The rise of the industrial real estate market in eastern Pennsylvania’s Lehigh Valley submarket has left aging facilities in southern New Jersey in the dust, according to market research by Colliers International.
The firm’s second-quarter research and forecast report on industrial real estate shows within the Philadelphia region, South Jersey’s industrial space is not moving as fast, or seeing as low vacancy numbers, as its neighbors.
“South Jersey is one of the markets where it has been struggling,” Rose Penny, market research director for Colliers, said. “It’s been divided by age and quality of product, so industrial markets where we have modern, bulk buildings that have been built within the last five years are more in demand for warehouse users that have ceiling height requirements and interstate access requirements, those markets have done better.”
Penny said the results of the study show that South Jersey’s older buildings are not meeting the needs of clients as well as more modern buildings.
“Markets like New Jersey have a higher concentration of older buildings with lower ceiling heights, or custom facilities that may have a more narrow population of users that could actually come in and use those buildings again,” she said.
Because its properties are less desirable, South Jersey is able to offer less expensive rates to its tenants. Average asking rents are $3.88 per square foot in South Jersey, while the Lehigh Valley average is $4.20 per square foot.
Even with that price advantage, vacancy remains a more serious problem in South Jersey. The Colliers report shows similar vacancy rates for South Jersey and Lehigh Valley — 10.9 percent and 10 percent, respectively — but in terms of vacant buildings, Lehigh Valley has half the vacant properties, 5.6 million, of South Jersey, 10.9 million.
Penny said a retreat of the food sector in New Jersey is “concerning” for the industry in the area, but that the decrease in manufacturing across the board is responsible for a slow market. Notably, Ocean Spray is vacating its South Jersey facility for Lehigh Valley in 2013.
Penny also said proximity to I-78 is a major key to Lehigh Valley’s growth.
“I think the market will recover, but I think it’s just going to be a slower lease up time for some of these older facilities,” Penny said. “I think as the economy recovers in general, and the manufacturing sectors and warehousing sectors come back, there will be users who will be able to lease or purchase the buildings. It’s probably going to be two years before we’re going to see a substantial improvement.”