Along with my colleague, Judy Troiano, and Chuck Lanyard, President of The Goldstein Group, I recently spoke at the 11th Annual Meadowlands Conference hosted by the Northeast New Jersey Chapter of the Appraisal Institute to discuss the challenges and opportunities presented by the current commercial real estate market in Northeast New Jersey, particularly the Meadowlands.
As someone specializing in industrial real estate in the Meadowlands, I am fortunate that this region and market sector provide a wealth of opportunities which are a far cry from the challenges facing the retail and office markets throughout the state. Although small in stature at only 31 square miles, recent macroeconomic changes have transformed the Meadowlands into the second most active industrial market in the country and the most active on the East Coast. Once filled with older, obsolete industrial buildings, this small land area has found a second life commanding record highs in property prices and asking rents as well as an influx in new construction. Much of this rebirth has a simple, one-word explanation – e-commerce.
As e-commerce retailers have shrunk delivery windows from five business days to two business days all the way down to same day delivery, they continue to search for distribution centers closer to major population areas. In the United States, there is no population center that is more lucrative in terms of purchasing power and population than the New York City metro area. The Meadowlands presents a unique opportunity to access this market due to its proximity to Port Newark-Elizabeth, Newark Liberty International Airport and the accessibility to not only New York City, but regionally via the New Jersey Turnpike and other major area highways. The Meadowlands provides the perfect mix of space, accessibility and affordability that e-commerce retailers seek for warehousing and distribution facilities.
The shift to an e-commerce oriented economy, especially in New Jersey, has been powered to a large extent by e-commerce giant, Amazon. Currently Amazon leases over 8 million square feet in New Jersey alone and is continuing to seek space to accommodate its ever-increasing distribution and warehousing needs. With a lease of 616,992 square feet at 698 Route 46 in Teterboro, N.J. and a 75,000-square-foot lease in Moonachie, N.J. leading their Meadowlands portfolio, they will continue to seek out quality Class-A distribution facilities in this region to meet consumer demands.
However, despite the news surrounding Amazon’s almost endless need for warehousing space and their name recognition, they are only leasing 2 percent of all industrial space in New Jersey. While Amazon may make headlines for its strong industrial appetite they aren’t the only ones attracted to the Meadowlands market. Smaller e-commerce distributors, third party logistics companies and meal delivery services have experienced high growth as the purchasing habits of consumers change. People are eschewing the shopping stop at a physical location and instead are heading online to do the bulk of their purchasing. At NAI Hanson, we have seen strong demand for smaller warehousing and distribution buildings that might not fit the needs of Amazon but work perfectly for smaller operations such as these. Property owners and investors should not fear the smaller spaces as they can provide lucrative redevelopment, leasing and sale opportunities not found among the much larger buildings in this market. This trend will continue, which leads to the biggest issue facing the Meadowlands market that will only become more acute as the year progresses.
As mentioned above, the Meadowlands is only 31 square miles and lacks a supply of developable land. Many firms looking to build new projects will need to clear a wide range of environmental and permitting approvals due to restrictions on the remaining vacant land. This will force the continued repositioning of existing industrial assets and the sudden demand for older buildings once deemed undesirable as targets for either demolition or redevelopment.
With the difficulty of meeting demand in the Meadowlands, markets further north, south and west will also see investment increase as investors continue to search for quality brick and mortar particularly buildings above 100,000 square feet ideally suited for e-commerce applications. This doesn’t mean that smaller industrial buildings are not in high demand. Their importance to the marketplace to support companies of various sizes cannot be overstated.
As the restrictive supply of available space is coupled with rapidly increasing demand, the current strength of the market will most likely continue for the foreseeable future. Currently average asking rents for industrial buildings nationally stand at $6.14-sq.-ft. but in the Meadowlands the rate is $8.50 +sq.ft. This is great news for owners and investors, not so much for tenants closely watching their rents rise. As rental rates continue their push upwards, we predict more tenants will search for opportunities to purchase buildings as investments to operate their businesses instead of leasing.
With decades of experience in this market, the brokers at NAI James E. Hanson are highly optimistic about the future of the industrial market and look forward to working with our clients to continue to negotiate the best deals to build on our already strong leasing and sales efforts of 2017.
