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Distribution center space comes at premium

Demand tops supply: 'Everything that's ready is being moved on'

From left: Cranbury Committee Member David Cook, State Sen. Linda Greenstein, Sudler Cos. CEO and President Peter Sudler and Cranbury Mayor Dan Mulligan III.

Faith in the logistics sector has been moving mountainous buildings in New Jersey.

Most recently, this could be seen in the collapsing of a 500,000-square-foot office complex in Cranbury, a facility brought to the ground by Sudler Cos. to make room for a pair of logistics facilities.

The warehouses are being built on a speculative basis, but the firm’s CEO and president, Peter Sudler, is already seeing signs that it was a good bet.

“We haven’t even commenced site work yet, but we’ve already gotten activity on it of a serious nature,” he said. “We’ll likely go into construction next month, and I wouldn’t be surprised if it were leased by the time construction is underway.”

It’s unprecedented. It also speaks to the premium placed on distribution centers along the New Jersey Turnpike’s Exit 8A corridor, especially after local highway improvements and the increased opportunity from the Panama Canal expansion — making it more important than ever to be in striking distance of ports.

It’s a big contrast to the cooling market for the sort of offices that Sudler’s new 416,300-square-foot warehouse and a 341,200-square-foot warehouse will be replacing.

That’s not to say watching the tear-down of the facility late last year was blissful for Sudler.

“I was very sad to see the building have to be demolished, but I think we made the absolute correct decision, and I’d do the same thing if I had to again,” he said.

“There’s certainly a tremendous exuberance in the market for industrial warehousing. It’s what I would call a favored sector, (whereas) suburban office space has struggled.”

Sudler, the third-generation leader of a family business that has long inhabited the market around Cranbury, said he’s seen the makeup of the area become almost strictly logistics and distribution centers.

His company already owns more than a million square feet of warehouse space in the region. And there’s no such thing as an overabundance of real estate dedicated to logistics yet.

“We have not seen this market reach its peak,” Sudler said. “The absorption rates (of these facilities) is tremendous. Everything that’s ready is being moved on. Even things not on line yet have activity on them.”

William Waxman, executive vice president of the logistics group at commercial real estate brokerage CBRE, said the tear-downs of office buildings or antiquated shopping centers for industrial warehousing seems to be a developing trend.

Older factories that serviced different industries throughout the years are also being repurposed to support new e-commerce companies with logistics needs. That was the case for the 495,000-square-foot fulfillment center in Linden that Blue Apron, a meal kit delivery company, is moving into this year.

And the interest in these facilities isn’t confined to destinations that touch the Turnpike in northern New Jersey, Waxman said, although that is certainly an in-demand location.

“Because of the pricing and the extremely low vacancy rates in that area … a lot of companies are looking west, out to Wayne or even the Piscataway area,” he said. “But companies delivering to New York really can’t go much farther south than Edison or it becomes not so cost-effective.”

However, South Jersey is seeing a fair share of activity due to lower costs, according to Bill Parker, president of Associates Warehousing Inc. Being there opens up accessibility to the Port of Philadelphia, as well, which Parker’s company has a strong connection to.

More and more each day, where logistic companies decide to set up shop is being driven by price points — skyrocketing as they are.

“But it has to fall off at some point,” Waxman said. “There will be a stabilizing effect eventually on demand. But for the next three quarters, we’re going to keep seeing growth.”

E-mail to: brettj@njbiz.com
On Twitter: @reporterbrett

Brett Johnson

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