By Matthew Dolly, Transwestern New Jersey Director of Research
While New Jersey has always been a hotspot for the industrial real estate sector due to its unique location, an increasingly limited supply of prime industrial product and vacant land has led to a growing interest in previously untapped submarkets.
As shown in Transwestern’s Second Quarter Industrial Market Report, submarkets east of Interstate 287, particularly those with port access, are currently experiencing an unprecedented amount of development activity.
Furthermore, construction spending on industrial and commercial product is increasing, according to the Census Bureau.
In fact, the commercial sectors are putting up their strongest construction figures since the economic downturn of 2008.
Throughout Northern and Central New Jersey, the overall vacancy rate has improved to a strong 7.5 percent, down from 8.0 percent in the second quarter of 2014. In addition, Q2 was the ninth consecutive quarter in which the region has experienced positive net absorption in New Jersey.
More than 7.3 million square feet of industrial space was absorbed year over year, marking the second-highest 12-month total since the fourth quarter of 2008.
The upcoming redevelopments of prime sites such as the former Congoleum Corporation facility in Hamilton Township and the Tuscan Dairy site in Hillside are expected to further improve the market.
In fact, it wouldn’t be at all surprising if the state-of-the-art distribution center at the Tuscan site had tenants in place even before construction is completed. This ongoing redevelopment activity in the state will continue to bolster overall occupancy rates.
As the market tightens, demand is also growing for outdated buildings that have potential for major upgrades and redevelopments.
For example, the Meadowlands submarket has experienced high levels of absorption; in the past year, more than 2.2 million square feet of industrial inventory has been absorbed in the area.
Central New Jersey has continued to experience high levels of industrial activity, especially in submarkets along the New Jersey Turnpike.
In Carteret, located at Exit 12 of the Turnpike, Amazon has committed to its third major New Jersey industrial facility in the past two years, a 1.1-million-square-foot building formerly occupied by Wakefern.
Amazon’s first New Jersey distribution center created 1,500 jobs when it opened less than a year ago, and the Carteret facility will create hundreds more.
Amazon, along with with Walmart, have required significant upgrades to their new locations, including raising ceiling heights to as high as 40 feet. As more tenants follow the lead of these Fortune 100 companies, these upgradable distribution centers are expected to remain in high demand.
Moving forward, the outlook for the state’s industrial market is optimistic. New Jersey remains an unparalleled location as a prime distribution center, a status is further enhanced as record cargo volume was reported at the port of New York/New Jersey through the first half of 2015, benefitted by shipping shifts from West Coast ports, and that trend that is expected to continue.
With available developable space highly sought-after, and the market moving quickly, competition between interested companies and investors who are eyeing the vacant properties will only continue to accelerate.