Cushman & Wakefield Industrial Team Weighs in on the State of the N.J. Market
EAST RUTHERFORD, N.J., March 20, 2014 - Industrial real estate fundamentals in New Jersey, its bordering markets and nationwide have continued to see notable improvement during the past year. In turn, commercial real estate services professionals involved in this active sector are enjoying the return of traction when it comes to making deals.Cushman & Wakefield's Stan Danzig, executive director, and Jules Nissim, senior director, based in East Rutherford, completed more than 3 million square feet in leasing and sales transactions and 700 acres of land sales in 2013, which landed them among the commercial real estate services firm's Top 10 Industrial Producers nationwide. In the following interview, they weigh in on regional conditions.
Please provide an overview of current industrial fundamentals in your home state.
Nissim: The "numbers" show healthy tenant demand, improving occupancy levels and rising rental rates. In 2013, New Jersey tenants leased 21.3 million square feet of industrial space. This number marks a 20.3 percent increase over 2012 and the second highest annual volume in the last six years, and most importantly, this was positive absorption of 8.7 million square feet - the highest in more than 10 years. In turn, the vacancy rate here declined to 8.2 percent, from 9.1 percent at the end of 2012. As demand catches up with supply, rents are beginning to rise. The year-end $5.99 per-square-foot average at year-end 2013 was up 3.6 percent year-over-year and at the highest level since year-end 2009.
Are you seeing a shift from a tenant-market to one that favors landlords?
Danzig: Shorter supply is forcing companies to make decisions as opportunities disappear. Competition is particularly high for top-quality vacancies, which is beginning to create some anxiety for users. This also is driving up rents. We are advising our corporate clients to define their requirements, and be better informed and prepared to commit. While we would not yet classify this as a landlord market, we will say that tenants need to move out of the tire-kicking stage before the best buildings get away from them.
How have the current fundamentals impacted construction levels?
Nissim: Just over 2.0 million square feet of industrial product was delivered to the New Jersey market during 2013. With the exception of one project, all of it was built to suit. Currently 7.8 million square feet of warehouse/distribution buildings are under development, including a significant amount of speculative product. IDI, Prologis, Duke, Hampshire, Morris Companies, Matrix and others have spec projects underway or set to break ground this spring. These companies are long-time New Jersey players. Their confidence in the market speaks volumes.
Investment sales in New Jersey surged last year as well. Why?
Danzig: Industrial investment sales actually hit a record high in 2013, with $1.3 billion in deals closed or under contract at the end of the year. This is up 42 percent from the previous, $922 million record set in 2006, and nearly double the historic average of $623 million. Simply stated, all of the fundamentals that have made New Jersey a top priority for investors are back. That said, the appetite never really left. The volume of sales last year had a lot more to do with a product coming online.
What emerging trends will have the most impact on the regional market in 2014 and beyond?
Danzig: E-fulfillment is changing the industrial landscape here and nationwide. Amazon alone built more than two dozen buildings in 2013. As the push for shorter order cycles and same-day delivery gains steam, everyone is trying to figure out how to compete. Some companies, like FedEx and UPS, have infrastructure in place and are looking at ways to leverage that. Walmart is talking about opening 300 smaller-scale stores that stock their most popular products, with a built-in delivery network of larger stores and distribution centers. Third-party delivery services are popping up to support individual retailers. It will be interesting to watch things begin to gel here in New Jersey, which has the built-in advantages of housing the nation's third-largest port, and providing access to more than 100 million consumers within a 24-hour drive.
Nissim: The widening of the Panama Canal continues to open new doors for East Coast port markets, and the raising of the Bayonne Bridge to accommodate larger ships will benefit New Jersey/New York specifically. Our team arranged a land sale on Staten Island last year that provides a great example. Staten Island Marine Development purchased 676 acres - the largest undeveloped waterfront parcel in New York City - with almost one mile of frontage on the Arthur Kill. This parcel provides a rare chance to create modern, big box distribution space that will support - and benefit from - increased regional port activity. Its development will add real value to the industrial real estate market in Staten Island and the larger New York/New Jersey region.
With 60 years of combined industrial brokerage experience, Danzig and Nissim lead a five-person team focused on leasing and sales, significant land tract transactions and national/global corporate representation. Their experience covers a broad spectrum of activity that includes the acquisition of existing or build-to-suit facilities; disposition of surplus properties; representation of major developers and institutional owners; as well as consulting, management and appraisal assignments on a national and international basis.