The Northeast industrial real estate market is like the Sahara at high noon: hot and getting hotter.
Leasing volume during the last quarter topped 30.1 million square feet, the highest quarterly level in the market’s history, according to a JLL report covering New York City’s outer boroughs, Long Island, New Jersey, Pennsylvania and Delaware. To put that leasing volume into perspective, the 12-quarter average is 21.4 million square feet.
The market is so competitive that tenants are signing leases for warehouses and distribution centers still being built. More than 50 percent of warehouses currently under construction in the region are already leased, according to the report.
Here’s the state of affairs for industrial space in the various Northeast markets:
New York City
Second-quarter leasing volume in the outer boroughs was just shy of 700,000 square feet, with a heavy concentration in Brooklyn and Queens. But the Bronx managed to score a 134,000-square-foot deal — by Amazon, according to media reports — at Innovo Property Group’s 511 Barry Street.
With the vacancy rate at 1.26 percent in the Bronx, 2.2 percent in Queens and 1.58 percent in Brooklyn, asking rents — which were below $20 a foot until a few years ago — went up by 25 to 50 percent to $31.69 a foot in the Bronx, $26.75 in Queens and $25.84 in Brooklyn.
Developers have been rushing to build more last-mile facilities to meet the demand. Some 2.7 million square feet of warehouse space is expected to be delivered by the fourth quarter of 2022, and developers are forecast to break ground on projects totaling 5 million square feet over the next two years.
But the additional supply is likely to be easily absorbed by the market as prospective tenants are seeking nearly 12 million square feet, according to the report.
The Garden State has nearly six times as much industrial space as the outer boroughs. But the market is just as tight, with statewide vacancy at 2.5 percent. Vacancy for newer facilities is even lower at 1.3 percent because online retailers want modern space, and as a result, “tenants have been forced to sign leases on proposed and under-construction products,” the report said.
About 14 million square feet of industrial space is under construction in New Jersey and more than half has been pre-leased, the report said. Competition for space is unlikely to ease up in the near future because tenants are looking for more than 26 million square feet.
E-commerce retailers accounted for about a third of total quarterly leasing volume of 12.3 million square feet. But the biggest lease signed in the quarter was Peloton’s 843,000-square-foot deal at Greek Development and Advance Realty’s Linden Logistics Center in the Tremley Point area in Linden.
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The high-tech stationary bike company announced in February that it would spend $100 million to shorten Peloton-bike delivery times to customers and has been actively expanding its warehouse footprint. When a spate of pandemic orders and shipping delays from Asia caused a backlog last year, Peloton resorted to flying some bikes across the Pacific to meet demand.
New Jersey’s average asking rent in the second quarter was $10.47 a foot. The price has more than doubled in a decade.
Leasing volume in Nassau and Suffolk counties in the second quarter increased by 13 percent from the first quarter, with 21 leases totaling 701,000 square feet signed. Major deals included Amazon’s 422,000-square-foot lease at JFK Logistics Center at 235-51 Rockaway Boulevard in the Woodmere hamlet. (The facility’s entrance is in Queens, but the building is in Nassau.) And Peloton signed a 116,000-square-foot lease at 85 Harbor Road in Port Washington.
Average asking rent in the second quarter was $14.06 a foot, up more than 7 percent from the first quarter. Some owners are now asking $17, according to JLL’s report.
Aided by strong leasing demand and rising rent, investors are flocking to industrial properties. As a result, capitalization rates of the average Class A industrial property have fallen to 3.81 percent, down 70 basis points in the past 12 months.
Benchmark transactions included CenterPoint Properties’ $116.5 million acquisition of a 145,000-square-foot logistics facility at 1080 Leggett Avenue in the Bronx and Travelers’ $74.5 million purchase of a new 197,000-square-foot Home Depot distribution center at 344 Duffy Avenue in Hicksville.