16C — July 29 - August 11, 2016 — Brokerage Directory — M id A tlantic

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National retail, online sales bolster e-commerce and logistics sectors Cushman & Wakefield: Robust demand, healthy economy fuel Q2 NJ industrial market

the future hold for these prop- erties, which currently num- ber 50 million square feet? RUDIN: We are in the pro- cess of seeing the demolition of millions of square feet of obsolete inventory. Before the market returns to a balance between supply and demand as much as 20 million square feet of obsolete inventory will need to be removed or repur- posed. Numerous examples exist. One recent example is the 10 Sylvan Way redevelop- ment where the building was stripped to the steel. MORREALE: Discerning companies are looking for quality work space to accom- modate millennials and with so much grey stock, smart developers must seek ways to improve properties with renovations that speak to the younger workers’ expecta- tions. These include making spaces brighter and lighter, designing collaborative envi- ronments, building near tran- sit hubs, or creating mixed-use developments; other stockmay need to come down. These improvements deliver higher quality at a higher price point but also bolster the prop- erty’s value statement. In terms of value that reno- continued from page 5C Macro-economic trends have had a direct and indirect im- pact on the New Jersey in- dustrial sector. Despite some concerns about the global economy in recent months, retail sales in the U.S. were steady during the first quarter of 2016 compared to the previ- AST RUTHERFORD, NJ —E-commerce and a healthy economy helped fuel another strong quarter for the Northern and Central New Jersey industrial market, according to new research from Cushman & Wake- field . Demand for industrial space remained robust during the second quarter of 2016, which helped push the overall vacancy rate to an historical low of 5.0%, as quality space dissipated, especially along the New Jersey Turnpike. As a result, asking rents trended higher once again, reaching their highest level since 2000, with tenants continuing to seek out space in new, state- of-the-art properties. E

vations bring, while there is a now a strong top end for those higher rents, there is still a large pool of price-conscious tenants at the bottom to be aware of. Therefore, develop- ers must find ways to strike a balance and elevate the middle. It’s a question of moderation. Q: An issue that came up at the summit was one of densify- ing work space. Can you speak to that? RUDIN: Corporations are risk averse and are looking to do more with less. They are not taking space for future growth. Rather, they are seeking ways to manage their existing cost structure, and are looking at cost-per-employee; therefore, they are redesigning spaces to accommodate more work- ers within the same square footage. Parking lots are being enhanced to go along with this trend as well as on-site ameni- ties and mechanicals. MORREALE: Tenants are looking at how they can pay less and yes, cost-per-employ- ee is an accurate metric. That said, human resources is the number one driver behind improvements, not real es- tate. Tenants want build outs with better kitchens, fitness centers, those amenities em- ployees are looking for. “As quality industrial space in Northern and Central New Jersey dissipates, demand is anticipated to remain robust through the second half of the year,” said Andrew Judd , Cushman & Wakefield’s New Jersey Market Leader, who also noted that some tenants ous few quarters. E-commerce sales, however, remained on an upward trend, represent- ing 7.8% of all sales during the first quarter, while online sales rose 15.1% since one year ago to $92.8 billion. Meanwhile, New Jersey’s unemployment rate remained below 5.0%. Industries such as trade (which includes the interstate commerce, logistics, shipping sectors), transporta- tion, and utilities and manu- facturing have had job gains over the last year, with 1,300 and 1,100 jobs added, respec- tively over the past month alone. This total economic and retailing output bodes well for the New Jersey industrial market.

Q: Where do you see the future of office development? COHEN: The real estate industry lacks the agility to react quickly to societal changes. However, by provid- ing what tenants want and making the upgrades that suit their needs, developers can lower attrition. Owners must invest back into the property and go to market with a viable product and plan that provides choices for today’s employers and employees. One big way to do that is through mixed use re-devel- opment of aging office parks. By integrating hospitality, entertainment, health care, and retail into suburban office parks, developers provide a richer experience. Live/work/ play for suburban office parks is here for the foreseeable future, as is demand for new technologies. Owners must redevelop their assets to meet these demands in today’s com- mercial market.” It’s also important for own- ers to prepare the ground for what comes next as the current workforce ages and technology evolves. Technol- ogy is now critical when mak- ing deals with tenants, and building owners must invest in infrastructure to compete. n in need of modern warehouse space will opt for new con- struction, as existing options dwindle further. “As a result of declining vacancies, we expect asking rents to ascend even higher. Developers will continue to build new prod- uct in response to the lack of quality space, although land constraints are tight.” “Industrial space, particular- ly warehouse space in North- ern and Central New Jersey, continued to dwindle at a brisk rate during the second quarter, as vacancy fell by 60 basis points (BPS) since the first quarter,” said Jason Price , research director, tri-state suburbs. “The vacancy rate for warehouse space finished the second quarter at a mere 4.6%, 280 BPS lower than one year ago.” Price also noted that most major submarkets either re- mained stable or recorded occupancy gains, led by the Meadowlands and Exit 8A, both of which experienced

strong demand. These two submarkets consequently ac- counted for the majority of absorbed space during the second quarter. Industrial leasing activing in Northern and Central New Jersey produced 11.1 million s/f (msf) of net absorption year- to-date. “This marks the high- est mid-year total of occupancy gains in history, with the mar- ket poised to easily outpace the annual record total for 2015 at 12.5 MSF,” Price said. “Mean- while, big-box, modern ware- house space remains sparse along the turnpike, with only four spaces exceeding 250,000 s/f available with a minimum ceiling height of 28 feet.” As the local industrial mar- ket showed no signs of slowing down, the overall warehouse/ distribution asking rental rate in Northern and Central New Jersey continued to climb to $6.55 per square foot (psf), a 2.0% increase from last quar- ter. The rate has now increased by 26.4% over the last three years. Areas around the Port continue to command the high- est asking rents for warehouse space due to tenants’ desire for close proximity to the port of Elizabeth, coupled with the lack of space available in the area. Meanwhile, further down the turnpike, both the Lower 287 and Exit 8A submarkets have recorded an increase in asking rents, albeit at a more modest pace. Robust demand in New Jer- sey continued as another 7.5 msf of industrial product was leased during the second quar- ter. Large blocks of class A space continued to lease up along the New Jersey Turn- pike corridor submarkets, as e-commerce and logistics ac- tivity propelled leasing totals to a new mid-year high. Nine leases were inked in excess of 200,000 s/f with the majority concentrated in the Exit 8A submarket. Furthermore, the historical levels of demand can be attributed to large deals — those exceeding 400,000 s/f — occurring at a brisk rate. In fact, from 2012 through 2014, there were 14 new com- pleted leases within that size range in New Jersey. Since then, 13 similar deals have closed. Meanwhile, more than 1.7 msf of tenants have com- mitted to buildings which have not yet completed construction. During the second quarter, Exit 8A led the pack in terms of

demand with 2.8 msf of leases, while the Meadowlands re- corded 1.5 msf of transactions, up considerably since the first quarter. The top leasing transactions rounding out 2Q 2016: •Bl ue Apron s i gned a 495,121 s/f lease at 901 West Linden Ave. in the Clark & Cranford submarket. •UPS signed a 343,485 s/f lease at 100 Middlesex Center Blvd. in South Brunswick in the Exit 8A submarket. •NJ Cal Warehouse signed a 324,540 sf lease at 26 Engel- hard Dr. in Monroe Township, in the Exit 8A submarket. •O’Neill Logistics signed a 221,092 s/f lease at 130 Inter- state Blvd. in South Bruns- wick, in the Exit 8A submarket. •Nestle Waters North Amer- ica signed a 218,000 s/f lease at 257 Prospect Plains Rd. in Cranbury, in the Exit 8A submarket. Developers continue to re- spond to the robust demand and lack of available quality product in many parts of the Garden State. Almost 2.0 msf of industrial construction was completed during the first half of 2016, 62.5% ahead of last year’s pace. Meanwhile, another 3.3 msf of industrial facilities broke ground during the second quarter, pushing the construction total to 6.7 msf — 2.4 msf of which is an- ticipated to be delivered before the end of the year. The bulk of the development, as usual, has been concen- trated along the New Jersey Turnpike corridor, with much of the square footage located between Exits 14 and Exit 8A. Six of the buildings under development exceed 400,000 s/f, two of which have already been leased in full to Fedway (539,308 s/f) and Blue Apron (495,121 s/f). The investment sales market also showed solid Q2 activity. Key transactions included: •IO Data acquired the 831,427 s/f 3003 Woodridge Ave. from Prologis in Edison for $97,335,552, or $117 psf. •TIAA pu r c ha s ed t he 219,049 s/f 1 Lladro Dr. in Moonachie from Principal Real Estate Investors for $30,309,000, or $138 psf. • Commerc i a l Rea l ty Group acquired the 452,000-sf 350 Clark Dr. from New Jer- sey Development Group in Mount Olive for $27,125,000, or $60 psf. n

Commercial real estate leaders provide insights into current & future state of the office market. . .

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