The New Jersey industrial real estate market is in the midst of a land rush that has developers eyeing every potential parcel or structure for its ability to accommodate new warehousing and goods distribution operations. Real estate experts gave a first-hand account of the trend during a panel discussion at the NJTPA Freight Initiatives Committee meeting on December 13.
William Waxman, Vice Chairman, Cushman & Wakefield, said that a year ago everyone was surprised by the continued strength of the industrial real estate market during the pandemic, much of it driven by the increase in e-commerce. Since then, he said the market has only accelerated, reaching record breaking prices—up to $26 per square foot in the Meadowlands and $40 in New York City.
“I think, OK, how much higher can it go and then the next deal gets made and it continues to increase,” he said. Rents have “doubled or more” since last year in many sub-markets, Waxman said.
Parking for trailers and cars has become a top concern for companies, he noted, with some next-generation warehouses being built with rooftop parking. Also of concern is access to good labor; many companies are seeking to become “employers of choice,” offering cafeterias, gyms and other amenities, he said.
Jesse Harty, New Jersey/New York Market Officer, Prologis, agreed that the market is growing with “unprecedented” user demand. Vacancy rates are at 2 percent or less. He noted that while the area around Exit 8A of the New Jersey Turnpike had been the focus of much warehousing and distribution development in years past, now “Central Jersey is pretty much full.” Companies are now seeking out space to the south and west.
Land rental costs have doubled in many cases, going from $15,000 an acre per month last year to $30,000 now in the Meadowlands, Harty said. Those increases, he said, are “trickling out” to other areas. The costs are helping drive the development of multiple story warehouses with smaller footprints, a number of which have been built recently in Brooklyn and Queens.
In terms of addressing labor shortages, Harty said his company is working with community workforce programs in Newark and elsewhere to help train residents for jobs in transportation, logistics and distribution. At the same time, he said sustainability has become a priority with a growing number of buildings incorporating rooftop solar panels.
David Aschenbrand, Vice President, Cold Storage, Bridge Development, said that even as the nation addresses infrastructure needs, the next logistics bottleneck likely could be cold storage facilities, especially around major metropolitan areas like New York-New Jersey.
Many of these facilities, he said, have up to two-week waits for space, affecting groceries, produce, prepared meals and other items. Because of the “need for speed” to reach consumers, he said, his company focuses on finding increasingly scarce “infill” locations in core, densely populated areas to develop new cold storage facilities. The costs and penalties imposed by the lack of space and new facilities, he said, “will ultimately be paid by the consumer” in the form of higher prices.
Jeff Milanaik, Partner, Northeast Region, Bridge Development, said two months into the pandemic, everyone realized that e-commerce was growing exponentially. “It has been a tidal wave ever since,” he said.
Milanaik said the search for sites to serve the demand led his company and others to redouble efforts to rehabilitate old industrial “legacy” sites, which often require cleanup of heavy contamination, soil stabilization and other measures.
Among the success stories he highlighted were the development of four warehouses on the old Ingersoll Rand site in Phillipsburg in two phases and three warehouses built on the former American Smelting and Refining site in Perth Amboy.
Such sites are often located in depressed communities with high unemployment, Milanaik said. The consistent message from local officials, he said, is “we want jobs” but they are often wary of developers because of past failures at complicated industrial sites. He said in approaching mayors and local officials, “the key is to set the relationships in place, to develop credibility with these communities and to demonstrate that we can deliver and create the jobs.”
Points raised during the question and answer discussion included:
- Developers face significant regulatory hurdles building in New Jersey including fragmented local governments;
- While rooftop solar panels and use of electric vehicles are improving sustainability, these measures require public investment in a reliable electric grid;
- In some areas industrial space rents are outpacing office space rents with the result that a growing number of suburban office buildings that continue to lose tenants due to the pandemic are being converted to distribution facilities, including along the I-287 corridor and in the Meadowlands;
- While the industrial real estate market appears strong, rising inflation represents a threat to consumer spending and the growth of e-commerce underpinning the market growth. A future recession could turn the market around.