2024 Biannual Industrial Report: Part Four

CompStak’s 2024 Biannual Industrial Report uncovers the latest trends shaping the industrial real estate market. From surging e-commerce demand and shifting trade dynamics to evolving lease structures and rent adjustments, this report provides a comprehensive look at the forces driving the sector. Dive into key insights on port activity, tenant behaviors, and market performance through Q3 2024.

Interested in the full report? Find it here.

NJ-North and Central Industrial Market

In this next segment, CompStak evaluated industrial market statistics for the NJ-North and Central market in more depth and uncovered the following major findings:

• Transportation and warehousing employment in New Jersey hit a post-COVID peak in December 2023, surpassing manufacturing jobs for much of the period since 2021. Now up 1.0% year-over-year, it highlights the sector’s growing dominance in the state’s economy.
• The top five largest renewal transactions in NJ-North and Central market from Q2 to Q3 2024 averaged a 55.3% rent increase, with some renewals, like Corelogistics’ in Princeton, climbing as high as 81.7% compared to prior lease rent.
• NCREIF’S New York CSA and Newark industrial vacancy rates rose year-over-year but remain below the U.S. average. The New York CSA, including NJ-North and Central market, holds the lowest vacancy rate (1.5%) among these markets despite a 120-basis-point rise since a post-COVID low in Q3 2020.
• The NJ-North and Central industrial market softened in 2024 as effective rents fell from 2023 peaks, with bulk transactions hit hardest declining -8.3% from 2023 to 2024 year to date.
• Free rent periods for the NJ North and Central market rose significantly, reflecting more tenant-friendly terms for bulk transactions. This shift may be tied to some market uncertainty, fueled by the potential for a 2025 strike following the narrowly avoided East Coast strike in October 2024.

New Jersey Transportation & Warehousing Employment Hits 2024 Peak in October After Avoiding Early October East Coast Port Strike

Since 2000, employment trends in the manufacturing and transportation & warehousing sectors have moved in opposite directions. Manufacturing employment experienced a steady decline for much of this period, while transportation & warehousing employment steadily increased, especially after November 2014. In November 2021, transportation & warehousing employment surpassed manufacturing for the first time. Since then, the two sectors have generally remained closely aligned, with transportation & warehousing employment exceeding manufacturing in 10 of the 35 months through October 2024. Notably, transportation & warehousing employment in New Jersey reached its highest level since March 2020 (COVID) in December 2023, while manufacturing employment peaked post-COVID in June 2023.

NCREIF’S New York CSA and Newark Division Vacancy Rates Rise Slightly Year-Over-Year, Still Below U.S. Average

According to NCREIF, industrial vacancy rates for the New York Combined Statistical Area (CSA), the Newark Division, and the United States overall have all increased from their post-COVID lows reached in the second quarter of 2020. However, the U.S. has experienced the largest rise since its trough, rising 160 basis points from its trough in the fourth quarter of 2022. The vacancy rate for the New York CSA overall reached its post-COVID low point one quarter later, and is now up 120 basis points from that point, despite holding the lowest current vacancy rate (1.5%) among these three geographies.

NJ-North and Central Industrial Rent Growth Slows YOY for
Seven Straight Quarters

The NJ-North and Central industrial market, home to key industrial hubs along I-95 and the Port of New York and New Jersey—one of the nation’s busiest ports—has been a leader in rent growth during the recent cycle. As of Q3 2024, both effective and starting rents remain nearly double their 2019 levels, though growth has slowed since late 2022. For industrial transactions of 10,000 square feet or more, the average starting rent fell to $15.65 per square foot, marking seven consecutive quarters of slowing year-over-year growth. In 2022, the market saw four consecutive quarters of double-digit annual rent increases, peaking at 30.3% in Q4.

NJ-North and Central Market Peaked in 2023; Bulk Transactions Show Greatest 2024 Softening

2024 has been a turning point for the NJ-North and Central industrial market, one of the nation’s strongest, as growth begins to moderate. This slowdown may partially stem from the potential threat of an East Coast port strike, which could have disrupted operations at the region’s major port. While the strike was narrowly avoided, upcoming negotiations in early 2025 could shape the market further depending on their outcome.

In 2024, rents in the NJ-North and Central market have declined from their 2023 peak for both non-bulk and bulk transactions over 100,000 square feet, according to CompStak data. However, the decline has been notably steeper for bulk transactions. Year-to-date in 2024, effective rents for transactions under 100,000 square feet have fallen by 1.4% compared to 2023, while rents for larger transactions exceeding 100,000 square feet have dropped by a sharper 8.3%.

The slowdown in bulk transactions has led to more favorable deal terms for tenants in 2024. The average free rent period has increased by 58.7% compared to 2023 and 151% since 2019. Meanwhile, average lease terms have shortened, likely reflecting tenants’ preference for shorter commitments and greater flexibility. As a result, the share of lease terms allocated to free rent has risen significantly, now at 3.5%—more than double the rate observed in 2019.

However, in a potential sign of greater long-term optimism for the market, average lease escalations— which soared after 2019—are now plateauing. They have recently declined modestly by 9 basis points for non-bulk transactions and 1 basis point for bulk transactions.

Top Five Largest Industrial Renewals in NJ-North and Central from Q2 to Q3 2024 Averaged a 55.3% Rent Increase

In the New Jersey-North and Central market, the five largest renewals tracked from Q2 to Q3 2024 saw an average rent increase of 55.3% compared to the tenants’ prior leases. The largest renewal was completed by Corelogistics in the Princeton submarket, where their 232,866-square-foot lease was renewed at a starting rent 81.7% higher than the ending rent of their previous lease, signed in Q4 2019.