Warehouse tenants in 2021 paid more for proximity to the largest consumer market in the U.S. than ever before.
Retailers, manufacturers and other industrial renters want so badly to be near New York City that they’re willing to pay 50 percent more for space within a few miles of it than they would have a couple years ago.
Asking rents in northern New Jersey’s industrial market ticked up 23 percent in 2021 to an average rate of $10.85 per square foot — a new high, data from Savills Research show. That figure is even higher for core submarkets like the Meadowlands, just west of the city.
“The reality is, if you want to lease a modern big-box building in the Meadowlands right now — if you can find something — it’s going to cost you more than $20 per square foot,” Mark Russo, Savills’ director of industrial research for North America, told The Real Deal. “That’s where lease rates are going if you’re looking at modern product.”
More than 11.7 million square feet of industrial space is under construction in the market, but new deliveries have been insufficient in quelling demand and have pushed rents so high the market’s longtime mom-and-pop operators are being priced out, Russo said.
Net absorption last year hit 15.8 million square feet, more than double the 2020 figure. Vacancy stood at 2.3% at year-end, down from 3.7% from a year ago.
Most of the new builds are redevelopments and brownfield remediations in infill locations along the I-95 corridor, where clear land is hard to come by. Above all, tenants want modern facilities, Russo said.
The ongoing supply chain crisis has tightened market conditions. Industrial tenants are keeping more product inventory on hand, requiring them to take more space, Savills said in its year-end report.
“Rents will continue to move higher with ultra-low vacancy enduring as new deliveries fail to offset heightened demand,” the firm said.
Four of the five top industrial leases by square footage in northern New Jersey in the fourth quarter were new leases, not renewals, signaling business expansion. The second largest — FreezePak Logistics’ 268,000-square-foot lease at Duke Realty’s 2 Paddock Street in Woodbridge — was a pre-lease for a cold storage facility. Duke Realty broke ground on the project in October.
Cold storage, which is used to facilitate transport of food and other perishable goods, was among the few thriving commercial property types as meal delivery services expanded during the pandemic. Availability of the product in northern New Jersey today is effectively zero, and speculative development is likely to ramp up, Russo said.
Industrial tenants in recent quarters have ventured across the Hudson River into the city, seeking locations closer to consumers to reduce delivery times and save on transport costs. Many of them have sought out new high-tech multi-story facilities. Russo said demand is robust enough to support high rents in both Northern New Jersey and emergent niche industrial markets in the city.
“The sheer size of New York’s consumer market — and the port, which has been experiencing less delays than Southern California — should keep demand strong here long term,” he said.