Middlesex County Industrial Market Report
Positive Signs: ‘Slow’ Replaces Stop Sign

by Robert D. Greenberg, AICP

We now live in a truly global economy, where a change in the value of the Chinese yuan creates ripples throughout the world in a matter of hours.  We have endured the worst economic downturn since the Great Depression.   So how does the recession and this new global economy effect New Jersey and, specifically, the Middlesex County industrial market?

The Local Markets Feel the Impact
According to Grubb & Ellis’ 2010 Forecast Report (www.grubb-ellis.com/research/forecast2010), “the recession and falling global trade hurt demand for industrial space, particularly in import-dependent markets.” Statewide, more than 22 million square feet (MSF) of negative net absorption occurred in the industrial market during 2009 while the availability rate was above 16%, and more than 50 MSF was available in Central New Jersey alone. The Exit 8A submarket, one of the leading warehouse/distribution hubs in the country, had more than 13 MSF on the market last year.  Compared to vacancy rates of 3% a decade ago, central and northern New Jersey vacancy rates rose above 14% at year end. 

According to Cushman & Wakefield’s Northern and Central New Jersey Industrial Market Report, Middlesex County, with an inventory of 194 MSF of industrial space, now stands at 11.0% vacancy, slightly better than the rest of the state. 

Newmark Knight Frank’s New Jersey Market 2Q 2010 Reports explains that “after six consecutive quarters of negative net absorption, the NJ industrial market showed positive signs in the second quarter with a modest net absorption year-to-date total of 173,821 SF“ and an overall availability rate of 17.8%, “unchanged from the first quarter, and remaining at the historical record high.”

Signs of Improvement
At the midpoint of this year, Central New Jersey recorded 3.5 MSF of deals, equal to the same time in 2009.  New leasing activity, year-to-date,  is nearly 6.4 MSF for Northern and Central New Jersey combined and remains on par with totals recorded last year at this time.  There were 15 new transactions over 100,000 SF recorded this quarter, ten of which occurred in the Central region of the state including Workflow One (200,000 SF) at 7 Costco Way in Monroe, and GMB (192,400 SF) at 100 Herrod Boulevard in South Brunswick.  Renewal activity also fared very well this quarter including Volkswagen of America (935,000 SF) at 47 Station Road in Cranbury and Aeropostale’s renewal (315,000 SF) at 2 Brick Plant Road in South River.

Sales activity is regaining momentum, recording 2.9 MSF of activity; a year-over-year increase of nearly 10% including 30 Englehard Drive at 8A by Packaging Inc. (198,400 SF) and 400 Kennedy Drive in The Brunswicks by DCT Industrial Trust (50,000 SF).  In fact, Middlesex County leads in new leasing activity with 2.7 MSF year-to-date.

Where Do We Go From Here?
Unlike the office market, reports C&W, early renewals have not become as commonplace.  “Landlords are less likely to lower their rents for a tenant with little term remaining on their lease.”  However, tenants will be taking advantage of the market by relocating to newer/modernized buildings as a ‘flight-to-quality’ continues.  To accommodate an eventual rebound in global trade, the Port Authority of NY & NJ is undertaking a number of infrastructure improvements, most notably dealing with the challenge of the new generation of mega-container ships by evaluating to raise or replace the Bayonne Bridge.  

High-tech buildings will perform better as they offer high voltage power and are easier to convert into office space, another cost-saving measure many companies are pursuing. The manufacturing sector will continue to feel the effects of global outsourcing and will likely remain stagnant as companies seek lower cost alternatives.  Grubb & Ellis predicts that “pockets of activity” are likely to characterize the industrial market until sustained demand can absorb the additional space generated by corporate restructurings.