Newest Logistics Center Construction Reflects Surge in Speculative Projects
No Tenants Signed Up, But That Doesn’t Stop Port Region’s Largest Industrial Development
Construction of a massive industrial park is underway in New Jersey without any tenants lined up, a growing trend around the country that’s being driven by online shopping and the ever-soaring demand for warehouse and distribution centers needed to deliver goods to doorsteps.
A joint venture of Advance Realty Investors, Greek Development and PGIM Real Estate kicked off construction of Linden Logistics Center, a 4.1 million-square-foot, state-of-the-art logistics complex in Linden, New Jersey. The developers are touting the project, located on a 350-acre tract, as what will be the largest active industrial development in the Port of New York and New Jersey region.
The joint venture has retained real estate services firm CBRE as the exclusive broker for the distribution center, which is being built on speculation, meaning the developers haven’t yet secured committed occupants for their buildings. This is happening more not only in the Garden State but nationally, with slightly more than 70% percent of warehouse space now under construction being built on speculation, according to a study just released by CBRE. In addition to Linden, in New Jersey there are at least two other huge distribution centers that are speculation projects.
“National metrics support that approach,” CBRE said in a statement. “The national vacancy rate for warehouses is a thin 4.45 as demand has dramatically exceeded new supply in recent years, pushing rents up by 19.2% since 2015. In New York [and] northern New Jersey, the vacancy rate for warehouses is 3.4%, below the national average, and rents have increased 4.8% over the past four years.”
In fact, CBRE found that the top five markets for so-called “spec” warehouse construction that offer below-average vacancy rates and strong rent growth are New York/northern New Jersey, California’s Inland Empire, Los Angeles – the top U.S. port by ocean freight – Seattle and Las Vegas.
The increase of online shopping, including a rise in grocery purchasing, and consumer demand for quick delivery are fueling what CBRE called the “unprecedented” surge in the construction of distribution and warehouse facilities, particularity in areas that have access to large populations. In-progress U.S. warehouse construction totaled 255 million square feet at the end of the first quarter, with 7 million square feet under construction in New York/northern New Jersey, according to CBRE.
In CoStar’s first-quarter report on the national industrial market, John Affleck, vice president of CoStar Market Analytics, said leasing volume was 148 million square feet, a drop of about 20 percent from the prior quarter. But he estimated once all leasing data is entered, the final total for the first quarter will exceed 250 million square feet. For 2019, CoStar expects a record 300 million square feet of industrial space to be completed.
The Port of New York and New Jersey is poised to surpass Long Beach, California, as the nation’s No. 2 busiest cargo port for the first time in more than two decades, officials said last week. That’s expected for a variety of reasons, including the completion of the ExpressRail Port Jersey facility, the final leg of a rail network spanning facilities in Elizabeth, Newark and Staten Island; the completion of the raising of the Bayonne Bridge to accommodate ultra-large container vessels; and over $4 billion in other modernization initiatives over the past two decades.
When completed, Linden Logistics Center, which recently won NAIOP New Jersey’s Industrial Deal of the Year award, will have eight Class A warehouse buildings designed for modern industrial users. The first buildings of the multiphase project are slated to be completed in late 2020, according to the developers.
The Linden complex is one of several large industrial projects being developed on a speculation basis in northern New Jersey. Lincoln Equities Group is redeveloping a site at the former Military Ocean Terminal in Bayonne into 1.4 million square feet of industrial warehouse space called Lincoln Logistics Bayonne. And Russo Development and Forsgate Industrial Partners just completed their purchase of a 718-acre site that spans Lyndhurst, Rutherford and North Arlington, where they plan to build Kingsland Meadowlands, a 3 million-square-foot logistics center.
Farther south away from the area’s ports, Bridge Development Partners is building Bridge Point 78, a 4 million-square-foot logistics hub on the site of a former Ingersoll Rand plant in Warren County, New Jersey.
The site of the Linden Logistics Center, located off Tremley Point Road, has been vacant for more than 25 years, according to City Mayor Derek Armstead. Some 100 million consumers can be reached within a day from the location, Advance Realty Chief Executive Peter Cocoziello said at a groundbreaking ceremony last week.
The site was once home to plants and factories – DuPont, GAF Corp., American Cyanamid – some of which have been accused of contaminating the area and then leaving, according to Armstead.
“We have the opportunity to put this place back in business, to put up buildings that will employ thousands of people both directly and indirectly,” Frank Greek, president of Greek Development, said at the project’s launch.
CBRE Executive Vice President Mindy Lissner also spoke at the groundbreaking, saying Linden Logistics Center can accommodate tenants who need anywhere from 200,000 square feet to over 1 million square feet. Even though the facility will face competition for tenants from the pipeline of other large distribution centers planned in the region, Lissner said later in an interview each of the facilities has its own unique characteristics that will be a draw for different types of tenants.
For example, the Linden Logistics Center offers toll-free access, through Interstate 95, to the Port Newark-Elizabeth Marine Terminal, which is just 5 miles away, Lissner said. In addition, the completion of some of the distribution center buildings is “somewhat limited” from this year to 2020, she said.
“I think the delivery of the projects will be spread out,” Lissner said.
Advance Realty Investors, based in Bedminster, New Jersey, is a privately owned real estate investment, development and management company. Greek Development, headquartered in East Brunswick, New Jersey, is a full-service real estate firm focused on industrial development throughout New Jersey and Pennsylvania. PGIM, the global investment management business of Prudential Financial, is one of the largest real estate investment managers in the world, with more than $171.2 billion in gross real estate assets under management and administration.
For the Record: Lissner and CBRE Executive Vice President William Waxman, supported by a 10-person team including Tom Sullivan and Kevin Dudley, are the exclusive leasing agents for Linden Logistics Center.