Real Estate Journal — 2017 Forecast — January 27 - February 9, 2017 — 13C
www.marejournal.com
M id A tlantic
I ndustrial M arket
By Mindy Lissner, CBRE New Jersey’s industrial market: Will the good times last?
N
ew Jersey’s industrial market has flourished in recent years, with
to catch up with demand. Since 2013, there has been upwards of 8.4 million s/f of leasing activity by e-commerce companies in New Jersey, and rental rates are at an all-time high, reaching double-digit figures in the northern portion of the state. Land prices have also skyrocketed. The con- tinual growth of e-commerce will further drive the indus- trial market in New Jersey as industrial becomes a virtual replacement for traditional retail. Will the good times last? All of these ingredients foreshadow a positive 2017
for the New Jersey industrial market, but that’s not to say that there aren’t risks that industrial – and specifically, e-commerce – face as we look further ahead. On top of the potential of in- creasing interest rates, some are concerned that there could be too much competition with- in this new e-commerce world. In the niche grocery delivery space, for example, there are a number of early-stage com- panies that are direct competi- tors of one another. The same is true for furniture, apparel and almost every other cat- egory of consumer products.
Will this result in a “sur- vival of the fittest” scenario, or will the robust demand in our new e-commerce reality fuel and sustain the growth that we’ve witnessed across New Jersey’s industrial market in recent years? There’s no certain answer at this point in time, but for now, construction activity in the industrial sector will con- tinue to dominate headlines, with the market exhibiting historically high leasing ve- locity and the demand for modern warehouse product remaining strong. Elevated demand – largely driven by
e-commerce users – coupled with limited supply will con- tinue to cause the market to tighten this year. Mindy Lissner, SIOR, is an executive vice presi- dent at CBRE. With over 23 years experience in indus- trial brokerage, she began her career with CBRE in 1991. She specializes in industrial property ac- quisition and disposition services, strategic plan- ning and implementation of network optimization studies, market evaluation and analysis, as well as global portfolio oversight. n
activity lev- els and pric- i ng r ea ch - ing historic highs, as new supply con- tinues to be delivered in an attempt to keep up with
Mindy Lissner
demand. New construction of industrial product within the state has remained controlled and, thus, in many cases, new space is absorbed before it’s delivered to the market. New product that does make it to the open market is leased in under six months, on aver- age. As further evidence of a robust market, New Jersey has recorded approximately 18.1 million s/f of new indus- trial deliveries since 2012, yet there has been approximately 27.5 million s/f of absorption within that same timeframe. With such strong demand over an extended period of time, we need to take a closer look to understand what ex- actly is fueling this demand. Momentum within New Jersey’s industrial sector is known to be an indicator of how the overall economy is performing, and this lat- est boom is no exception. A healthy economy, consistent consumer spending, low in- terest rates and a bullish out- look from industrial investors continue to drive industrial markets in the state. On top of that, the state’s Grow NJ tax incentives program continues to be a powerful attraction for companies considering New Jersey. While these attributes pro- vide a strong underpinning for the New Jersey industrial markets, the most prominent driver has been the aggressive growth in the e-commerce sec- tor. With its direct proximity to New York City’s 12 million consumers, New Jersey has become the market of choice for e-commerce companies and the third-party logistics providers that service them. As e-commerce demand has doubled over each of the past three years, we expect this ex- ponential growth to continue for the next several years, further fueling demand in an already-tight industrial mar- ket. This dynamic will con- tinue to put upward pressure on rents, as supply attempts
MARKETVIEW
MARKETVIEW
Continued economic growth to fuel 2017 industrial demand Pittsburgh Industrial, Q4 2016 Continued economic growth to fuel 2017 industrial demand Pittsburgh Industrial, Q4 2016 792,281 SF
7.63%
562,714 SF
$5.31 PSF
Figure 1: Pittsburgh Economic Growth and Industrial Completions
*Arrows indicate change from previous quarter.
792,281 SF
7.63%
562,714 SF
$5.31 PSF
($,Billions)
(MSF)
Figure 1: Pittsburgh Economic Growth and Industrial Completions
*Arrows indicate change from previous quarter.
145
3.0
Forecast
140
($,Billions)
(MSF)
2.5
145
3.0
135
Forecast
Pittsburgh Real Gross Metro Product (L Scale)
2.0
130
140
2.5
125
1.5
135
Industrial Completions (R Scale)
Pittsburgh Real Gross Metro Product (L Scale)
2.0
120
1.0
130
115
125
1.5
0.5
110
Industrial Completions (R Scale)
120
105
0.0
1.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
115
Source: CBRE Research, Q4 2016.
0.5
110
MUCH-NEEDED NEW SUPPLY DELIVERED IN 2016
• In the face of the recent oil and natural gas industry downturn, forecasted drilling activity for 2017 indicates an uptick in exploration and production activity. • Despite new construction deliveries in 2016, including 937,950 sq. ft. of speculative development, the supply of quality space continues to tighten.
105
0.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: CBRE Research, Q4 2016.
MUCH-NEEDED NEW SUPPLY DEL IVERED IN 2016
• In the face of the recent oil and natural gas industry
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