High prices and a crunch in available space elsewhere in the state have helped to make South Jersey the “it” market for industrial real estate, according to several real estate experts contacted by NJBIZ.
And while the region may be a bit farther away from the New York market, easy access to ports, roads and other transportation — along with plenty of space for large warehouse facilities at significantly lower prices — makes South Jersey an attractive location, they say.
Giant online retailer Amazon’s June announcement of a 1 million-square-foot distribution center in Burlington County — which will employ 600 new employees when it opens in 2019 — illustrates the trend. Newmark Knight Frank represented the seller, Mueller Water Products, in the sale of the land to Matrix Development, which is constructing the building for Amazon.
The growth in e-commerce and brick-and-mortar retailers’ push for more efficient distribution has helped to spur the demand for bigger and better industrial space.
“Demand and growth in the Southern New Jersey market has been trending up for some time, but it’s been very active in the last three to five years,” said NKF Senior Managing Director Kurt Montagano. “An increasing number of companies in New York City and Northern New Jersey are finding a lack of land, so they keep pushing south. First it was to exits 10 and 8 on the New Jersey Turnpike, but now they’re going further into South Jersey for warehouse and distribution space.”
Companies today want higher ceilings — an average clearance of 36 feet, as compared to the traditional 20- to 24-foot norms — wider column spacing and more parking for employees, he added.
“Developers are buying land and getting entitlements and building new warehouses, and in some cases they’re also renovating older ones,” he said.
The increased interest in South Jersey could go on for some time, according to Montagano. “When you’re in Secaucus or Edison, or other areas, there’s just no land left. Also, going further south in the state lets you easily get to centers like Richmond (Va.), Baltimore and other destinations on the I-95 Corridor. We just listed a 1 million-square-foot warehousing space in Burlington Township, and we expect to get a lot of interest from e-commerce and logistics companies.”
Jones Lang LaSalle Managing Director Nate Demetsky also sees South Jersey as a growth market. Last year, JLL helped the photography and video equipment retailer B&H Photo Video find a Florence Township location for its fulfillment-center operations, which had outgrown its previous location at the Brooklyn Navy Yard.
“The booming commercial real estate market has made finding a suitable space virtually impossible,” said JLL Vice Chairman Robert Kossar. “Our search began in New York and continued to Northern New Jersey, then Central New Jersey, before finding a suitable facility in Florence Township.”
Completed and ongoing roadway improvements — including the widening of portions of the New Jersey Turnpike and a direct connection between I-95 and the Pennsylvania Turnpike — helped drive the move to Southern New Jersey, noted Demetsky.
“The talented labor pool from Burlington County into South Jersey, which I generally define as Camden County and points south of that, is also an attraction. Additionally, pro-growth municipalities in Burlington County have embraced PILOT (payment in lieu of taxes) and other incentive programs as large e-commerce and conventional distribution centers are setting up shop.”
Continued growth in the 6-million-person Greater Philadelphia market and some $300 million of upgrades to the Port of Philadelphia are also making the South Jersey region look even better, said John Gartland, a managing director at Cushman & Wakefield’s Industrial Brokerage Group.
“Developers are building more Class A regional, big-box distribution centers to meet the e-commerce demand, and Southern New Jersey is now a $6-per-square-foot market — and likely to rise to $6.25 in the next year — compared to the mid-to-high $4 range as recently as 2015. But companies who were in the Exit 8A market have been accustomed to these kinds of rents.”
As Class A rents rise, they’re pushing up rates across all industrial classes, he added. “But institutional owners, developers and landlords are delivering the new space in a disciplined fashion, in a staggered way so we’re not seeing an oversupply that could put downward pressure on pricing. As a whole, Burlington, Gloucester, and Camden counties have only about a 2.4 percent industrial vacancy rate.”
There are plenty of “high-quality” companies coming in, he noted. Representing the owners, Cushman & Wakefield’s industrial brokerage team recently assisted with an 80,750-square-foot lease for Ryder Logistics at 395 Pedricktown Road in Logan Township, and a 251,044-square-foot renewal for UPS at 200 Birch Creek Road in Swedesboro.
“We’re seeing a ‘who’s who’ list of sophisticated developers and tenants coming into the region,” Gartland added. “That indicates this is the next big market.”
As land prices rise and the number of industrially zoned sites in South Jersey get snapped up, developers have been acquiring infill sites for redevelopment, according to Colliers Senior Managing Director Marc Isdaner.
“An example is the former U.S. Pipe facility in Burlington that was acquired by Matrix Cos., with most of the site scrapped for the new Amazon facility,” he said. “Obviously, Amazon is the major player for regional distribution and last-mile, but others include Jet.com and meal-kit delivery services like Sun Basket.”
The food and beverage sector is also an important demand driver, he noted. “Colliers recently represented Imperial Dade division Imperial Bag & Paper in a 333,548-square-foot lease at a spec building being developed by ProLogis/DCT at Exit 7 in Bordentown.”
The average asking price for industrial rent in Southern New Jersey is $4.53 per square foot, triple net — generally where the lessee pays all real estate taxes, building insurance and maintenance, added Isdaner. “Rents have increased by an average of 11 percent in the last five years. Asking rents for new construction are above $6 per square foot. However, most of the new speculative space has been leased prior to or shortly after completion, so there has not been enough new vacancy to impact the overall average.”
Even as demand for warehouse and distribution space grows, existing facilities in places like Hoboken and Jersey City are drying up as they become “housing meccas” for young professionals, noted Sanford Herrick, founder and managing principal of Case Real Estate Capital LLC.
“Companies are getting space in South Jersey wherever they can,” he said. “They’re looking for new ones, or existing facilities, as long as the ceiling height and access can be modernized. This is a long-term trend.”