3rd Quarter 2022 - blauberg

Industrial Trends

The New Jersey industrial market fundamentals continued to perform particularly well as the growth of e-commerce and consumer goods enhanced the need for additional distribution centers, last-mile facilities, and industrial logistic yards.
The vacancy rate increased slightly to a modest 2.5% at the end of the third quarter. With construction at historic highs and future consumer spending due to economic uncertainty, vacancy rates will continue to increase.
Rental rates have continued to move upward by over 30% in the last 12 months.
There was a total of 14.7MSF of new distribution centers under construction, with developers taking advantage of the supply constraints.
The increased wage growth, unemployment, and potential recession will slow the market’s robust pace, particularly on the acquisition side. Heightened interest will put additional pressure on the cost of capital. Any future Fed decisions that include raising interest rates by significant amounts may slow growth.

Interest rates have slowed down the sale of almost all classes of office, with Only Class A and MOB (Medical Office Buildings) trading, as Negative Leverage on Cap Rates Below 9 percent makes it harder to purchase properties under a 9 to 10 cap unless you are a 1031 buyer changing asset classes.

Cannabis is leading the way in NJ Retail, with 88 new dispensary licenses issued by the State of NJ; Not all landlords can take advantage as some municipalities are pro and others against cannabis retail locations in their towns. The mortgage if held by a federally chartered bank also makes it difficult for all landlords to take advantage of retail’s bright spot.

Northern New Jersey Multifamily market continues to expand primarily due to corporate moves requiring a return to the office, as well as New Jersey’s government plans to establish the area as a new fintech hub. As vacancy rates are getting compressed and rents are increasing, investors’ appetite continues to be strong. Both market rent and market sale price per square foot are continuing to increase. New construction unit deliveries are expected to reach new record highs.

Unemployment decreased to 3.9% in June from 4.2% in April.
Retail sales in the US recorded their first decrease YTD.
Inflation will not be restrained by year-end; interest rates will continue their rise.
The debt markets are expected to be punished over the next few quarters.
Unemployment is also expected to increase over the next few quarters.