Why Industrial Demand Is Skyrocketing Along the NJ Turnpike
- Jan 21, 2019
With demand for industrial space along the New Jersey Turnpike Corridor sky-high, asking prices for rent have also increased exponentially. E-commerce operators and logistics companies are looking to be close to population centers in the New York City area. But as land is becoming scarce in the state, developers have come up with solutions—repurposing vacant or outdated properties into industrial space.
According to the latest Colliers International report on the New Jersey Turnpike industrial market, multi-story warehouse development—which is currently more common in the New York City area—could be replicated along the New Jersey Corridor, with Meadowlands and Port as the preferred submarkets for this type of projects.
Executive Managing Director Dennis Waggner and Research Director John Obeid from Colliers International’s New Jersey office analyze N.J.’s industrial market and share their predictions for the year ahead.
What is causing rent increases and driving demand along the New Jersey Turnpike Corridor?
Waggner: New Jersey’s location in the heart of the Northeast Corridor provides companies access to one of the most concentrated and affluent consumer markets in the world. A distribution center located along the Turnpike Corridor can serve more than 22 million consumers, who collectively have nearly $800 billion in disposable income and live within a two-hour drive, and offers businesses the ability to reach 40 percent of the U.S. population within a day’s drive. For that reason, industrial users have been aggressively searching for space along the Turnpike Corridor. But as developable land and quality inventory continues to be scarce, asking rents along the Turnpike Corridor are likely to remain at historic highs.
Which regions near the Turnpike are the most expensive and how have prices evolved during the past years?
Obeid: With a limited amount of availability, the average industrial asking rent has continued to climb in the Meadowlands submarket, which is now asking $9.69 per square foot—a 17.5 percent premium over New Jersey’s overall asking rent. Class A average asking rent in the Meadowlands is the highest, at $13.61 per square foot. With low drayage rates, short travel time to the Port of New York and New Jersey (PONYNJ), Newark Liberty International Airport and access to over 1.6 million people in a 30-minute drive time, the Meadowlands is a well sought-after submarket for occupiers seeking to reach millions of consumers within a day’s drive.
Similar to the Meadowlands, the Port market has the lowest drayage rates, immediate access to the PONYNJ, Newark Liberty International Airport and affluent neighborhoods and is a short drive to New York City. The Port market is by far the largest and one of the most in-demand submarkets along the Turnpike Corridor. As demand continues to outpace supply, developers have been getting creative on bringing new product to the market by redeveloping aging products or rezoning land for industrial usage. The average asking rent is $8.27 per square foot, while Class A is asking $10.33 per square foot.
How much room is there for industrial inventory growth along the NJT?
Obeid: As developable land becomes scarce in the state, developers have become more creative in finding ways to provide quality product. One creative method that developers have been exploring is repurposing vacant and out-of-date office properties. Hartz Mountain Industries recently completed construction of the former Panasonic headquarters in Secaucus by redeveloping it into a 302,727-square-foot industrial warehouse. The project was a build-to-suit for UB Distributors.
Branca Properties started construction this past quarter on their 90,614-square-foot industrial warehouse. The project was originally a 122,500-square-foot office building, which sat vacant for nearly three years and was repurposed to meet increasing demand for Class A industrial space closer to the ports.
In a joint venture, Advance Realty and Greek Development acquired a 350-acre site in Linden, known as Tremley Point. Plans are set to build a 4.1 million-square-foot industrial park, with a connector road between the New Jersey Turnpike and Tremley Point Road. The proposed connector from Exit 12 will intersect with Industrial Highway in Carteret, cross the Rahway River and connect at Tremley Point Road in Linden. The connector would allow trucks to bypass local roads and provide direct access to the Turnpike.
Another possible growth avenue in New Jersey is the possibility of industrial facilities going vertical. This would help to solve some of the land scarcity issues. Several multi-story sites in New York City are being developed and if successful, New Jersey may follow suit. Although the cost of construction would be higher, tenants may be willing to pay the higher rent in favor of the New Jersey location and having a state-of-the-art facility.
How is speculative development performing in the area?
Obeid: Speculative development has been booming. Since 2017, 21.3 million square feet of industrial product has been built, and of that, 14.5 million square feet or 68.2 percent has been built on spec. Prior to completion, 80 percent of these spec buildings have been preleased. Developers and owners have even begun moving into emerging markets for opportunities. Municipalities with large outdated industrial or office buildings have begun benefiting from developer interest. As an example, Piscataway has seen a recent uptick in new construction and redevelopment projects.
What do you anticipate for 2019 along the New Jersey Turnpike?
Obeid: We expect asking rents to continue to rise steadily, as new development is being proposed and constructed. With limited availability and buildings continuing to be preleased prior to construction, this will help drive industrial rents higher. Due to the lack of available industrial space, some tenants have been leasing excess space and subleasing it, often at a profit.
How do you expect New Jersey’s industrial market to evolve in the year ahead compared to other similar industrial markets in the country?
Waggner: In the year ahead, we anticipate New Jersey’s industrial market evolution to continue at its current pace. While the average asking rents are at record highs, they are still discounted compared to those in the New York City boroughs. This, together with continued supply constraints, indicate room for further rental growth. Tenant demand will remain robust, but leasing activity may slow down as supply will likely not be able to keep up with demand. We anticipate seeing more tenants renew in place, as users are finding limited options once they engage the market. Demand will continue to come from e-commerce users and logistics companies.