It was a banner year for large warehouse leases in central Jersey. here’s why
Driven by a recovering economy and strong e-commerce sales, 2021 has been a record year for large warehouse rentals in the United States and particularly in central Jersey, according to commercial real estate services and investment firm CBRE.
In the United States last year, companies pledged to lease 57 warehouses of 1 million square feet or more, a 19% increase from 2020, according to CBRE.
And in the Garden State?
Central Jersey ranked ninth in the United States, with five of the 100 largest leases totaling 4.6 million square feet.
“You basically have zero percent vacancy in the state of New Jersey for new construction,” said Tom Monahan, vice president of CBRE, based in the Saddle Brook office. “When I say zero percent vacancy, there isn’t a building, except in northern and central New Jersey, that has leased after completion,” meaning the lease was signed before until the building is completed.
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And even buildings built before the recent boom are rented out.
“We don’t have oversupply in the market, which means existing inventory is being absorbed,” Monahan continued. “We have a very healthy second-generation market, which means second-generation buildings are operating at an unprecedented vacancy rate.”
Monahan said there has been a fundamental shift in two areas in how consumers buy and how companies distribute products.
“It’s really the closure of a big construction boom because the existing inventory, although a very fundamentally sound second-generation market, tenants are demanding it now, there’s a flight to quality. So they’re all looking for newer buildings, better design, more features, higher ceilings, more parking spaces, more dock doors, sprinklers (early removal, quick response), and there’s a desire to have bigger and bigger in all sub-markets.”
And can we say bigger?
“Bigger isn’t just 100,000 square feet in northern New Jersey, bigger is 500,000 square feet in central New Jersey,” he said.
A 500,000 square foot warehouse is about one-third the size of the Pentagon.
And tenants want to move in as soon as they can.
“What’s happening is that tenants are focused on speed of occupancy, getting into a building as quickly as they can, date certainty, and with the lack of inventory, especially the new construction, and a major commodity, it forces those tenants to compromise, and sometimes that compromise comes in the form of location, which means they have to cast a net away,” Monahan explained. “Sometimes it comes in the form of a waistline.”
Monahan declined to say who held the five leases in central Jersey, or where they were located, for confidentiality reasons.
“Because they’re focused on entering a building, with date certainty, we’ve seen tenants bifurcate requirements, take those requirements, split them in half, to hopefully see more inventory “Monahan said. “We’ve seen tenants take up more space than they need, just to satisfy those date certainties, or even take less space than they need, just to meet the demands of the building and of exploitation.”
Monahan said demand is expected to continue into 2022.
“Supply chain models are changing a bit, where retailers, especially in e-com businesses, don’t want to be in the position they were in before or just during the pandemic,” Monahan said. “So we’re seeing just-in-case inventory, more stock inventory in buildings, more product in those buildings, and those inventory levels that they want healthy and operational.”
But it all comes down to the individual consumer.
“I think it’s all driven by consumer demand and it hasn’t let up, at least in the state of New Jersey,” he said.
However, there could be speed bumps.
“The biggest threat, if you were to ask me, ask anyone in real estate graduate school, would be oversupply,” he said. “We certainly don’t have oversupply on the horizon…If there were threats, there could be threats on municipal resistance to industrial uses in certain pockets of the state where some municipalities are having a reaction allergic to industrial uses.”
For example, Branchburg in Somerset County passed a zoning ordinance, currently being challenged in court, that warehouses are no longer permitted in industrial areas.
And former New Jersey Senate Speaker Steve Sweeney, who was defeated for re-election in November, introduced legislation last year that would ‘prevent warehouse sprawl’ by excluding farmland from redevelopment areas. .
“I think some of the threats could be that these properties are trading, at benchmark levels as these buildings are being leased and sold, municipalities are getting very creative in re-evaluating these properties, and taxes are going up significantly,” Monahan said. “It puts a strain on those tenants, but certainly any threat that exists is also an opportunity. And it could also mean an opportunity for someone who is building a building, building a building with a PILOT (payment in lieu) program. taxes) instead, with the certainty of delivery.”
Monahan said another threat was supply chain delays and obtaining building materials.
“The dock gates could be delayed for 52 to 54 weeks. Roofing materials are in significant delay. And that’s a threat, but it’s also an opportunity for the developer that delivers or the developer that has those materials in order, or who has those materials on the site,” Monahan said.
Monahan said there has been a critical shift in tenant-to-consumer response.
“There’s a flight for quality, a flight for bigger, and a very healthy second-gen market. So it’s really forcing developers and occupiers to cast a net over those requirements, just to satisfy those needs.”
Read the full report at https://bit.ly/3r9kkTB.
Brad Wadlow is a writer for MyCentralJersey.com. Email: [email protected]
This article originally appeared on MyCentralJersey.com: Record Year for US Large Warehouse Leases, Central NJ