From the WSJ:
Industrial space in New Jersey is so hot that lease deals are drying up.
Across the state, which has become a major logistics hub for online retailers and other industrial tenants, 5.3 million square feet of leases were signed in the first quarter, about 27% less than the average from 2015 to 2017, according to a new report from real estate services firm JLL.
The main culprit: a lack of space.
That is reflected in asking rents, which jumped 11.7% from the same quarter a year earlier to $7.14 a square foot.
“There is an extraordinary under supply of quality space, and when you have an undersupply, you have a reduction in leasing activity,” said Robert Kossar, head of the Northeast industrial region for JLL. He added, “There has been no downturn of demand at all, and if anything, there has been an uptick.”
Available space in New Jersey is constrained across the board, but is even more acute for tenants on the hunt for big-box lease deals of 500,000 square feet or more, Mr. Kossar said. In the last two quarters of 2017, big-box leasing accounted for more than 30% of the total amount of space leased. But in the first three months of the year, no leases larger than 500,000 square feet were signed.
Of the four buildings existing or under construction that had over 500,000 square feet available at the end of the first quarter, only one was in the state’s primary corridor along the New Jersey Turnpike, said Iggy Armenia, JLL vice president of research and analytics.
At the same time, demand has been increasing. The state’s market has about 15 million square feet of space that can accommodate tenants requiring blocks of space larger than 100,000 square feet. But there is about 35 million square feet now sought by tenants, Mr. Armenia noted.
Almost 11 million square feet of warehouse space was under construction in the first quarter, compared with 9.2 million square feet of space in the pipeline in the first quarter of 2017. Nine speculative projects of 3.5 million square feet expected to break ground in the second quarter.
But despite increased construction, few land sites exist for development, and the space under construction is often leased before the building is completed, Mr. Kossar said. So expect asking rents for this new space to be at “high-water mark levels,” the report said.