Is It Possible That New Construction Can’t Keep Up With Demand?
Since the third quarter of 2014, the northern/central New Jersey industrial market has experienced more than 6.05 million square feet of new development, with 22 new buildings delivered during this timeframe.
We have not seen this level of new construction since 2006. Owners are trying to get properties online quickly to capitalize on the hottest market that we have seen since we started in the business over 40 years ago! And with new buildings rising, so are the rents. New Class A properties in locations near the ports have asking rents in the $7 to $9 range -- and landlords are closing deals at these rates. In fact, there is a shortage of quality class A and B space even with all of the new development currently underway.
It has become more and more difficult to locate available quality space for our clients. Space is coming off the market faster every quarter. And there is virtually nothing for sale. It is not uncommon these days for properties to sell near or over $100 per square foot. A benchmark thought unobtainable just several quarters ago is a reality today.
Since the third quarter of 2014, we have seen sales prices rise from $20-$40 per square foot depending on the location. We are currently marketing most properties for sale in the $70-$100 per square foot range. In many instances, we have several buyers lined up for each deal. As a result, cap rates are being compressed to 6 or 5 percent.
By the end of 2015, we anticipate over 8.8 million square feet of new development will be available for occupancy. We believe the red hot demand of this market will need the majority of it to keep pace with its requirements. If the economy continues its upward trajectory, the New Jersey industrial market will continue to reap the rewards of the influx of business from higher-priced Brooklyn and New York, and our own organic growth in manufacturing and distribution. We see the market getting stronger and are advising clients to lock into leases and sales deals because we only anticipate prices getting higher and availability becoming more scarce.
Steve Bussel, SIOR is president of Bussel Realty Corp.