LINDEN, N.J. — On a recent morning here, construction workers were installing the concrete floor of a warehouse that spans the length of three and a half football fields. Work is nearly complete on the 495,000-square-foot facility, yet the developer, Duke Realty, does not have a tenant to lease it.
Duke Realty is one of many developers betting that tenants will come if the warehouses are built. From Jersey City to Trenton, 12 warehouses and distribution centers are under construction, amounting to 5.17 million square feet of new industrial space entering the New Jersey market. All but two of the properties are speculative, according to data provided by the CoStar Group, a real estate information company. The flurry of construction comes after a yearslong dry spell when construction in the state dipped to lows not seen in 50 years.
A combination of factors is driving the change: More businesses (most notably Amazon) are looking for distribution facilities to accommodate their growing e-commerce needs; companies need larger warehouses to store the bigger shipments arriving from the ports; and exits along the New Jersey Turnpike are becoming increasingly desirable stopping points, partly because of a $2.3 billion project to widen the road.
“I don’t think you’re seeing developers holding back and waiting for a sunnier day,” said Thomas F. Monahan, a senior vice president at CBRE, a commercial real estate brokerage firm.
New Jersey, one of the top industrial markets in the country, has long benefited from its proximity to New York City and area ports. Its location along the Eastern Seaboard puts trucks within a day’s drive of 40 percent of the entire American population — consumers who buy $2 trillion of merchandise a year, according to the New Jersey Department of Labor and Workforce Development.
“New Jersey has always benefited through thick and thin by one thing and one thing only, and that’s location,” Mr. Monahan said. “And that will never change.”The state’s location has become even more of an asset as online shopping becomes commonplace, and consumers expect orders to arrive the next day, if not the same day.
To meet those expectations, companies are stepping up their e-commerce operations and opening facilities in strategic locations. As a harbinger of change, Amazon shipped its first order last week from a new one-million-square-foot distribution center in Robbinsville, N.J.
Other e-commerce businesses are leasing space in New Jersey, too. The online grocer Peapod, a subsidiary of Ahold, recently opened a 345,000-square-foot distribution center in Jersey City. Ahold anticipates that the $65 million investment could eventually double Peapod revenue. And last year Williams-Sonoma leased a 750,000-square-foot distribution center in South Brunswick.
According to data provided by CoStar, the vacancy rate for warehouses and distribution centers in the area from Jersey City to Trenton is currently 9 percent, down from a peak of 12.8 percent in the first quarter of 2010. Rent was $5.06 a square foot as of Aug. 4, rebounding from the $4.44 per square foot low hit in the first quarter of 2011. With rents approaching the prerecession high of $5.53 a square foot reached in 2007, developers have been watching demand for new space steadily grow.“When tenants start saying, ‘Do you have space?’ and you don’t have it available, that’s your first indication,” said Frank J. Petkunas, a senior vice president at IDI Gazeley, a real estate developer based in Atlanta. In a joint venture with J. P. Morgan Asset Management, IDI Gazeley recently completed a 450,000-square-foot speculative facility in South Brunswick. Prospective tenants have included apparel, food and electronics companies, Mr. Petkunas says.
In a state with aging industrial properties, these new buildings are meant to meet the needs of a changing market. Companies no longer need a warehouse to simply store merchandise en route from a container ship to a final destination. Instead, they need flexible space where goods can be sorted, repackaged and delivered to individual consumers.
With enough clearance to stack merchandise 36 feet high, these new distribution centers are taller than their predecessors and have loading docks on either side, allowing for a more nimble operation. They also have much larger parking lots to accommodate more cars and trucks. “If you look at the existing properties in the area, they really don’t meet the demands of today’s client,” said Jeff Palmquist, senior vice president for the Northeast region at Duke Realty, the Indianapolis-based company that is building a warehouse in Linden.
Duke Realty recently broke ground on a 144,000-square-foot warehouse on the same 102-acre site in Linden and has plans to build a 495,000-square-foot warehouse directly across from the first one. The site, Legacy Commerce Center, a former General Motors plant that Duke Realty demolished in 2008, will eventually include retailing as well.
The spate of construction could translate to jobs in New Jersey, which had an unemployment rate of 6.6 percent in June, according to the Bureau of Labor Statistics. The transportation, logistics and distribution industry’s 358,000 jobs accounted for 11.2 percent of the state’s private sector jobs in 2012, according to state’s Labor Department.
However, the addition of a dozen warehouses in the state is unlikely to budge the state’s employment figures. Even as distribution centers become more labor-intensive, they still employ a fraction of the workers that office buildings employ.
Still, many developers are proceeding with caution and even the most bullish describe their efforts as restrained. Memories of the last recession do not fade quickly. Developers who overbuilt in the months before the financial downturn were left with brand-new, vacant properties. Others scrambled to hold onto tenants or find new ones, lowering rents and offering concessions. “Developers got burned in the last recession,” said Robert C. Kossar, executive managing director at Jones Lang LaSalle, a commercial brokerage firm. “They were just left holding the bag.”
Many developers characterize the latest construction as less of a boom and more of a game of catch-up, as many projects were shelved for years. Prologis, a publicly traded real estate company, recently completed construction on an 878,000-square-foot distribution center in Jersey City that has been leased to two tenants, Peapod and the Imperial Bag and Paper Company, which distributes packaging and janitorial materials. And at Prologis Port Reading, construction is now complete on two distribution centers, part of a 1.7 million-square-foot speculative development that will eventually include four buildings.
Paul Rosen, a Prologis vice president, said, “The lights go on, and it’s time to build again.”
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