Jason Price, Tri-State Suburbs Research Director, Cushman & Wakefield
The New Jersey industrial market shows no signs of slowing down at mid-year 2019, as large deals continue to propel demand, while the Garden State’s office market remains on an upward trend, driven by tenants’ flight to amenity-rich, high-quality office space, reports Cushman & Wakefield. The East Rutherford-based commercial real estate services firm today released its second quarter research findings.
Industrial sees record-low vacancy
Robust industrial demand coupled with record-low vacancy (3.3%) and historically high asking rents ($9.27 per square foot) were recorded during the second quarter.
“New Jersey industrial conditions remain among the strongest in the nation,” said Cushman & Wakefield’s Andrew Judd, New Jersey market leader. “Growth in online sales and the need for next-day and same-day delivery persists for retailers. This was a major driver in year-to-date leasing activity reaching its highest total in three years.”
Cushman & Wakefield tracked more than 15.1 million square feet in new industrial transactions during the first six months of 2019, a 27.9% year-over-year increase. Eight leases greater than 300,000 square feet bolstered volume. This big-box activity was once again fueled by eCommerce, retail and logistics companies. The largest new deals of the second quarter included a confidential tenant taking 593,720 square feet at 117 Interstate Boulevard in South Brunswick, Performance Team leasing the newly built, 444,940-square-foot 3 Brick Yard Road in Cranbury, and CEVA Logistics committing to 338,954 square feet at 152 Route 206 in Hillsborough.
This activity and deliveries of some build-to-suit warehouses (included facilities for Arizona Iced Tea, H&M, and De’Longhi) helped push vacancy down to 3.3% – well below the national average. Positive absorption continued in the marketplace as well, with 3.2 million square feet of second-quarter net occupancy gains bringing the year-to-date total to 5.6 million square feet.
“Our market is once again on pace to exceed 10.0 million square feet of annual industrial absorption,” Judd noted. “New construction deliveries continue at a modest rate, with 1.8 million square feet completed during the past three months for a year-to-date total of 4.7 million square feet. Of the square footage delivered thus far in 2019, 72.5% was pre-leased, with a handful of other warehouses leased in full a few months after delivery.” An additional 3.6 million square feet of industrial product remains under construction, 46.8% of which has already been committed to by tenants.
“As all indicators for New Jersey industrial remain positive, we expect vacancy for the New Jersey market will remain near historically low levels despite some large speculative deliveries anticipated later this year,” Judd concluded. “Demand will persevere, likely pushing asking rents to new record levels in some submarkets. While land constraints have become more evident in recent years, developers continue to find sites, including redevelopment opportunities and brownfield sites. We expect construction totals to remain solid, albeit not at the historical levels of 2017 and 2018.
Office fundamentals strengthen
In the office sector, overall net absorption finished in the black for the fifth straight quarter, with more than 888,000 square feet of occupancy gains year to date. During the second quarter alone, the market experienced 512,000 square feet of net absorption, all within Class A properties.
“The continuous flight to quality has proved that many owners who invest capital and upgrade their assets will see better results,” said Jason Price, Cushman & Wakefield’s Tri-State Suburbs Research director. “The suburban office market in New Jersey has seen a slow and steady recovery as a whole, which could be somewhat due to millennials beginning to make their moves back to the suburbs as they age and have families.”
The marketplace has yielded vacancy improvements across all classes year over year, with the overall rate falling 130 basis points to 17.1% – its lowest point since 2007. After a strong start to the year, office leasing demand moderated slightly during the second quarter, with just under 1.9 million square feet of new deals signed. However, the 4.1 million-square-foot year-to-date leasing total is the strongest in three years.
“Nearly 60% this activity has occurred within Class A properties,” Price said. “Small and mid-size leases continue to propel demand, with 72.6% of office activity year-to-date involving deals under 50,000 square feet. The most active industries have included life sciences, technology, legal, healthcare and educational services.” Among the highlights, IBM renewed for approximately 131,000 square feet at 194 Wood Avenue South in Iselin, IQVIA subleased 115,500 square feet at 77 Corporate Drive in Bridgewater, and biotech firm GenMab leased 90,000 square feet at 777 Scudders Mill Road in Plainsboro.
As market conditions strengthen, office rents are trending higher. The overall asking rental rate for New Jersey rose to $29.59 per square foot at mid-year. Class A asking rents climbed $0.24 during the second quarter, to $33.84 per square foot. This represents a 1.0% year-over-year increase.
Cushman & Wakefield anticipates office leasing activity should remain healthy, with a pipeline of both large and mid-sized transactions slated to close in the coming months. “Some large vacancies in the second half of the year could cause a brief pause in the occupancy improvements,” Price cautioned. “However, the office market should rebound once again in the short term as touring activity has remained healthy. The future of state incentives will play a key role in the real estate decisions of large corporations looking to expand or relocate here.”