The News: New Jersey Faces Space Glut

A fourth-quarter surge of activity helped pull off a respectable year for New Jersey’s industrial leasing market, and New York and New Jersey ports will continue to drive steady long-term demand for distribution, manufacturing and high-tech facilities. Still, a spate of new construction in the state’s central region may complicate market conditions that are already giving most owners and developers as many challenges as they can handle.Northern and Central New Jersey tallied 17 million square feet of leases in 2008, according to Cushman & Wakefield Inc. That represents a sizable drop from the 23 million square feet leased the previous year. Nonetheless, vacancy for the regions remains at an aggregate 7.2 percent. In the 374.5 million-square-foot Northern New Jersey market, vacancy stood at 5.9 percent by the end of the year. Central New Jersey’s vacancy is edging up to 8.5 percent among its 773.6 million square foot inventory. Leasing velocity got a late-year boost during the fourth quarter from two of the year’s largest deals: Fortunoff’s deal for 600,000 square feet of distribution space at 201 Middlesex Center Blvd. in the Exit 8A submarket and Howard Berger Co.’s 236,994 square-foot lease at 324 Half Acre Road in Cranbury.Several factors may bump up vacancy this year. Only 249,331 square feet of the almost 1.4 million square feet that is under construction, much of it in central New Jersey, have been leased so far. That leaves owners in search of tenants for about 83 percent of the state’s new industrial space. If last year is any indication, that search may take some time. Only 38 percent of the 4 million square feet of new industrial inventory that came online has been pre-leased, Cushman & Wakefield reported. That will almost certainly lead to a softening of rents in 2009. At year-end, Northern New Jersey distribution space commanded rents of $6.70 per square foot, a slight premium above $5.31 per square foot for similar space in Central New Jersey.For the time being, at least, manufacturing and high-tech demand is helping bolster pricing. Rents for high-tech space edged up $0.13 to $13.70 per square foot. And prices for manufacturing space ended 2008 at $5.65 per square foot, an increase of $0.27 per square foot.