Will Sales Cool Down in the NJ Industrial Market This Year?
In the last fourth quarters, the Northern/Central New Jersey industrial market has experienced leasing and sales activity unseen since 2008, and some of the strongest market dynamics since I started in the business 40 years ago. But the BIG story is the “for sale” market.
We are experiencing the lowest number of buildings for sale in a generation. Properties are selling 20-30% higher than 2 years ago, depending on the market and the property class. Investor buying frenzy is underway between Edison and Port Newark/Elizabeth. Cap rates for leased properties are as low as 5% in areas close to Port Newark/Elizabeth. Buyers are less fearful of overpaying for properties “betting on” a continued rise in rental rates.
With the pace not subsiding anytime soon, will sale prices continuing rising, or are we at the cusp of a bubble?
If you listen to economists, they are predicting solid economic growth this year of 3% to 4% GDP. However, they expect interest rates to rise. If interest rates rise, we expect it to have a potential dampening effect on sales and pricing as properties become even more expensive. Also, many of these investment purchases are being underwritten at rental rates never seen before. It is questionable whether these rent projections can be sustained over the longer term. All of this we believe, will cause sales prices to moderate or level off and may scare off some potential investors. Nonetheless, cash-flush users with solid business plans and profits will continue to purchase properties as part of their strategy for business growth. Interest rates and rents being of secondary -- if any -- importance to them.
On the leasing side, the Edison/287 and the Port Newark/Elizabeth markets have availability rates around 6% for quality product, with rental rates escalating. Exit 12 and the ports command some of the highest rates. On the flip side, we see weakening in the Exit 8A-7A market. We see spec building causing a potential oversupply. Asking rents for these spec properties are at historical high levels and may not be sustainable.