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C&W sees bright future for N.J.'s industrial market, thanks to e-commerce and retail

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Cushman & Wakefield held its midyear overview and outlook event, covering industrial real estate, recently.
Cushman & Wakefield held its midyear overview and outlook event, covering industrial real estate, recently. - ()

E-commerce and last-mile delivery were the themes for the New Jersey industrial real estate market at Cushman & Wakefield’s midyear overview and outlook event this year.

The firm’s vice chairwoman of retail services, Joanne Podell, and vice chairman of industrial, Stan Danzig, said the lines between traditional and e-commerce retailers continue to move as both seek to become active in online sales and brick-and-mortar, respectively.

“Technology is disrupting other sectors as well,” John Santoro, vice chairman and president of the New York tri-state region, said. “A noteworthy change is the way e-commerce is impacting the intersection between retail and the industrial sector, which we’re seeing in the tri-state region, but, of course, we’re seeing that throughout the United States and across the world. For us, the last mile has become first in our minds.”

Cushman & Wakefield reported the second quarter was the 18th consecutive quarter to have posted net occupancy gains of over 3.6 million square feet of positive net absorption, with the Lower 287 submarket seeing 1.5 million square feet of positive net absorption alone.

“The retailers are formulating their supply-chain and e-commerce platform,” Danzig said. “The pure e-commerce players are also looking to the brick-and-mortar platform as well, so there’s a swapping back and forth. It’s no longer about where the sale is made, but it’s getting the product, getting the goods quickly and efficiently to their customers.

“Currently, the direct-to-consumer sales are about $400 billion, which is about 10 percent of the total U.S. retail sales of $4 trillion. And 30 percent of U.S. industrial leasing is attributable to the e-commerce business and with that is the service providers to e-commerce, FedEx, UPS and some of the others.”

Vacancy dropped to 4.5 percent as a result of 5.5 million square feet net absorption year-over-year, and warehouse and distribution vacancy decreased to 4.2 percent, the firm said. The Upper 287 submarket dropped 150 basis points in vacancy, while the Meadowlands dropped by 70 basis points.

“The notable statistic is that, now in 2017, we will be above 50 percent of industrial leasing being related to e-commerce,” Danzig said. “Every building that is in the market that is available today virtually has several e-commerce folks looking at it. This includes all the supporting companies, FedEx and UPS, and other delivery services.

“Northern and central New Jersey is the third-largest industrial market in the country, driven very much by the port. Average rents are exceeding $7 and, with a century-high number by the end of this year, over 10 million square feet of new construction and an annual average net absorption over 11 million square feet.”

Danzig said that, with e-commerce continuing to drive the industrial market, rents are expected to increase as less and less Class A product is available.

“2017 looks like it’s going to be a favorable market,” he said. “More than 50 percent of the new starts are being leased before they’re started or before completion. In the capital markets, the appetite among investors for capital market product remain as active as ever.

“The only thing about New Jersey is that there isn’t enough of the Class A product to satisfy all of that demand, therefore it’s compressing cap rates and driving the investors to be more aggressive. But as one of the Top 3 markets, it’s still high in everyone’s radar screen and bringing more and more investor dollars into New Jersey.”

The Cushman & Wakefield chair said demand for new product and the lack of supply has also shrunk the transaction time for brokers and developers.

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Mario Marroquin

Mario Marroquin

Mario Marroquin covers real estate. A native of El Salvador, Mario is bilingual in English and Spanish. He graduated from Penn State University and worked in Pennsylvania before moving to New Jersey. His email is mariom@njbiz.com.

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