East Rutherford, NJ – Commercial real estate services firm Cushman & Wakefield today reported one of the best years on record – again – for the New Jersey industrial market, while the Garden State office sector has established its best position in 12 years, since prior to the last recession.
During 2019, industrial leasing activity reached one of its highest marks of the decade. Absorption totals, while not quite as large as the previous three years, closed solidly, while both vacancies and asking rents reached new lows and highs, respectively.
“As one of the nation’s gateway industrial markets, New Jersey is being propelled by the strong regional job market, healthy consumer confidence, robust port activity and increasing eCommerce sales,” noted Cushman & Wakefield’s Jason Price, director of Suburban Tri-State Research. “Momentum shows no signs of slowing down, as demand for both major distribution centers and last-mile delivery facilities perseveres in the region.”
- Just over 7.0 million square feet of new industrial leases were inked during the fourth quarter, which pushed the annual total to 26.6 million square feet – the second-largest total of the decade. This included seven transactions greater than 500,000 square feet, led by LG Electronics’ 926,362-square-foot commitment at 50 Veronica Ave. in Franklin Township.
- Annual industrial absorption, totaling 9.8 million square feet, fell just short of the 10.0-million-square-foot mark for the first time since 2013. However, this was not due to a lack of interest or excess space returns to the marketplace, but instead to the lack of quality, existing space options available in many parts of the Garden State.
- Overall industrial vacancy once again hit a record low to end 2019 at 2.8%, down 40 basis points from year-end 2018. On the submarket level, seven of the eight primary New Jersey Turnpike markets now boast sub-3.0% warehouse vacancy rates. At Exit 7A/8, there are zero vacancies, while the rate at Exit 8A is just 0.2%.
- Asking rental rates also reached uncharted territory during 2019. For warehouse space, the average direct rental rate ended the year at $8.90 per square foot – a rise of 27.1% over the last three years. The Meadowlands submarket remained the priciest in the state at $11.18 per square foot, while the Port Region’s average hit double digits for the first time on record at $10.16 per square foot.
Within this context, 6.6 million square feet of new warehouse product came online during 2019, 76.3% of which was pre-leased. Another 10.0 million square feet of industrial development is underway, much of which will be completed in 2020, marking a new century-high mark.
“eCommerce and logistics companies continue to drive the bulk of big-box activity and the appetite for last-mile and local distribution centers persists along the New Jersey Turnpike’s infill markets,” Price said. “With Class A options limited, pre-leasing in 2020 is likely to remain at historic levels.”
The New Jersey office market has shed millions of square feet of vacant square footage over the last five years as outdated product has been redeveloped. This has been a key contributor to the region’s stabilization. Fundamental improvements continued during the fourth quarter, as absorption remained positive, vacancy ticked lower and the overall average asking rental rate climbed to a new high.
Fourth quarter office leasing surpassed 2.0 million square feet, bringing the annual total to 8.3 million square feet – the most in three years and a 6.6% increase over 2018. Seven submarkets saw more than 120,000 square feet in fourth quarter leasing activity, fueled by mid-sized and large transactions. Four new leases exceeding 100,000 square feet were transacted, led by Summit Medical Group’s 270,000-square-foot campus sale/leaseback in Berkeley Heights.
“Healthy tenant demand has spurred our market’s steady improvement,” said Andrew Judd, Cushman & Wakefield’s New Jersey market leader. “Corporations continue to opt for Class A product that offers the best quality of life for their employees. Many of the fourth quarter’s largest leases occurred within well-amenitized, renovated and/or newly constructed properties.”
Submarkets such as Newark, Parsippany and the I-78 Corridor experienced strong office occupancy gains during the final three months of 2019, reflecting this flight-to-quality trending in a tight and competitive labor market. Class A net absorption accounted for 69.3% of the 1.3 million-square-foot annual total.
The New Jersey office vacancy rate ended 2019 at a 12-year low of 17.0%. A handful of submarkets experienced notable vacancy declines during the year: Morristown saw a 460-basis-point drop to 15.2%, while Bergen County’s rate fell 200 basis points to a historical low of 14.0%.
At the same time, the overall average asking rental rate rose to a historic high of $30.01 per square foot, a 1.9% year-over-year increase. This can be attributed to a trend of pricier Class A office space coming online within the Hudson Waterfront and landlords reacting to robust market conditions in submarkets such as Woodbridge/Edison and Newark. Class A asking rents rose to $34.39 per square foot, a 2.1% year-over-year improvement.
“The New Jersey office market performed well throughout 2019 despite some crosswinds, such as the Grow NJ incentive program expiring,” Judd said. “With the future of state incentives still unknown, we could see a temporary lull in velocity. However, with the healthy national and local economies as the backdrop, we ultimately expect vacancy rates to remain stable while asking rents for lifestyle-centric Class A suburban office tick up further in the coming months.”
About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries. In 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.