, published on July 14.
What’s happening in South Jersey
The trend was similar in South Jersey, where rents for warehouse and distribution space rose more than 11% over the past year to $5.86 per square foot. But the vacancy rate for all kinds of industrial property in South Jersey edged up to 4.9% from 4.7% in the first quarter because of an increase in the supply of newly constructed “speculative” property that has not yet found a tenant, according to Newmark, in a separate report on the Greater Philadelphia region.
The data is the latest evidence of surging warehouse construction — some on previously undeveloped sites — that has fueled strong community opposition in some places, amid fears that rural roads and towns will be choked with trucks and the giant buildings will consume scarce open space.report on northern and central New Jersey warned developers that they may encounter local resistance to their projects. “Community opposition to warehouse development is a growing challenge for developers amid a surge in new construction,” it said.
Community concerns have led to lawsuits against municipalities in towns including Phillipsburg, Warren County and Robbinsville, Mercer County and prompted Senate President Stephen Sweeney (D-Gloucester) to sponsor a bill that would give neighboring municipalities a say and require their agreement if they are faced with a warehouse proposal in one of them.
Newmark forecast a slowing rate of new construction over the next year because of a dearth of available land to sustain the current pace. That restriction in supply will also contribute to a further rise in rents over the next 12 months, it predicted.
Growing and growing
“Low vacancy and more tenants demanding space than space being available — supply and demand will continue to push up rents,” said Mark Russo, the company’s associate director for New Jersey Research and National Industrial. He said the 11.4% growth in industrial rents in northern and central Jersey over the past year is likely to be similar over the next 12 months.
A shortage of land will contribute to rising rents for industrial property, particularly warehouses. “Because there’s a dwindling supply of land, I don’t think developers will be able to re-stack that pipeline to the same level in that timeframe,” he said.
Russo said the latest data shows rents and vacancies at their highest and lowest, respectively, since 2000 or earlier.
“When that happens, industry tends to want to produce more supply,” he said.
And continued strong demand is likely to lead to a further increase in rents over the next year, as forecast by Newmark. “You would probably expect rents to continue to go up if they can’t find places to create more supply,” Evans said. “It will just create intensified competition for the supply that we do get.”
Redevelopment in some areas
Despite concerns that new warehouses are eating into dwindling supplies of available land, the data also contains signs that some areas with the highest rate of warehouse construction are also where the land is being redeveloped rather than developed for the first time, Evans said.
He pointed to Newark, where almost 1.3 million square feet of industrial space is currently under construction, and the Meadowlands where about 1.1 million square feet is in the pipeline.
“They are reusing land that something else had already used, and that means they don’t have to build it on farm fields,” he said.
But in a sign of more pressure on land in western New Jersey, more than 600,000 square feet of industrial space is under construction in the “Western I-78 Corridor,” where the vacancy rate is only 3.9%, the report said.
Critics fear that warehouse developers in the largely built-out Lehigh Valley of Pennsylvania are now looking to build in adjacent areas of New Jersey such as Warren and Sussex counties.
“That looks to me as if we’re about to get a wave coming back across the Delaware River into western New Jersey,” Evans said.