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8A, 7A submarkets go into overdrive Turnpike widening, lower costs power rebound for a region that 'took it on the chin' in recession

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Matrix has developed about 90 percent of the 7A submarket, which has rebounded solidly from the recession. Here, principal Alec Taylor stands at a project site.
Matrix has developed about 90 percent of the 7A submarket, which has rebounded solidly from the recession. Here, principal Alec Taylor stands at a project site. - ()

After being among the hardest-hit industrial pockets in the state, the Exit 8A and 7A submarkets along the New Jersey Turnpike have rebounded from the recession.

The markets, long known as sources of cheaper warehouse space just outside the prime North Jersey region, were two of the top-performing regions in the state in 2012, according to insiders and experts. And they now show signs of continued momentum, with a growing development pipeline and the rising need for regional distribution space.

When the recession struck, "8A and 7A took it on the chin harder than anyone. It had the largest blocks, and there was very little demand," said David Knee, a Jones Lang LaSalle industrial broker and managing director. "Fast forward — the market's now much tighter, you're seeing rental rates that were at historic lows all of sudden now getting back up to pre-recession levels and you now see the balance of (speculative) development."

The two submarkets — 8A, in the Cranbury area, and 7A, near Robbinsville — added more than 2.8 million square feet to their total occupied space in 2012, according to JLL, in deals driven largely by their ability to meet pent-up demand for large spaces. Those transactions, many of them with e-commerce, retail and third-party logistics users, accounted for 89 percent of the total industrial net absorption in Central Jersey and nearly 60 percent statewide.

While other New Jersey submarkets performed well last year, 8A and 7A emerged with a flurry of large leases, including at least six of more than 400,000 square feet. Topping the list were Petco's 781,000-square-foot lease with Indcor Properties, in Cranbury, and 500,000 square-foot leases by both Li & Fung Limited and Systemax Inc. at Matrix Development Group sites in Robbinsville.

Such deals have made an especially large dent in 7A, which has about 16.4 million square feet of leasable space, according to JLL. The roughly 20-year-old submarket had been plagued by its first wave of speculative construction, which preceded the downturn, but ended 2012 with leasing vacancy at 19.9 percent, down from 31 percent in 2010.

The 8A and 7A submarkets have started the year with more good news, despite a slowdown in the fourth quarter. In April, Matrix is expected to complete a 350,000-square-foot facility for McKesson Corp., the pharmaceutical distributor and health care technology company, at its sprawling Matrix Business Park, in Robbinsville.

The McKesson project is the latest build-to-suit for Matrix, which has developed about 90 percent of the 7A submarket, but Alec Taylor, a principal, said the firm is prepared to build on spec, too. The Cranbury-based developer was all but preparing to build a 1.4 million-square-foot speculative facility in Robbinsville last summer, when brokers for Amazon.com inquired about the site, he said.

"We hadn't anticipated Amazon by name, but we certainly had anticipated the type of building that someone like Amazon would want," Taylor said. "I think anybody who designs big boxes at this point has consideration for the online retailers, who are increasingly a presence in the tenancy market."

Matrix has since sold the property to KTR Capital Partners, a private equity firm that has developed Amazon fulfillment centers across the country. The deal, in December, preceded a high-profile sale announced just last week, in which CenterPoint Properties acquired Barnes & Noble's 1.15 million-square-foot distribution center, in Monroe, for $83 million.

And though space around 7A is now becoming scarce, other developers have shown interest further north. IDI, an Atlanta-based industrial developer, is building a 750,000-square-foot warehouse in South Brunswick on a speculative basis, though Knee said he "believes they have activity on the building."

Meanwhile, JLL analysts have tracked about 25 projects that are planned or being marketed for development around 8A, with projects ranging from 12,100 to 2.6 million square feet. The brokerage also found seven proposed projects around 7A.

With access to east-west corridors like I-195 and direct lines to both New York and Philadelphia, 7A and 8A are vital parts of New Jersey's "supply chain spine," said Anne Strauss-Wieder, a Westfield-based logistics consultant. The submarkets' appeal as a regional hub is evidenced by tenants like Mercedes-Benz of America, which occupies the same Matrix complex as McKesson and Amazon, and uses the site as a "master warehouse" to other distribution centers and dealerships.

Strauss-Wieder also noted that 7A "essentially becomes a bit closer to the New York-New Jersey core" because of the New Jersey Turnpike widening project between exits 6 and 9. The 35-mile project, which will expand the highway to 12 lanes, began in 2009 and is expected to be complete late next year, according to a Turnpike Authority website.

"If you are looking for a distribution center location either as a developer, an investor or occupier, you're going to look for consistent travel times," she said. "And obviously the Turnpike (Authority) addressing an area that we all know as a congestion point really does help — it essentially provides that consistent travel time."

E-mail to: joshb@njbiz.com
On Twitter: @joshburdnj

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