High Demand for Warehousing/ Distribution Spaces Will Continue to Power Northern NJ Commercial Real Estate Market in 2017

Feb 1, 2017

By: Scott K. Perkins, SIOR, CCIM Managing Director of Corporate Services at NAI James E. Hanson

This piece was originally featured in the January 27th issue of the Mid Atlantic Real Estate Journal.

There is ever-increasing demand for warehousing/distribution buildings from e-commerce distributors and 3rd party fulfillment operations. As consumer online purchases increase, expectation of delivery windows are decreasing from two-days to same-day shipping, spurring the continued demand for space closer to major population centers.

Northern NJ is one of the densest commercial markets in the country making the search for large pieces of vacant land very difficult. Owners of existing warehouse/distribution space are capitalizing on the substantial increase in demand and critically limited supply with rents per square foot for new, modern facilities in the double digits, for the first time ever.

In addition to current owners, developers and redevelopers have also recognized that warehouse/distribution centers increasingly represent the highest and best use for more and more commercially zoned land in northern New Jersey. Adding to this, we have seen an increase in the pace of the demolition of functionally-obsolete industrial properties to allow for the construction of new, modern warehouses able to accommodate the needs of the ports and e-commerce companies. We are also seeing the demolition of outdated suburban office properties to make way for warehousing/distribution oriented buildings.

Also impacting the movement of goods in the area is the project to raise the Bayonne Bridge. It looks to change the way the Port of New York and New Jersey handles incoming containers from ships. At its current height of 151 feet, the Bayonne Bridge only allows Panamax ships carrying about 5,000 TEUs (Twenty foot equivalent or one container) of cargo to enter Newark Bay to dock at the Port of Newark-Elizabeth. Slated for completion in 2017, the project, which will raise the Bayonne Bridge to 215 feet, will enable larger New-Panamax ships, with capacities of about 14,000 TEUs dock at Port Newark-Elizabeth

The mere fact that larger ships can dock at the port will not necessarily effect demand for goods in the area. However, it will change the way the containers move off port property; it will have to be done quicker and more efficiently. With consumer demand creating a change in how goods are delivered, the supply chain in which these goods flows must also change. The knock-on effect for warehouse buildings in the northern New Jersey commercial real estate market will be the need to accept these containers at expanded hours. This may create issues at a municipal level regarding truck traffic at off-hours and they may also have to adjust when they operate. There are a myriad of issues that need to be addressed in order of the real estate world to keep up with the relatively new era of e-commerce and move in to the future.

Operations around the Port of Newark-Elizabeth will continue to be active leading up to and well after the completion of raising the Bayonne Bridge.  E-commerce distributors will continue to search out modern warehouses near New York City and northern New Jersey, resulting in continued large scale development and redevelopment of warehouse/distribution centers well into 2017 and beyond. As available industrial space dries up around the ports to due high demand and low supply, secondary industrial markets will benefit such as those along the Route 287 and 78 corridors.

At NAI James E. Hanson, we have seen e-commerce and warehouse/distribution related tenants in the northern New Jersey market looking to consolidate businesses into one larger facility versus several smaller buildings in multiple locations. Many landlords we work with are at or near full occupancy for their holdings and are consistently finding that they can secure premium prices for square-footage in modern buildings versus single digit rents for unimproved, older buildings.