MARKET HIGHLIGHT, OCTOBER 2008

NEW JERSEY MARKET HIGHLIGHTS

Industrial Market

As the national economy struggles along, and the prices of energy and commodities continue to soar as the value of stocks and homes slide further, a hard truth has emerged — New Jersey’s industrial real estate sector no longer operates in a vacuum. 

Competition from surrounding states is fiercer than ever, as more and more companies elect to exit New Jersey and move to seemingly greener pastures in states such as Pennsylvania, New York and Maryland. These companies include heavyweights BMW, Cooper Tire, Amazon, Porsche, Tree of Life, and Trader Joe’s, just to name a few.

In addition, as supply chain issues start to move to the front burner at many companies, there has also been a growing change in the decision-making process within many organizations regarding distribution/warehouse locations. Instead of having the real estate and logistics departments make these types of decisions, CFOs at many companies are now considered the primary decision makers in these instances, due to the myriad of algorithms and calculations that are now required in location analysis and decisions.

So, where do these recent trends leave the industrial sector in New Jersey?

Statewide availability rates are currently at 8.1 percent, which is 1.4 percent higher than this time last year. Of the major submarkets, those south of Port Newark are faring the worst, including Exit 8A, which is at 12.5 percent, Carteret/Avenel, which is at 10.6 percent, and Trenton/295, which is at 19.2 percent.  Submarkets from Port Newark and north are faring slightly better, with the Meadowlands at 8.0 percent availability and Hudson Waterfront at 6.1 percent. 

Additionally, as vacancy rates statewide continue to rise, it has become more challenging to lease existing industrial spaces, as evidenced by a few large facilities that have remained vacant for quite some time, including: Panattoni’s 1.3 million-square-foot Carteret building; IDI’s 1.3 million-square-foot South Brunswick building, and; Matrix’s 1 million-square-foot Robbinsville building. 

Finally, speculative building in New Jersey also remains a risky business in today’s challenging economic market due to a variety of factors. For example, development costs have become prohibitive, which has forced developers to maximize what can be built on the site.  In addition, demurrage costs at the port have increased significantly, and buildings without trailer parking are often the first to be ruled out during the site selection process. Finally, tenant requirements are continuing to evolve — almost all tenants are now considering cubic volume, sprinkler density, car parking, labor availability and warehouse flow when looking at a new building.

However, despite the challenges that New Jersey’s industrial sector faces now and in the near future, many opportunities exist for investors and developers to take advantage of in the coming months.

For instance, although vacancy rates have increased in the last quarter, there has been significant downward pressure on pricing, which has helped make New Jersey more competitive with surrounding states. Additionally, there are several large and medium-sized deals in the pipeline, which, if they come to fruition, will result in a huge drop in the vacancy rates, causing the market to quickly head back toward equilibrium. For example, one especially hot market to keep an eye out for is the Turnpike Corridor market, especially those from the Port area on south.

And, while tenant requirements are continuing to change, pushing developers from speculative building to build-to-suit properties, there are a variety of exciting new properties in the area that are taking these new trends into consideration, including: Duke Industrial Center, an 800,000-square-foot industrial warehouse located in Linden, New Jersey, and KTR Capital Partners’ Woodbridge Avenue, a 28-acre warehouse located in Edison, New Jersey.

As is always the case, any kind of change brings its fair share of opportunities. Individuals and companies that possess the ability to see past today’s somewhat gloomy headlines and plan for what’s just ahead in the market will be the industry leaders of tomorrow. 

— William Waxman is senior vice president of brokerage services for CB Richard Ellis in Saddle Brook, New Jersey.

Multifamily Market

New Jersey’s multifamily marketplace, especially on the rental side, is one of the few areas of real estate that has remained viable in the face of current market constraints. For Value Companies, which has always had a strong presence in the multifamily rental marketplace, the softening of the for-sale market has created opportunities for us to move ahead aggressively with our multifamily rental properties. Despite market challenges, multifamily rental communities are still very much in high demand in New Jersey, where real estate and land values are expensive and holding their value in comparison to other parts of the country.

The relative strength of the multifamily rental market is also the result of the type of rental product that seems to be becoming increasingly popular: mixed-use projects that incorporate rental apartments above retail and commercial space, which, for many people, is a desirable way to live, as it provides accessibility to daily conveniences and fosters socialization.

Certainly along the New Jersey Gold Coast there is a tremendous amount of growth in the multifamily marketplace. These locations, such as Jersey City, Hoboken and Edgewater, offer a short commute into New York, and the growth of their multifamily market is supported by the growth of retail and commercial development. As a result, economic growth is finding a balance and becomes more resilient to market constraints through diversity of the type of development. It has also transformed these places into destination cities, where people come not only to live and to work, but also to shop, dine and enjoy the many entertainment and recreational opportunities that are offered.

Off the Gold Coast, especially in and around Bergen County, demand for multifamily development continues to be strong. This area of the state is still commutable to New York, but is significantly more rural, and therefore desirable to young families and empty nesters that are looking for a location that offers both a suburban environment and convenience to city life. Value has and continues to build luxury multifamily rental communities in Bergen County with great results, including, 140 Mayhill and Ten Sampson in Saddle Brook, which consistently enjoys near 100 percent occupancy.

The future of New Jersey’s multifamily marketplace, which can be said for many other types of development in the state, can be found along the state’s public transportation routes. New Jersey has taken a strong position toward supporting development that enhances the state’s transportation infrastructure, in an effort to limit vehicular traffic and sprawl development. As urban centers and downtown locations undertake multifamily development with positive results, suburban areas along train lines and bus routes have and will continue to parallel this type of development.

— Jonathan Moore is vice president of development for Value Companies in Clifton, New Jersey.

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