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OPINION: NJ’s Class A industrial conundrum

2024 brings surge in new construction deliveries

The industrial real estate sector in New Jersey faces a significant challenge. Many new industrial spaces are slated for completion in 2024, just as tenant preferences shift because of concerns about a slowing economy that potentially complicates the market landscape.  

Currently, 19.2 million square feet of industrial space are under construction in New Jersey, equivalent to roughly half the size of Central Park in New York City. Thirty-four “new class A-type buildings” are now under construction or are planned to be delivered in 2024.  

These brand new, single-story industrial properties are at least 200,000 square feet to approximately 1.2 million square feet. This influx of new space, particularly concentrated in northern New Jersey, is expected to negatively affect market dynamics.

Predictions suggest that the average vacancy rate for industrial spaces could increase to 5.1% in 2024. This would be a notable rise and the first of its kind since 2012. 

New wave

Middlesex County is at the forefront of this new construction wave, with 4.7 million square feet underway, akin to nearly half the total floor space of the Pentagon.

Alarmingly, 90% of this upcoming space has not yet been leased.

This additional industrial real estate that is now destined for the New Jersey market creates tremendous opportunities for tenants and purchasers, as the formerly “tight markets” start loosening the developer’s/landlord’s firm grip on pricing any available space. 

However, the state’s industrial real estate developers still have a growing preference for developing larger, mega-sized properties (over 200,000 square feet, or equivalent to about two Manhattan city blocks).

These properties, which represent 67% of ongoing construction, have a low pre-lease rate of just 8%. Unless deal velocities pick up, this situation could lead to increased leasing concessions by developers as more “shell buildings” enter the market. 

Turning tide

Tenant preferences are also evolving, with a noticeable trend toward mid-sized buildings, ranging from 50,000 square feet to 150,000 square feet — comparable in size to an NFL football field. This shift is challenging the leasing landscape for larger spaces. 

That may potentially lead to long-term vacancies or necessitate a reevaluation of use for these larger properties from developers hoping to hit a “home run” with a single-tenant, rather than having more capital-extensive multi-tenanted or possibly repurposed developments.

Such changes underscore New Jersey’s industrial real estate market’s dynamic nature. They also signal a critical adjustment period for developers and property owners until more positive signs of increased demand for space arise, akin to 2020 and through the heights of demand that went into the first quarter of 2023. 

In the face of New Jersey’s industrial real estate evolution, the emergence of new Class A space presents an unparalleled opportunity for tenants and buyers to capitalize on more favorable market conditions.

Apr 9, 2024


Howard Applebaum

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