Industrial Activity Stagnates In NYC As New Jersey Reaps Benefits Of E-Commerce Boom
Despite a growing demand for warehouse space in the Tri-State region and around the country, New York City’s industrial market was largely stagnant last quarter while it awaits new Class-A buildings to hit the market.
New York City’s leasing activity was flat from the last three months of 2020 to the first three months of 2021, with nearly 870K SF taken by tenants across the five boroughs, according to CBRE research. Year-over-year, leasing activity fell in the city by nearly 70%. Average asking rent fell 1.1% from the last quarter to $22.31 per SF, according to CBRE, a 5.6% decrease year-over-year.
“Demand is growing [in New York City], there is just nowhere for it to go right now,” said Nicole LaRusso, CBRE director of research and analysis for the Tri-State Area.
The industrial market in neighboring New Jersey is seeing no such stagnation, with 8.8M SF leased during the first quarter alone, a 50% uptick from the quarter prior and 34% higher than the five-year average. The state's industrial landlords are consistently breaking rent records.
New York’s quiet quarter was driven by its lack of the type of space tenants want, LaRusso said. E-commerce tenants in the region are looking for Class-A industrial space with high ceilings — a rarity in the city at the moment, she said.
The small, new projects that did come to the market in the city didn’t fit the bill, and they haven't filled up. Of the 175K SF of industrial space that delivered in New York City between January and March, roughly two-thirds was delivered vacant, according to CBRE.
“I think we see transactions happen when there’s a match between supply and what is available at the time,” LaRusso said. “I don’t think this means there is not the demand here, I think whatever they were looking for wasn’t available at the time.”
But this type of space is plentiful across the Hudson River. Distribution facility leases made up the bulk of the largest deal in New Jersey in Q1: UPS signed an 880K SF lease in Bayonne while FedEx signed two big leases — one for 874K SF in Newark and another for 513K SF in East Brunswick.
Jersey asking rents rose nearly 12% year-over-year to $11.58 per SF as availability decreased. The northern New Jersey market broke the $15 per SF average-asking-rent threshold for the first time ever, reaching $15.16, a 4.7% increase from the last quarter of 2020.
“It’s a bigger, more dynamic market because there is more space, there is an advantage,” LaRusso said. ”It’s a really important strategic location, it’s the center of the logistic industry in this region.”
Queens was the most active borough in New York City, with a 26.7% uptick in leasing volume to 360K SF signed in the quarter, according to CBRE. The second-largest industrial lease of the quarter was signed by Maquette Fine Arts Services for 56.2K SF at 4849 35th St. in Long Island City. The Bronx saw an uptick in activity too, by 16.5% for a total of 168K SF.
Staten Island saw a 4.2% decrease in availability last quarter with 65K SF leased across two transactions. Rents in that borough have increased 6.6% since the first quarter of 2020, according to CBRE.
LaRusso expects the city's industrial market to shake out of its lull by next year as the 11 industrial construction projects, 95% of which are Class-A, become available as the market responds to this demand. There is only 7.3M SF of Class-A industrial space currently in the city, which is more than 98% leased.
“We’re going to see a huge increase in the amount of space in the Class-A segment, by the end of 2022,” she said.
