Warehouse construction in New Jersey has cooled off over the past year but given the Garden State’s location there’s still strong demand in parts of the region for industrial space.
Bill Waxman, Vice Chair, Cushman & Wakefield, presented the annual Industrial Real Estate Update during the NJTPA’s Freight Initiatives Committee meeting on February 18.
The first half of 2024 was not very good for the industrial real estate market but ended on a positive note with a strong second half, providing encouragement for 2025 and 2026, Waxman said. The vacancy rate was up in 2024 reflecting a softening in demand for older, less efficient buildings. Meanwhile, asking prices rose, buoyed by new construction and demand for more efficient buildings, he said. “What we’re seeing is a flight to quality” Waxman said. If a company was in three older buildings in Elizabeth, Newark, or Kearny, they consolidated into a more modern, efficient building potentially further from the port, in Middlesex or Passaic County.
One reason for the moves is the lack of available truck parking. “When you see trucks and trailers dropped on the street, that’s because of a lack of adequate truck and trailer parking,” he said.
With a lot of new buildings coming onto the market at once landlords gave away free rent, Waxman said. The average free rent period has doubled, from about 2 months in 2022 to 4.5 months in 2024. One month of free rent for every year of a lease is not unusual, he added.
The sweet spot for space now is smaller buildings — anything less than 50,000 square feet – where vacancy rates are much lower than bigger buildings. Landlords have divided buildings of 500,000 to 600,000 square feet buildings into smaller units. “That’s been helpful in absorbing some of the space.” Waxman said.
Owners are more reluctant to build to attract tenants. “It’s becoming harder and more expensive to build warehousing in New Jersey,” Waxman said. He predicts fewer new buildings and construction by 2026 creating upward pressure on pricing.
Still, he’s optimistic because New Jersey remains “a very good location” for warehousing and industrial uses like pharmaceuticals, light assembly, data centers, and more. “We have a healthy mix of tenants,” Waxman said.
A recording of the meeting is available here.