Forget The Last Mile: New Jersey Is Building Big To Meet Industrial Demand

Distribution centers in Northern and Central New Jersey continue to be snapped up almost as soon as they are made available, no matter the size.

Industrial rents in the region rose slightly from the second to third quarter, continuing to push record highs, according to multiple research reports. Vacancy ticked down slightly, as over 1M SF of new development came online, 78% of it pre-leased, Newmark Knight Frank said in its Q3 report.

Such robust pre-leasing signals continually unmet demand, and developers have responded in a big way: 7.7M SF of warehouse space is now in the pipeline for the region, and nearly half of it is pre-leased, NKF reports. After a quarter that saw the two largest leases in years, 12 of the 17 facilities under construction are bigger than 300 SF, according to Cushman & Wakefield data.

“At the beginning of this year, the New Jersey market only had about 15 existing [warehouse] buildings over 800K SF, and the construction pipeline over the next 36 months including this year will deliver more than that,” CBRE First Vice President Kevin Dudley said.

Dudley will discuss the impressive pipeline and its impact at Bisnow’s New Jersey Industrial & Logistics Summit at Kingsland Meadowlands on Oct. 23.

Two of those facilities were leased to The Home Depot in Q3 in one 1.3M SF deal, the largest lease in the state since 2017. The infill warehouses are owned and being developed by Duke Realty at the Steel Run Logistics Center in Perth Amboy, near the Outerbridge Crossing to Staten Island.

The second-biggest lease in the region since 2017 was also signed this quarter, with Japanese apparel retailer Uniqlo taking 943K SF at Bridge Point 78. Bridge Development Partners is in the process of turning the former manufacturing site in Phillipsburg — so far west that Bridge is marketing it as part of the Lehigh Valley industrial market — into a 4M SF distribution hub.

The 2.2M SF that Bridge expects to complete by the end of this year, including Uniqlo’s warehouse, will be the largest industrial development to deliver in the U.S. this year, CommercialCafé reports.

The rapid rise of interest in the west side of the state, despite its reduced proximity to New York, corresponds with the desperation of retailers like Home Depot and Uniqlo to revamp their supply chains to ship products ever faster.

“In New Jersey as a whole, there are over 15 active requirements for buildings that are over 750K SF to be ready in the next 24 months,” Dudley said. “That’s a record number; we’ve never seen or even heard of anything like that.”

Most developers would prefer to build the largest warehouse that a site could support due to the per-SF discount on construction costs, especially considering that the demand for distribution centers of every size is so strong that there is little rent spread between smaller and larger buildings, Dudley said.

The supply is so far short of demand that a growing number of tenants are taking more warehouse space than they need at the moment and either holding it for future expansion or subleasing the remainder. Storage company Clutter has executed that strategy with some of the 450K SF warehouse it leased in South Brunswick last year from IDI Logistics, Dudley said.

Even as e-commerce strategies evolve, warehouse tenants that already have a foothold in Jersey are unlikely to give it up, and renewals rose markedly in the third quarter, C&W reports. The firm tracked 3.9M SF of lease extensions in the region in Q3. Nearly all demand is focused on new construction or redevelopments.

So far, developers have been finding a way to build to the seemingly inexhaustible demand from industrial occupiers, but it will only get harder to build large facilities. Perhaps that will require some distributors to decentralize operations with several smaller facilities, or perhaps those distributors will cast an even wider net in search of space.

Either way, New Jersey recognizes the need for more developable space, especially in land away from neighbors who would reject industrial uses near their residential or commercial properties. Gov. Phil Murphy signed a new law at the end of August allowing for the privatization of environmental site testing with the hope that it will speed the cleanup and redevelopment of contaminated, former industrial land.

While the new law may accelerate the process of remediation and approval, most of the brownfield sites that could support a large warehouse have already been identified and spoken for, Dudley said. That includes a heavily contaminated site near Exit 12 of the New Jersey Turnpike that Dudley learned this week is now slated for a 1M SF distribution center.

“Of the sites being developed, all of them had some environmental issues that are in the process of being remediated,” Dudley said.