Demand for industrial space in Northern Jersey sunk into unfamiliar territory last year as net absorption, or the change in occupied space, posted the first negative annual tally since 2012. Totaling a negative 355,000 square feet, net absorption for the region was a far cry from nearly 3.2 million square feet of positive net absorption recorded in 2022.

Moderating demand for logistics space came against a backdrop of the most active year on record for project completions. All told, the Northern New Jersey market digested 3.9 million square feet of new space in 2023, primarily in Linden, Somerset and Landing. 

Also weighing on the lackluster demand picture is a mismatch between the type of industrial space occupiers want and the size of new projects developers are building. With tenants recalibrating the amount of warehouse and distribution space required for optimized operations, they are increasingly seeking out smaller facilities. The average size of new industrial leases in 2023 was 18,300 square feet, down 24% from the prior year’s 24,100 square feet.

Meanwhile, market participants have noted that the sweet spot for industrial tenants today is roughly 50,000 to 150,000 square feet. That’s precisely the size cohort that’s seeing a shortage of available space. Moreover, developers in the region are in the process of delivering four projects totaling over 250,000 square feet.

The largest of these will be a 585,000-square-foot facility in Mount Olive at the Matrix Logistics Park. The two-building distribution center sits off I-80 and is expected to be completed this summer.

Of the four biggest developments, three are still without a signed tenant. They will add 1.2 million square feet to Northern New Jersey’s inventory at a time when there is already 5.8 million square feet of available space at industrial properties sized 250,000 square feet and larger.

Although the metropolitan area is entering the home stretch of its pandemic-induced supply binge, macroeconomic and labor challenges are expected to persist in the near term.

The latest forecast models expect net absorption to eke out a gain of 135,000 square feet this year, an assumption that hinges on the economy maintaining cruising altitude in the face of still-elevated interest rates and steady progress on a new labor contract for East Coast dockworkers.

Should either of these variables fall short of expectations, industrial property owners may instead be looking at a second straight year of negative absorption.