The first quarter of 2023 witnessed some pullback from investors, warehouse tenants, and outdoor storage companies. Most investors have been sitting on the sideline waiting for the Fed to stabilize inflation and flatten the interest rate increases. The banking crisis of SVB, Signature Bank, Credit Suisse, and First Republic has many lenders concerned and will cause tightened borrowing standards. Despite the cooling economy, there are certain investment companies with an appetite for real estate but at reduced prices from their highs of 2022.
The decline in activity at the ports has caused a sharp decrease in demand for the IOS market. Rental Rates have declined between 12 to 18 percent and may dip further in the second quarter if activity continues to trend down. Transportation companies, particularly drayage, are historically run on low margins which means they are the first to ask for rent relief during weak economic periods.
Rental Rates for warehouse space have remained stable with added tenant improvement allowances increasing per project.
Vacancy increased to 3.2% for Northern and Central New Jersey and up to 3.5% when including the Southern portion of New Jersey.
Only 25% of the development deliveries were pre-leased.
The construction pipeline has continued to remain robust, but that pipeline is expected to taper in the following quarters. Warehouse leasing velocity also remained resilient, however, demand for e-commerce has all but vanished giving way to other industries such as 3PLs, food and beverage, and traditional retailers.
Notable projects for the quarter include:
372,000 SF at Linden Logistics Way in Linden – Vanguard
845,000 SF at Lamberton Road in Hamilton Township to DMI
610,000 SF at Herrod Blvd in South Brunswick to GXO
120,000 SF at McClellan Street in Newark to Barsam Global Logistics
Brookfield’s Metropolitan Logistics Center project located in Elizabeth, NJ includes a ±103,912 SF and 196,087 SF
Demand for office space in suburban areas may continue to increase as more companies adopt hybrid work models and prioritize larger, more flexible office spaces.
The use of technology in real estate transactions will trend up and continue to increase, with virtual tours, online leasing agreements, and remote communication becoming more common.
Increased demand for experiential retail: Consumers are looking for unique and interactive experiences when they shop.
Focus on sustainability: Many retailers and commercial landlords in New Jersey are focused on sustainability and are implementing green building practices and technologies to reduce their environmental impact.
Northern New Jersey started off the year on a strong footing as vacancy rates continue at record lows, and gross deliveries, asking rents, and asset pricing are at record high levels. Overall strong occupancies are supporting rent growth which continues to increase per quarter. While we witnessed many investors rushing to get into the market before interest rate hikes in 2022, we are now seeing the volume of multifamily investments slowly ease.
Unemployment remained relatively flat at 3.5% in March.
Retail sales in the US recorded a decrease in March month over month of approximately 0.6 percent.
Tighter monetary policy, slow growth in Europe and China, higher energy prices, and an expensive dollar are significant headwinds for the economy.
The decline in inflation may be due to slackening supply chain pressures. The Fed, having attempted to slow inflation through shock therapy in 2022, proves reluctant or unable to slow the hot labor market enough to matter, and inflation settles in at about 6%. Nominal interest rates reach levels that would have been punishing just a few years ago, but economic activity remains relatively strong reports Deloitte Insights.