Port growth pushes Jersey space availability to 13-year low

Port growth pushes Jersey space availability to 13-year low

The tight market for industrial space around the Port of New York and New Jersey got tighter in the second quarter, as a new study shows that trucks are more likely to make their first stop near to the port than in the past. Photo credit: Hugh R. Morley.

Warehousing lease rates in New Jersey rose by double digits, and space availability hit a 13-year low in the second quarter, according to a new study. That reflects space constraints caused when the first stop of more than 80 percent of port-related trucks are service distribution centers, cross-docks, and other destinations located within a 45-minute drive of the Port of New York and Jersey. 

The study, conducted for the Port Authority of New York and New Jersey, shows that 79 percent of the trucks originating at the port make their first stop in either the three counties in which the largest port marine terminals are located — Essex, Union, and Hudson — or a fourth county, Middlesex, whose farthest border is about 35 miles, or about 45 minutes by truck from the port.

That percentage of first stops in those counties has increased, from 66 percent in a similar survey conducted in 2005, according to the study, which was compiled for the port authority’s Port Master Plan 2050, which was released on July 9. Over the same period, the number of truck trips stopping east of the Hudson River, in New York City and Long Island, fell from 10 percent to 5 percent, the study showed.

The master plan predicts that by 2050 the port will need to be prepared to handle between 11.5 million and 17 million loaded and unloaded TEU, compared with about 7 million in 2018.

Near-port warehouse demand grows

The increase in trucks making their first stop near the port reflects the increasing intensity of the search for industrial space close to the port as cargo volumes rise. In recent years, e-commerce companies and their logistics providers have increasingly sought similar space from which to deliver goods to area consumers. The port’s cargo volumes increased 6.5 percent in 2018 over 2017, to 5.1 million loaded TEU, and were up 5 percent from January to April this year, according to PIERS, a sister company of JOC.com within IHS Markit.

“It’s a very, very tight industrial market,” said Chuck Fern, vice chairman of real estate broker Cushman & Wakefield. The main driver is the growth in e-commerce, which also has boosted demand for warehouse space closer to the port — which is about 10 miles from New York — as the need to get goods to the consumer faster has taken hold, he said.

The growing need for warehouses, and limited space near the port, have triggered the emergence in recent decades of three warehouse clusters, or relief areas providing shippers and logistics providers with an alternative to finding space close to the port. One of them, the Middlesex County market, which makes up a large part of the area known as Central Jersey, now accounts for 23 percent of all first stops from the port, the study shows.

A second area, Lehigh Valley in Pennsylvania, which is about 80 miles, or an hour and 20 minute drive from the port, accounts for 8.7 percent of first truck stops, the report says. The percentage of first truck stops in the third area, the Meadowlands, about 10 miles from the port, is not studied in the plan.

“It is clear that an increasing amount of cargo is being trucked between the port facilities and a concentrated region of northern and central New Jersey,” the report said, adding that dynamic necessitates “additional truck movements as cargo is then distributed from those centers to east-of-Hudson destinations,” referring to New York.

Port officials want to replace a growing number of truck trips with rail. The plan adds that “opportunities for the development of an inland port facility outside the port district will be investigated,” a strategy that other ports have successfully used to create logistics zones away from the port.

Lease rates rising

That already tough market for shippers and logistics providers looking for space in and around the port in New Jersey tightened further in the second quarter of 2019. Both CBRE and Cushman & Wakefield said rents hit record highs in the quarter.

CBRE said the availability rate in the state’s industrial market fell from 6.4 percent in the first quarter to 6.2 percent in the second quarter, the lowest since 2005. The rate stood at 7 percent in the second quarter of 2018, the real estate company said. Availability rates are compiled using a combination of vacancy data — based on space that could be leased now — and data on space that is not yet vacant but is being marketed because it will soon be available.

Rents for Class A industrial space in North Jersey rose to $8.01 per square foot in the second quarter, $1 above the year-ago rate; Central Jersey rates rose to $6.66 per square foot, 54 cents higher, CBRE said. Demand is so strong that some North Jersey rents are close to $13 per square foot and some Central Jersey rates are close to $10.50 per square foot, the company said.

Although leasing activity for the state as a whole ticked down slightly to 6.7 million square feet from the quarter before, that figure was the “highest ever recorded” for a second quarter since 2001, the report said. Leasing activity in the second quarter of 2018 was 5.9 million square feet, the report said. The total amount of available warehouse space in New Jersey rose by 14.5 percent, from 817.8 million square feet in the second quarter of 2018 to 829.8 million square feet in the second quarter of 2019, the report said.

Vacancy rates for New Jersey as a whole were 3.3 percent, the same as the second quarter of 2018, while the average asking rent rose from $8.48 to $9.29 per square foot, Cushman & Wakefield reported. The rate was an “all time high,” and up 9.8 percent on the same period in 2018, the real estate company said.

Contact Hugh R. Morley at hugh.morley@ihsmarkit.com and follow him on Twitter: @HughRMorley1.