(May 24, 2016) - It wasn't long ago that developers saw a need for big box industrial space in New Jersey and responded in a big way, unleashing a surge of speculative construction that continues today.
Tenants are now responding in their own right by leasing those projects at a prolific rate — and that demand is now outstripping the available supply of warehouse and distribution space.
“Our demand is much, much higher — clearly,” said Noah Balanoff, an industrial broker and first vice president with CBRE Group in New Jersey. “Buildings that are under construction are being gobbled up before they can even be completed.”
It was among several key themes highlighted by CBRE experts last month, as the real estate services firm hosted a market research roundtable at its Saddle Brook office. Armed with a trove of data, brokers detailed an industrial market that is increasingly marked by large deals and the rise of sectors such as e-commerce and consumer goods.
For instance, northern and central New Jersey recorded four new leases greater than 500,000 square feet between the first quarter of 2014 and the end of 2015, Balanoff said. By contrast, five deals of that size took place in just the first quarter of this year.
He also noted that four of those five leases occurred at buildings that were recently completed or under construction at the time of CBRE’s analysis last month. And only three buildings of 500,000 square feet or greater were available through the end of Q1, compared with nine would-be users of that size that were looking for such a space.
“Big box is the theme, essentially, of what we’re seeing the most of now and what we’ve been seeing for the past several months,” Balanoff said, later adding: “These numbers — they’re not supporting what the demand is right now.”
All told, the wave of big box leasing drove leasing volume of 7.91 million square feet in Q1, which CBRE said was the highest total since Q3 2013. The high-profile deals signed during that period include Amazon’s 810,000-square-foot lease at 380 Middlesex Ave. in Carteret and FedEx’s 695,000-square-foot commitment at 25-53 Talmadge Road in Edison.
That demand has fueled the spike in industrial construction in recent years, even before many of the recent deals were inked. Scott Belfer, CBRE senior vice president, said the wave began in 2014, thanks largely to the rapid growth of e-tailing.
“That overall sector really started going forward, getting momentum in 2011,” Belfer said. “Developers were getting approvals in place to put a shovel in the ground, and in 2014, they did.”
He noted that e-commerce accounted for nearly 20 percent of leasing activity in Q1. And among the nine companies looking for more than 500,000 square feet, Belfer said, four of them are e-tailers.
That’s not to mention the demand from the consumer goods sector — users from the likes of food and beverage, manufactured products and lumber — which account for the majority of the remaining requirements of all sizes.
To help meet that demand, developers will have to continue to think creatively.
“It’s going to create new opportunities in markets that typically haven’t had the big-box distribution created there,” Belfer said.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 52,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 370 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
