JLL’s Q3 New Jersey industrial report: Construction, leasing pullback could keep upward pressure on rents

JLL just released its third-quarter New Jersey industrial insight report, which indicates a pullback in construction and leasing could keep upward pressure on rents moving forward.

According to JLL’s recently released data, vacancy continued to tick up in Q3, driven by 8.1 million square feet of newly delivered product, the second-largest quarter of deliveries on record. Just 30.5% of the state’s year-to-date deliveries have been preleased, a far cry from the market’s peak, when 88.3% of deliveries were preleased.

Consequently, vacancy ticked up 120 basis points quarter-over-quarter, reaching 4%, of which 65 basis points were contributed from vacant deliveries.

On the leasing front, the state saw a slight decline in activity during the summer months, tallying 6.4 million square feet, 21.3% lower than trailing four-quarter average.

The state recorded just one new lease over 300,000 square feet, dipping below the average of 3.25 seen over the trailing eight quarters.

The slowdown in big-box leasing comes as users have become increasingly judicious with capital expenditure, as the uncertain macroeconomic environment has occupiers looking closely at rent, as well as the total cost of outfitting and operating a new facility.

Notable bankruptcies by Bed Bath & Beyond and Yellow Trucking, combined with some tenants consolidating and moving south/west to lower-cost markets have resulted in -3.2 million square feet of absorption in northern New Jersey year-to-date. This has benefited central & southern New Jersey, which has seen +3.5 million square feet of absorption year-to-date.

Nonetheless, rents have held steady, as northern New Jersey has seen rents rise 1.2% year-over-year, while central & southern New Jersey has risen 14.5%.

Construction starts have leveled off as a difficult entitlement landscape and the rising interest rates have deterred and paused many projects. Just 1.8 million square feet broke ground in the third quarter, 62.2% less than the Q1 2019 to Q2 2023 average.

Rents are expected to plateau in the coming quarters as the recent wave of deliveries will need to lease up before landlord/developers push rents again. However, given the slowdown in ground breakings, rents are expected to rise over the longer term due to the normalization in construction.