The New Jersey industrial market fundamentals have seen a slowdown, largely due to monetary policy. Interest rates were raised to subdue inflation, making debt more expensive to investors.
Initial indications of a cooldown became visible in the fourth quarter as leasing activity slowed.
2022 saw over 10MSF of net absorption.
Vacancy availability ticked upward to 3.1% as the availability rate increased to a pre-pandemic region of ±4.35%.
There are five new distribution centers under construction comprising over 5MSF from Millstone to Avenel.
There are 21 facilities over 500,000 SF available, of which 11.9 MSF are under construction. New construction projects initiated in the fourth quarter total 3.5MSF.
E-commerce leasing velocity slowed giving way to third-party logistics and wholesale/retail companies as the main occupiers in the market. One of the largest of those companies was Home Depot, leasing 1,282,000 SF in Monroe from Brookfield Properties.
4MSF were delivered to the market in the 4Q22; 11MSF in total for the year.
12MSF was delivered to the market year-end; ±50% was pre-leased.
Class A space rents ended the year at $19 PSF, up 3.2% from the prior quarter and 9% year over year.
The pace of rent appreciation for class A space in the market, while still strong, decelerated compared to the prior year. Landlords focus more on securing good credit tenants with aggressive escalations rather than pushing rents. It’s plausible that we may see additional free rent being provided in the upcoming quarters for credit tenants.
Newark/Elizabeth Port and Airport regions remain the most desirable locations with the highest rental rates @ $31 PSF NNN.
The volume of trade continued to shift to the East coast ports as it gained market share amid the lingering labor disputes at the West Coast ports. Total TEU loads and exports were down 18.5 and 24.1%, respectively.
Vacancy rates have skyrocketed to 29 percent. As National and International office tenants with NJ Locations continue to shed space by not renewing leases or closing/consolidating locations. While the Vacancy rate of 29 percent is high the occupancy rate is outpacing it as many tenants are simply paying for space they are not using, as they have yet fully returned to work.
Big box retail has progressed as Walmart and Target had better than expected 4th quarter.
Amazon continues to slow its’ pursuit of physical space. 2023 could see a slow rise in unemployment as tech companies continue the trend of layoffs. This should have a trickle-down effect on the larger employment pool and subsequently into traditional rental needs, The National Minimum wage hikes are still hurting retail owners and operators, with California trying to push fast food workers’ wages to $22.00 an hour.
Northern New Jersey ended the year on a strong footing as vacancy rates, gross deliveries, asking rents and asset pricing are at record-high levels. Apartments continue to stay on the market for a short amount of time and have high occupancy rates. Furthermore, vacancy rates continue at low rates despite an increase in the total number of newly constructed apartments. Overall strong occupancies are supporting rent growth which continues to increase per quarter.
Unemployment decreased to 3.4% in December.
Retail sales in the US recorded a decrease in December.
Construction, Manufacturing, Trade, Transportation, and Utilities were all down in December.
Consumer items rose 6.5% year over year or 0.1% month over month.
CPI decelerated due to lower energy costs and higher interest rates.
Elevated volatility in the financial markets reduced expectations of earnings growth and firms may be looking to cut costs by shedding jobs.
Over the twelve months to December 2022, the CPI rose 7.7%.
Interest rates are anticipated to increase another two or three – 25 basis point rate increases.