February 26, 2017
KEIKO MORRIS | The Wall Street Journal
The shift to online shopping is reshaping New Jersey’s industrial real-estate markets, fueling higher prices and sparking development away from the usual hot spots along some of the state’s main roadways.
Growing demand from e-commerce and other businesses for storage and distribution space is boosting rents and occupancy rates. This, in turn, is fueling incentives for developers to revive older manufacturing sites and build ground-up projects in places that haven’t seen new construction in a while.
Modern warehouse buildings are rising outside the traditional industrial corridor that runs south from the Meadowlands to towns around Exits 7a and 8a on the New Jersey Turnpike. Developers also are building on Interstate 287 in Piscataway and South Plainfield, and are looking south at locations in Burlington County, N.J., and further west over the state line in Pennsylvania’s Lehigh Valley.
As internet sales increase so has demand for places to store goods near big population centers, as well as space for companies serving the e-commerce supply chain, including those selling shipping products such as tape and boxes, said Mark Shearer, who oversees the New York and New Jersey market for Prologis Inc., one of the world’s largest owners of industrial real estate. “Business is booming,” he said.
New Jersey’s average asking rents for industrial space in the last quarter of 2016 rose to $6.73 a square foot, a 14% increase compared with a year earlier, according to real-estate services firm Transwestern. The state’s industrial vacancy rate was at its lowest since 2000 at 5.5%, and the amount of space under construction reached 11.1 million—its highest level since 2000. About 2 million square feet of space under construction is along the Interstate 287 corridor.
New Jersey has long appealed to industrial-space tenants and landlords, offering locations close to dense, affluent populations, the ports and easily accessible highways. Today, warehouse locations along the turnpike from the Trenton area up to the Meadowlands can reach 30 million people within a 100-mile radius, said Matthew Dolly Transwestern’s New Jersey research director.
Although construction is booming, brokers and developers said that new supply hasn’t outpaced demand for space. Buildings often are leased soon after they begin to rise.
The state’s previous industrial building boom between 2004 and 2007 was fueled by the growth of traditional brick-and-mortar retail, the home-improvement sector and an emerging e-commerce market, brokers said. The recession created a glut, with vacancy rates reaching as high as 11% in central New Jersey in the first quarter of 2010, according to Transwestern.
But by 2013, developers began to feel safe enough to put shovels in the ground, buoyed by deals such as an Amazon.com Inc. lease of a 1 million-square-foot fulfillment center in Robbinsville, Mr. Dolly said.
Last year, e-commerce companies and related businesses fulfilling the last leg of delivery to consumers represented nearly 52% of the more than 6.4 million square feet of leasing activity for spaces of more than half a million square feet, according to JLL, a commercial real-estate services company. These businesses are among those pushing out from the primary corridor.
Last year, Amazon.com announced it was opening a more than 600,000 square-foot fulfillment center in Florence, N.J., further south of the main industrial corridor.
Tenants looking for smaller facilities and distributors to bricks-and-mortar stores also are active.
Adler Development, which this year completed two warehouse buildings off Interstate 287 in Piscataway, anticipates tenants using the facilities for distribution mostly in that region, said Joshua Adler, a principal at Adler. One building offers about 91,500 square feet of space and the other 278,500 square feet. Developer Rockefeller Group is seeing interest in its $200 million multi-building project in Piscataway from local non-ecommerce companies. The project is expected to total 2.2 million square feet.
As rents and competition for dwindling space near port facilities in Newark and Elizabeth continue to rise, tenants are broadening their searches for less expensive and more efficient modern space further south and west. Mindy Lissner, an executive vice president at CBRE Group Inc., said one of her clients located near the ports is facing a rent increase of 35% and is now looking at warehouse space in Piscataway.
The company that owns B&H Photo in Manhattan spent several years looking for warehouse space for its Brooklyn e-commerce operations, starting in New York City and expanding to Rockland County, Long Island and northern New Jersey areas. The company landed further south in Florence, N.J. where they signed a lease for a new 577,000 square-foot facility. “I think five years ago we would definitely have been able to settle on a building that is more north, but because of the market being so hot, it pushed us down a little further south,” said Jacob Mittelman, vice president of operations at B & H.