Just a few years after finding itself with a glut of warehouse and distribution space, New Jersey is ripe for a new wave of industrial construction, real estate experts say — and many developers are trying to capitalize in a big way.
Several big-box projects are under way or are now being delivered in the state, most of them on a speculative basis by builders who see demand swelling in the market. It's just about all they can do to keep up with the needs of retailers, food companies and other users seeking large, new space and access that is unmatched on the East Coast.
“What we have right now is more demand than we have buildings to accommodate the demand that's there,” said Robert Kossar, an executive managing director with Jones Lang LaSalle and head of its New Jersey operations.
A recent report by the brokerage firm found New Jersey was the most “landlord-favorable” big-box market in the U.S., largely because requirements of at least 500,000 square feet outweigh available space. The state notched the highest score in a “big-box velocity index” formulated by JLL to compare supply and demand, eclipsing the so-called Inland Empire in Los Angeles, Northern California and Philadelphia.
JLL has been marketing a new 570,000-square-foot industrial building in Edison, which was just completed by J.G. Petrucci Co. at a time when speculative projects have paid off elsewhere.
In Carteret, Federal Express leased a 232,000-square-foot facility built on spec by the Hampshire Cos. and delivered in the third quarter.
The demand has caused developers to activate sites that they have spent years preparing. Prologis broke ground this spring on a 737,000-square-foot building in the Port Reading section of Woodbridge, one of several speculative projects it has planned here.
Bo Farkas, the company's east region vice president for development, said the decision was spurred by the success of its Pulaski Distribution Center in Jersey City, which the firm was about to start on spec when it found tenants last year. The 878,000-square-foot facility is slated to open by mid-2014, housing Peapod and Imperial Bag & Paper Co.
“At the end of the day, the way we're answering the market is by trying to monetize our land banks that allow us to build these larger-footprint buildings,” Farkas said.
New Jersey's lack of supply is only complicated by a dearth of available land, insiders say, especially around its northern port region. Companies such as Hartz Mountain Industries are responding by modernizing older properties: The firm is raising the roof of a warehouse at Panasonic Corp.'s former North American headquarters in Secaucus from 24 to 32 feet, among other renovations.
It's doing the same for a soon-to-be-vacant building in Jersey City, said Gus Milano, Hartz's managing director.
“If there's an opportunity to improve an asset or construct an asset (in northeastern New Jersey), it's almost a no-lose situation,” he said.
Between the two projects, the Secaucus-based firm expects to deliver more than 1 million square feet of new industrial space by the second quarter of next year.
The state's construction pipeline is much more robust than two or three years ago, said Joe Nitti, an industrial broker for Colliers International. At that time, “the economy just wasn't there,” and the rents needed to support new buildings “were not achievable.”
But the demand for state-of-the-art, Class A buildings from top-tier tenants has changed the equation.
“The rents needed to build these projects are in line with construction costs and starting to creep even higher than what's needed,” said Nitti, an executive managing director in the firm's Parsippany office. “So landlords are scurrying to develop on a speculative basis.”
Colliers is working with several developers with big-box projects in Central Jersey, ranging from 500,000 to more than 2 million square feet. But the demand from end users is so high that John Kainer, a senior managing director with Colliers, said it also has “clients that want brand new buildings, and they're going to build them themselves if they have to.”
Overall, rental rates in New Jersey's industrial market were $5.28 per square foot in the third quarter, according to Jones Lang LaSalle. Kossar said he expects demand to push those rates up — even in markets such as Exit 8A, where rents haven't grown in two decades — as land becomes even scarcer.
“The message is: If you're a tenant, move quickly,” Kossar said.
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