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Looking ahead, Prologis predicts activity will get slower yet in the industrial sector. Reflecting on the first quarter of the year, New Jersey posted a vacancy rate under the national average.

However, as more space remains available and with plenty slated to come online in the near term, the state is not insulated entirely from national trends.

“It’s a very perplexing environment and one that I haven’t seen before. You have all the indicators of demand, whether it’s top-line GDP or retail sales or e-commerce sales, which are on fire, all pointing in the right direction,” Prologis Chief Executive Hamid Moghadam told The Wall Street Journal. “But people are not converting that into as much actual leased space.”

Reflecting on the past several quarters in its 1Q 2024 Northern and Central New Jersey Industrial Market Report released this month, NAI James E. Hanson said activity is getting back to “normal” in New Jersey.

The vacancy rate was up to 5.0% from 4.7% by the end of 2023. At the close of Q1 last year, it was 2.4%.

Meanwhile, Cushman & Wakefield pegged the national vacancy rate for the first quarter of 2024 at 5.8%.

The buildup

The rapid-fire leasing activity seen in recent periods has cooled, with CushWake reporting that closing deals now takes longer. The firm cited economic uncertainty, cost containment and the options available to potential tenants.

According to the NAI Hanson report, year-over-year leasing activity was down by 2 million square feet in Q1.

Meanwhile, year-to-date deliveries brought 4.6 million square feet of new space, according to the report — 3.2 million square feet (69%) of which remains available.

In its Northern New Jersey Q1 assessment released April 8, Savills reported inventory built this year and last represents 27% of current vacancies.

“We continue to see the industrial sector adjust to market conditions, returning to pre-pandemic norms,” Jason Price, Americas head of logistics & industrial research at Cushman & Wakefield, said in an April 15 news release. “The under-construction pipeline has now fallen for the sixth straight quarter and is down 10% quarter-over-quarter and just under 40% annually.”

NAI Hanson’s report indicated 14.5 million square feet of space is set for delivery from now until the end of 2025 – with more than 12 million square feet slated to arrive this year.

High performing

Still, New Jersey is one of the tightest markets nationwide as of Q1. Across the 14 submarkets in NAI Hanson’s report – covering as far south as Mercer County – vacancy rates go as low as 2.9% in Exit 8A.

Savills called out the Exit 8A submarket for its stellar Q1 performance. Among highlighted attributes was the “interstate-centric location.” The real estate service provider reported more than 500,000 square feet of new commitments in the region. And Capital Markets were active in Exit 8A as well, Savills reported. Looking ahead, the firm anticipates the submarket will continue to draw occupiers and investors.

The average asking rate in Exit 8A was $15.30, NAI Hanson said. All submarkets reported average asking rates of at least $14 per square foot.

Overall, rents moderated during Q1, according to the firm, rising 1.4% year over year. Quite the change from Q1 2022 to Q1 2023, when they jumped 20%.

Rents are highest in the biggest submarkets, NAI Hanson reported:

• Meadowlands $16.56
• Ports $16.35
• Exits 10/12 $16.03

The average asking rate was lowest in the Warren & Sussex submarket ($10.45).

Nationally, Cushman & Wakefield said rents were flat at $9.73 per square foot. New Jersey also performed better when it came to how much rents shifted year over year, compared with annual U.S. rent growth, which  dropped 6%.

Market watch

While the appetite for industrial properties persists, the pool of parties able to complete deals has dwindled as a result of a challenging interest rate environment, which doesn’t seem poised to soften any time soon. Speaking this week, Fed Chairman Jerome Powell indicated rate cuts would likely be put off until later in the year.

The average price per square foot stayed in the $180-$190 per square foot range, but was down from $200-plus per square foot at the peak in 2022, NAI Hanson said.

Smaller buildings represented the most traded types in Q1, according to the NAI Hanson report. Cap rates stayed where they have been for over a year, in the mid 5.0% range.

Take a look at some of Q1’s top sales and leases here.