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Overcoming challenges in Northern and Central New Jersey’s industrial space market

By Adam Tannenbaum, The Blau & Berg Company

Users of industrial space in Northern and Central New Jersey continue to face tremendous property pressures despite rising vacancy rates and cooling demand.

Warehouse rent growth persisted through the second quarter of 2023 to $14.25 psf, up from $12.17 psf this time last year, according to market research from The Blau & Berg Company. While some tenants in the market have been able to look to older industrial buildings whose owners are offering more concessions like additional months of free rent, the market cooling has not yet manifested in any downward pressure on asking rents or sale price expectations.

Climbing rents and stubborn property values are among many economic and real estate-related challenges that industrial businesses face. These companies have declined to commit to long-term leases as they contend with a volatile interest rate climate and continued supply chain disruptions. Worse yet, fewer industrial facilities are being built, as townships begin placing moratoriums on new warehouse development and city governments stress the need for housing supply and labor concerns as reasons to pivot away from industrial real estate development.

While local authorities across New Jersey once welcomed industrial property development as a harbinger of job growth and tax revenue, the scenic blight, pressure on the power grid, and increased truck traffic have created such a backlash among residents of over eighty townships that the Department of State has issued guidelines to help towns regulate or prohibit new warehouses. In Jersey City, the Council is moving to void a 20-year tax exemption with the landlord of an Amazon-tenanted last-mile delivery station at 79 Thomas McGovern Drive, citing a failure to commit to agreed-upon goals of hiring local and minority workers.

Two years ago, the explosion of e-commerce demand at the height of the pandemic reached critical mass as market mammoths like Amazon and FedEx drove demand for large-scale, state-of-the-art industrial facilities throughout the New Jersey Turnpike corridor. Institutional capital bought these properties at record high prices and low cap rates, making it even more prohibitive for mid-sized local and regional companies to compete for the space that they needed.

The 2023 market landscape has comparatively let air out of the tires, but the sector has not seen sharp declines in demand observed in other areas like office real estate. Industrial outdoor storage properties have experienced greater pricing fluctuations, as the market rents for these parcels even in prime markets like the Port of New Jersey and the Meadowlands have dropped as much as 30% from this time last year.

Many of the same landlords who sought deals with the largest e-commerce and logistics companies on the planet just a couple of years ago are looking more aggressively for more local and regional tenants with countercyclical business cycles to fill spaces that have sat vacant for longer periods of time. While it is unclear if the recent dip in this market is short-term or structural, midsized tenants in the market should make longer-term bids for space lest the decline in inventory push rents back toward their peak.

Adam Tannenbaum is an associate at The Blau & Berg Company.

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