We are now beginning our 3rd year of a strong industrial market. The question on everyone’s mind is how long can this last? What can stop this driving force? Here are some factors to consider when taking a speculative look.
Unemployment is still trending positively, interest rates continue to remain low, and technology is continuing to increase warehouse demand. Land is steadily disappearing and overseas money is continuing to flood in. Europe, China, and the Middle East have no economical clear end in sight and we are currently the only safe haven in the democratic world left for investment. Supply is now shrinking by the minute and it does not seem like the momentum is coming to end in the near term. Everyone wants in and all statistics are showing continual strength.
It is my assumption that we still have good years ahead of us, possibly up to five more years of sustainable market rates. The fact is that we do not have enough warehouse space available in NJ to accommodate the future demands of the global logistics market. Although demand is expected to continue its rise, shockingly, rates are most likely going to start balancing out by the 4th quarter of this year.
The reason being is that many businesses will not be sustainable at these rates. Trucking organizations are now paying up to $10k per acre to park their fleets while making pennies on the mile, and distribution companies are paying top dollar to lease space while facing the steepest global competition in regard to shipping costs and delivery times. The demand for the port areas of NJ and the Meadowlands from national and global competitors are continuing to grow at a staggering pace and this is starting to cause a migration to more southern areas for many. If we take a moment and remember the residential boom of 2006 and the areas that grew because of cheap lending rates, the commercial market is beginning to have that reminiscent feel to it.
Central NJ is a very good indicator of this price reaction. It is strategically placed between Philadelphia and Newark, and many businesses are considering moving to this region more than ever before. Why now? Contrary to what most developers think about this so called perfect location, the reason for this movement has a lot to do with price, not location. If owners can currently move 30-45 minutes away from the port and potentially save $3-4 a square foot, as well as gain higher ceilings, they are going to do it. For many companies this is not an option, but the only way to keep their profit margins in line, and on the big picture it is some cause for concern.
However, until online retail hits an unexpected decline or a macro-economic event reshapes the economy, this industrial trend is likely to continue on its current path. There are no analysts that can predict the future because we are living in uncertain times that have never been seen before. Let’s remember the one fact that has always proven the test of time, real estate is cyclical and history has a way of repeating itself.
