Economic Trends | Most economists forecast inflation to moderate by the second half of 2022. Consumer purchases of durable goods soared to almost 30% above pre-pandemic levels before starting to decline in the second half of 2021 but such commodity prices happen on occasion and don’t always lead to systemic inflation. Covid-19 continues to disrupt the economy with its new variants, however sturdy income growth, robust consumer spending, and elevated business investment support GDP growth.
Economic Trends | Consumer spending rose 0.7% in September month-over-month. Sales at retail stores, restaurants, and online sellers have reflected continual durable demand even with higher consumer prices. Due to stimulus payments and rising wages shrugging off the Delta variant, the end of unemployment benefits, and emerging supply constraints. Retail sales rose close to 14% in September year-over-year while consumer inflation increased 5.4%. Economists are cautiously optimistic; however, concerns remain with the disruption to the supply chain backlogs and a slowing labor market recovery once the unemployment benefits dissipate.
GDP growth is expected to surge to 6.4% in 2021. In the first quarter, government assistance payments, such as direct economic impact payments, expanded unemployment benefits, and Paycheck Protection Program loans were distributed to households and businesses through the Coronavirus Response and Relief Supplemental Appropriations Act and the American Rescue Plan Act according to BEA. A sign of confidence that the world’s largest economy remains confident that it will pull through the pandemic better than others is that foreign investors have been pouring money into US assets.
The recorded losses in many sectors for real estate due to CoVid-19 have been dramatic however the industrial sector has been remarkably resilient. E-commerce, third-party logistic, food and beverage and cold storage companies have all performed well throughout the pandemic. Net absorption this quarter (8.3MSF) outpaced deliverers (5MSF), vacancy rates decreased (3.9%), and rental rates growth has risen exponentially (almost 30% increase in the last three years alone). The pandemic has enhanced the importance of the logistics industry, consumers spent nearly 212B through ecommerce – online purchases accounted for 16.1% of all retail sales accelerating online appetite by consumers due to the pandemic has triggered the ecommerce footprint to expand.
The pandemic is evolving every day and its ultimate impact is not yet clear. Similar to the Spanish flu in 1918, this virus has generated a shockwave that has halted the global economy. Each state as well as the White House administration have been working diligently to ‘flatten the curve’ by social distancing, stay at-home measures, among others. Medical and other first responders have been risking their lives each day to continue the supply chain and keep people healthy.
Downward pressure has been placed on wages and prices as a result of high unemployment and excess capacity. We are facing grocery inflation, according to statistics released by Nielsen. The economic landscape continues to be dominated by historic declines in just about every significant category. Despite horrible economic data, the equity market rallied at the end of the first quarter. On top of the CARES Act, which will provide $2.3 trillion in fiscal stimulus, the Federal Reserve has expanded its balance sheet by $2.4 trillion to over $6 trillion. Due to the CoVid-19 events and incredible amount of loss of jobs, the 2Q20 could see one of the largest dips in GDP in US history.
The NJ industrial market continues to be attractive to most investors with a limited supply. Amazon leased close to 2MSF this quarter and expect additional absorption in 2021. Northern New Jersey’s vacancies have declined below their historical average. Developers ramp up projects as demand continues to exceeded supply.
The NJ industrial market continues to be attractive to most investors with a limited supply and interest rates remaining historically low. We foresee further growth in the industrial sector. Strong demand and limited supply additions have helped Northern New Jersey’s vacancies drop below their historical average. Tenant losses were the norm here following the financial crisis, but demand has trended positive for the last several years. Developers haven’t been able to keep up, as demand has exceeded supply in every year since 2013.
Online sales growth continues its surge. Due to the demographics of the New York metropolitan region, big box warehouse and infill product will stay in demand for eCommerce and Logistic firms. Goods will always be needed where people live and Customers will continue to want low prices, fast delivery and a vast selection which in turn will drive the New Jersey industrial market forward.
With the economy growing as slowly as it has, expect occupancy and leasing velocity to continue despite the uptick in vacancy. Online sales growth continues its surge. Strong demand for big box warehouse and infill product continue its surge. The construction pipeline is currently justifying the industrial demand with more than 40% pre-leased prior to a shovel being placed into the ground. It may be disruptive to the retail sector however eCommerce is not going away soon.
Market fundamentals continued to have an upward trend for industrial real estate. The vacancy rate decreased to 3% and the average asking base rent increased to $8.18 PSF NNN, which is up 12% year over year ($0.87 PSF and up 43%) and compared to rental rates of $2.47 PSF five years ago. Year to date Northern and Central NJ, had 17.8MSF of positive net absorption. The shortage of distribution centers throughout the state may slow the leasing velocity in the upcoming quarters, however demand for space continues to outpace deliveries.
Market fundamentals continued to trend positively for industrial real estate due to the continued demand for ecommerce and strong port activity. The vacancy rate decreased to 3.38% and the average asking base rent increased to $8.04 PSF NNN, which is up 11% year over year and up 44% compared to rental rates 5 years ago. Year to date, Northern and Central NJ had close to 12MSF of positive net absorption with Middlesex county outpacing the rest of the state with over 6MSF YTD.
Market fundamentals continued to trend positively, exceeding expectations. The vacancy rate dropped to 3.5% from last quarter’s 3.9% and the average asking base rent increased by 6% to $7.90 PSF NNN and by 11% year over year. Interchange 8A of the NJ Turnpike has consistently out performed the rest of the state with its over 1MSF absorption each quarter for the last several years due to the rapid growth of e-commerce and demand for big box distribution centers. Currently there are only two facilities available over half a million square feet and one is 18’ clear located in Wayne and the other is located at 8A.
Market fundamentals continue to improve due to overwhelming demand for space, demographics, strong leasing velocity and historic vacancy rate lows. Total positive absorption for the first quarter was 3MSF (over 1MSF additional space absorbed year after year). Vacancy continued its downward trend to 3.9% and rental rates increased $0.15 or 2% in the first quarter (9% year over year, a 37% increased in less than five years).