Despite Proximity to Major Seaports, Tenants Are Opting for Newer Stock Elsewhere.
The Northern New Jersey industrial market is finding itself in unfamiliar waters this year as industrial space users are returning more space to market than they are occupying for the first time since 2012.
That was the last time that net absorption, or the difference between occupied and vacated space, was negative over a full year. As of mid-September, 2023, the Northern New Jersey industrial market is on track to post annual net absorption of -2.1 million square feet.
Northern New Jersey's industrial market has been weighed down by lower activity in Newark, the largest industrial node in the Garden State, with an inventory of over 45 million square feet. Despite its reputation as a logistics hub due to its proximity to Newark airport and the port district, the city has seen its availability rate for industrial space jump to 5.2% from just 3.3% a year ago, as tenant move-outs have outpaced move-ins by approximately 1 million square feet.
A partial answer to Newark’s ills may lie in its relative lack of new supply. The city’s inventory has expanded by just 1.5 million square feet over the past decade, or about 4%, which is less than its neighbors, Linden and Elizabeth, which have expanded their industrial space by 21% and 7%, respectively. As a result, those competitive areas have offered prospective occupiers large modern spaces without sacrificing proximity to the ports.
Recent leasing activity helps to illustrate this trend. Overall leasing volume in Newark, which includes both new lease commitments and renewals, totaled 293,000 square feet in the first half of the year, a 47% decline from the comparable period in 2022. While Elizabeth’s industrial leasing was similarly weak, Linden witnessed an explosion in new signings, largely driven by project completions at the Linden Logistics Center. This has helped steer demand a few miles down the turnpike from the aging stock in Newark toward Linden.
Subdued leasing activity portends lackluster future absorption over the next six to nine months. CoStar models forecast that Newark’s occupancy level will continue to decline through year-end, driven mostly by the more residential neighborhoods west of Route 21. Here, industrial vacancies are expected to rise past 7%, compared to an expected increase of just over 2% at the waterfront.
Sep 13, 2023