12B — February 10 - 23, 2017 — Central New Jersey — M id A tlantic
Real Estate Journal
www.marejournal.com
C entral N ew J ersey
By David Zimmel, Zimmel Associates New Jersey’s industrial real estate market in 2017: A look at rents and investments A t Zimmel Associates , we have the good for- tune of being located
For our state’s industrial real estate market, I believe 2017 will be a continuation of the strength and low vacancy of 2016. However, there are changes on the horizon that will bring new opportunities to investors and sellers alike; and marketplace knowledge will be more critical than ever for tenants who want to make smart leasing decisions. Rents will continue to rise over the next few years; de- mand for small to mid-sized units will outpace supply; there will be an increase in off-market sales and upgrad- ing of older industrial build-
ings; big box and e-commerce demands will continue to lead speculative buildings and development of more mid- size buildings will occur on the outskirts of existing hot markets. Below market rents, a lack of buildable land, and pro- longed approval processes for new buildings contributed to a shortage of mid-sized industrial buildings located within reasonable access to Exits 7 to 16 of the New Jer- sey Turnpike. The economy has improved and there is not enough inventory to keep pace with current demand.
warehouse space. A typical flex lease may consist of 5,000 to 25,000 s/f, of which 20 to 50 percent could be office. Current flex space rents are in the $6 psf range for the warehouse space and $12 to $13 for the office space component. That takes you to $7 to $8.50 for your effective (combined) rent psf. 2.) Mid-range buildings , typically consisting of 20,000 to 70,000 s/f, with office com- ponents of 10 to 20 percent. Rents are roughly $6.50 psf. 3.) Big box , typically units of 100,000 s/f or higher, in buildings consisting of 200,000 to 600,000 s/f. Big box indus- trial, depending on location, can be as low as $5.75 psf or as high as $8 or $9 psf, especially for new buildings in Elizabeth or the Meadowlands. To assess where we are to- day, let’s look back ten years. In 2006, when a tenant signed a lease for $5 a s/f for five years, they paid $5 a s/f for five years. Today, tenants pay the agreed upon starting rent in year one, and have two to three percent increases built into every year that follows in the lease. If this formula of incremen- tal increases continues, and I believe it will for the next few years, as it is now well estab- lished as a standard practice, we will see rents that further solidify investment in indus- trial space. This trend of increased rents adds value to the potential sales price for industrial build- ing being leased. We are just now getting to the point where industrial rents justify the sales price for industrial build- ings that go up for sale. Until just a few years ago, when a client’s industrial lease was coming up, they wanted to shop around, be- lieving they would be able to find comparable space for less money. The market today is different. We advise our flex and mid- size building tenants to be aware of market conditions so they are prepared. We get on top of our clients’ industrial leases six to nine months in advance. We let our tenants know they aren’t going to find equal or better space for same amount of rent and that the continued on page 14B Early Renewals Provide Security
Rents Will Continue to Rise Many of the in-place rents in today’s industrial market are still below market even though rents have gone up by 30 percent or so over the past four years. Rents will increase by at least three per- cent per year over the next three years or so, barring any unforeseen event with the economy. In very general terms, the New Jersey industrial real estate brokerage market has three main categories: 1.) Flex space , which typi- cally carries a heavier office space ratio than standard
just off of the New Jersey Tu r n p i k e , where Ex - its 7-16 are pathways to one of the na- tion’s most concentrated and success-
ful markets for industrial properties. We celebrated our 30th year in business in 2016 and have a thorough knowl- edge of our marketplace, both office and industrial. David Zimmel
Beautiful and Convenient Office for Lease
Two Executive Drive Somerset Executive Square Somerset, NJ 08873
Units from 1,250 to 10,000 Sq. Ft.
• Newly Renovated Lobbies and Corridors • Suites Can Be Built to Suit • 24/7 Building Access • Abundant Parking
• 83,500 Sq. Ft. Building in Three-Building Office Park • Located Directly off Exit 10 of I-287. Close to I-78, Rts. 22 and 202/206, NJTPKE, and GSP • Adjacent to Somerset Marriott and Conference Center • Close to Shopping, Banks, Restaurants • Attractive Exterior
• Premier Owner/Manager • Competitive Rental Terms
ZIMMEL ASSOCIATES CORPORATE REAL ESTATE SERVICES 1090 King Georges Post Road, Suite 808, Edison, NJ 08837 (732) 661-9200 • Fax: (732) 661-9617 • www.zimmel.com
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