14B — May 25 - June 7, 2012 — Industrial / Distribution Centers — Mid Atlantic Real Estate Journal www.marejournal.com I NDUSTRIAL R EAL E STATE & D ISTRIBUTION C ENTERS
The market will continue to see strong activity and positive momentum CBRE NJ 1Q 2012 Industrial Market View
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Q 2012 Industrial Market- View New Jersey’s indus- trial real estate market thrived in 2011, and if the first quarter of 2012 is at all indica- tive of the rest of year to come, the market will continue to see strong activity and positive mo- mentum. The increased level of activ- ity seen over the past year has continued into the first quarter of 2012. New leasing velocity rose above six million s/f for the third time in the past five quarters. Prior to 1Q 2011, this volume of activity was not seen since 1Q 2007. Sales activity was also strong, driven by both investor and user demand. While investors remain very active in New Jersey, ac- counting for 17 purchases during 1Q 2012 alone, user purchases were up 66.9% from 1Q 2010 and up 183.1% from 1Q 2011. The New Jersey industrial market is still witnessing an elevated willingness from users to com- mit to new space; however, there are questions surrounding the market’s ability to sustain this heightened level of activity. With availability dropping by only five basis points to 10.4% during 1Q 2012, the industrial real estate market in New Jersey may be facing another hurdle. Market indicators remain posi- tive, but the story on the street is one of cautious optimism. Much of the recent increased activity has been the result of a flight to quality effect brought on by the recession. The central por- tion of New Jersey has become a haven for tenants looking to not only strike aggressive lease
deals but also upgrade their facilities at the same time. As a result, large blocks of quality available space are disappearing at an increasing rate, especially in Central New Jersey. Further measuring this effect, Central New Jersey’s absorption, which amounted to 1.83 million s/f in the first quarter, continues to outperform that of Northern New Jersey, which saw negative absorption of 1.08 million s/f Increased tenant demand in the market has resulted in stabilized asking lease rates. 1Q 2012 was the first quarter since 2Q 2008 where the State’s asking lease rate did not de- cline. While landlords seem overly anxious to set asking rates higher, tenant sentiment is marked by a reluctance to yield to any increases. Renewal activity tapered off in 2011, but higher asking rates set by land- lords have the potential to force tenants back into a stay-in-place position. New Jersey’s overall industrial real estate market, having now seen six consecutive quarters of positive performance, demon- strates improving fundamentals. After one of the longest economic downturns in history, owners are anxious to increase lease rates; however, the recession appears to have shifted tenant focus from location-centric to cost- conscious. If landlords are too quick to set higher asking rents, tenant demand could be halted or even, in certain submarkets, driven out of the State. Employment Economics The national jobless rate con- tinued to trend downward. Now
at 8.2%, national unemployment has improved by 0.3 percent- age point since December 2011. New Jersey unemployment also continued to improve, although at a much slower pace. At 9.0%, the State’s unemployment rate is down only 0.1 percentage point from December and only 0.3 percentage point from this time last year. As the US economy is expected to modestly grow, the jobless rate will follow suit and continue to improve at a steady pace. *NJ DLWD & US BLS, March 2012 Average Asking Lease Rates At the end of 1Q 2012, the average asking lease rate for industrial property in New Jer- sey remained unchanged from that of 4Q 2011. This is the first quarter since 2Q 2008 that the State’s asking lease rate did not drop. Flight to quality is still prevalent in New Jersey’s industrial market. Tenants are entertaining more affordable space options that would have previously been deemed too logis- tically inconvenient to consider. Central New Jersey is certainly reaping the benefits of this trend. While landlords are anxious to realize rent growth, tenants are not yet willing to yield to higher rates. Average Asking Sale Rates New Jersey’s average asking sale rate increased for the third consecutive quarter and now stands at $64.29 psf Northern New Jersey’s asking rate is $73.84 psf and Central New Jersey’s rate is $54.76 psf Both investors and occupiers were very active in 1Q 2012; how-
ever investors were once again responsible for the majority of industrial purchases as New Jersey continues to attract newly raised capital. Net Absorption New Jersey’s industrial mar- ket netted a positive 757,639 s/f of absorption during 1Q 2012— the sixth consecutive quarter of positive momentum. Central New Jersey’s absorption of 1.83 million s/f carried the State to positive territory. Leasing in the northern portion of the State, al- though healthy, was not enough to offset the space that hit the market, resulting in 1.08 million s/f of negative absorption. Cen- tral New Jersey, with its newer inventory, is proving to be much more resilient post-recession in being able to accommodate large, modern requirements which have considerable impacts on market performance. Construction Completed During the first quarter, a 150,000 s/f building finished construction for Ritchie & Page Distributing Company in Rob- binsville. Six properties totaling 751,280 s/f still remain under construction with 516,355 s/f be- ing pre-committed. While many developers seem to have taken a hesitant stance with regards to speculative construction over the past several quarters, large user requirements throughout the State are increasingly limited in options, and one can expect to see a pickup in speculative construction activity this year. In fact, speculative construction projects in the pipeline include a 232,000 s/f building in Carteret and a 350,000 s/f building in
Newark, among others. Port of NY and NJ Activity Activity at the New York and New Jersey port terminals con- tinues to increase, which typi- cally prompts growth for the sur- rounding New Jersey industrial real estate market. Year-to-date, loaded container traffic in TEUs is up 5.2% over the same period last year. The Port Authority is continuing to partake in the US port industry’s East Coast “arms race” in order to upgrade port infrastructure in preparation for larger vessels that will begin to pass through the Panama Canal in 2014. As the largest port on the East Coast and the third largest in the US, the Port of New York and New Jersey is a passageway to one of the most important con- sumer markets in the world. *PONYNJ Terminal Operator Data 1Q 2012 Hot Topics • New Leasing velocity rose above six million sq. ft. for the third time in the past five quar- ters • Central New Jersey contin- ues to be more resilient than Northern during recovery, net- ting 1.83 million sq. ft. of positive absorption compared to Northern New Jersey’s 1.08 million sq. ft. of negative absorption during the first quarter • Availability dropped only slightly to 10.4% during 1Q 2012 • Tenants continue to be cost- centric when making real estate decisions • While speculative construc- tion has been minimal, there are several projects in the pipeline. ■
Quick Stats
Top Transactions 1Q 2012
Change from last
Size (Sq. Ft.) Tenant
Address
City
Type
Current
Yr.
Qtr.
1,00 3etco Animal Supplies, Inc.
2 3rospect 3lains Rd
Cranbury
New Lease
Availability
10.4%
10, Lollytogs, Ltd.
301-321 Herrod Blvd
South Brunswick
Renewal
Lease Rates
$5.15
00, Integrated Distribution Services Group 2 Applegate Dr
Robbinsville
New Lease
00,000 Systemax, Inc.
2 Applegate Dr
Robbinsville
New Lease
Net Absorption
0.76 MSF
3,03 Kuehne & Nagel, Inc.
32 Half Acre Rd
Cranbury
Renewal
Sale Prices
$64.29
Vacancy
7.1%
Size (Sq. Ft.) Buyer
Address
City
Type
Construction Completed
1
2, 2 Woodmont 3roperties
111 Cokesbury Rd
Lebanon
Sold to Investor
0 acres Goya Foods, Inc.
County Rd
Jersey City
Sold to User
Note: The arrows are trend indicators over the speciÀed time period and do not represent a positive or negative value. (e.g., absorption could be negative, but still represent a positive trend over a speciÀed period.
33, Blackstone Group, L3
100 Middlesex Center Blvd Jamesburg
Sold to Investor
32,33 Heller Industrial 3arks, Inc.
1 Heller 3ark Ln
Franklin Township
Sold to Investor
300,000 The Haddad Apparel Group, LTD
231 Herrod Blvd
South Brunswick
Sold to User
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