Real Estate Journal — New Jersey — April 10 - 23, 2015 — 3B
www.marejournal.com
M id A tlantic
N ew J ersey
By Andrew Mele, Trammell Crow Company East coast investors covet Lehigh Valley, surrounding Penn markets gain value
A
s we move into the second quarter of 2015, the industrial
ley in Central PA, the sup- ply/demand dynamics also currently favor owners and developers. However, as has happened in previous cycles, Central PA has available land inventory that could al- low supply to quickly outstrip demand, making it a riskier long term environment. Moving forward, decipher- ing the market’s mixed sig- nals will be the primary challenge for industrial de- velopers. The good news is that macro demand driv- ers – GDP and employment growth, ecommerce trends,
present, there are currently no available vacancies over 300,000 s/f in the entire sub- market. While new inventory will be delivered in 2015, the amount under construction and the timetable for deliv- ery suggests that this space should be efficiently absorbed through existing pent up demand. In venture with Clarion Partners, Trammell Crow Company has been a beneficiary to the area, de- livering a 677,088 s/f specu- lative industrial building in August of 2014 to the Lehigh Valley market. By November,
the project was fully leased to Primark, a European cloth- ing retailer. Along with its impressive levels of net ab- sorption, the Valley has also enjoyed rental growth of more than 10%. All of the development and business value coming out of the Lehigh Valley has made it arguably the most coveted submarket for investors on the east coast. As a result, cap rates in the Lehigh Val- ley have compressed and are now on par with some of NJ’s most expensive submarkets. To the west of the Lehigh Val-
and supply chain evolution and manufacturing reshor- ing all point to continued industrial growth in the short to medium term. What sub- markets in which to develop, what product type to deliver and when are crucial ques- tions. The answers to these questions may be as simple as they’ve always been: deliv- er high quality projects that offer true value to tenants at the lowest price possible. Andrew Mele is prin- cipal of Trammell Crow Company’ s Northeast Metro Division. n
development landscape in the North- east United States is as difficult to pred i c t as anytime in recent mem- ory. On the
Andrew Mele
one hand, investor appetite for industrial product of vir- tually every risk profile; most notably core and new devel- opment opportunities, is at or above previous peaks. Yet, despite generally favorable macroeconomic trends and strong performances from most submarkets in New Jersey and Pennsylvania, un- certainty about future tenant demand remains prevalent. Recent activity in New Jersey presents an interest- ing case in point. Last year, Central NJ’s Exit 7A sub- market, long considered a secondary submarket when compared to the renowned Exit 8A submarket and other points north, was one of the region’s top performing submarkets, boasting sev- eral high-profile new devel- opment projects including build-to-suits for Amazon. com and W.W. Grainger. Perhaps not unrelated, land prices at Exit 8A are back to pre-recession levels, if avail- able at all. Typically, strong fundamentals in the Exit 7A and 8A submarkets would bode well for all of Northern Jersey industrial. Yet this has not necessarily been the case. Despite rising land prices at 8A, rental rates in the submarket have not yet risen accordingly. Perhaps even more surprisingly, fur- ther to the north, most of the new speculative inventory developed in the last 12-24 months in the highly-coveted submarkets between Exit 10 and Exit 14 remains vacant. The performance of these new projects over the next 2 to 3 quarters will go a long way in determining future land pricing in Northern New Jersey markets. One northeast submarket standing out is Pennsylva- nia’s Lehigh Valley. With re- cord levels of net absorption in 2014, the Lehigh Valley is in high demand from both users and investors alike. At
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