Industrial Submarket Report: Port Elizabeth/Newark

The Port Elizabeth/Newark submarket stands out as a substantial industrial domain, offering a vast 35.8 million square feet of space spread over 208 buildings across classes A, B and C types, nestled within the entirety of Elizabeth Township and the greater portion of Newark Township. Renowned for its proximity to the port of Newark/Elizabeth, the submarket enjoys stable activity, robust demand, and is home to large-scale enterprises that contribute to its heavy industrial traffic.

The presence of major players like Amazon, FedEx, HelloFresh, Wakefern Food Corp, United Airlines, Continental Terminals, and Lineage Logistics attests to the submarket's strategic importance and its role in supporting significant corporate operations. These tenants, drawn by the area's logistical advantages and the stable environment, signal the submarket’s role as a cornerstone of the New Jersey industrial scene.

With a prime location that is both port-proximate and activity-rich, the Port Elizabeth/Newark submarket offers a competitive edge to businesses seeking strategic positioning and access to extensive distribution networks. This submarket not only hosts a high volume of industrial operations but also provides an environment conducive to growth and opportunity within the Northeast's expansive industrial landscape.

Trends/Forecasts

Two notable developments are currently underway at Port Elizabeth/Newark, each showcasing the submarket's ongoing transformation and appeal to leading companies.

Prologis, a leading logistics real estate landlord and developer, is spearheading the construction of a state-of-the-art facility at 357 Wilson Avenue. With New Jersey's robust industrial activities, Prologis' new venture adds 142,000 square feet of premium space to its portfolio, as well as the submarket. The facility will feature 40-foot clear ceiling heights, 23 loading docks, two drive-in doors, and ample parking for both trailers and cars. Set on 7.3 acres and bordered by strategic corridors, Route 1&9 and the New Jersey Turnpike, the site's proximity to the port—just four miles away—underscores its logistical advantages.

Further cementing the submarket's interest from developers, 100 Frontage Road is undergoing a transformative redevelopment by Seagis Property Group. Acquired in 2019, the former manufacturing site is morphing into a cutting-edge class A warehouse. United Airlines, in anticipation of the strategic advantages, secured the entire 223,000 square foot building last year. The airline will leverage this facility to streamline cargo operations, taking advantage of its mere three-mile distance from Newark International Airport.

The industrial market in New Jersey has observed a steady upward trajectory in asking rents over recent years, reflective of the state’s robust demand for industrial and logistic spaces. At the Port Elizabeth/Newark submarket, the trend is noticeably evident, with asking rents escalating from $6.09 per square foot in 2015 to $14.61 in 2024.

This consistent rise is a clear indicator of the submarket's resilience and growth, with a remarkable increase particularly noticeable from 2020 onwards. The jump from $8.51 to $11.19 between 2020 and 2021, and subsequently to over $14 by 2023, underscores the strong market fundamentals and the increasing desirability of space within the area. Such growth in asking rents can be attributed to several factors, including the submarket's proximity to major transportation hubs, the high demand for e-commerce fulfillment centers, and limited new supply in the face of growing occupancy needs.

Within the broader context of New Jersey, the Port Elizabeth/Newark submarket's asking rents align with the state’s position as a crucial logistics hub on the East Coast. The Garden State boasts some of the highest industrial rents in the country, driven by its strategic location, access to a dense population, and robust infrastructure. As businesses continue to value these locational benefits, the upward trend in asking rents is likely to persist, signifying the region's ongoing appeal to industrial tenants and investors.

In the industrial landscape of New Jersey, Port Elizabeth/Newark submarket stands out with its notably lower vacancy rates compared to the statewide average, reporting a resilient 2.3% against the broader 5.6%. This enduring strength in 'port-proximate' markets, even as class A asking rents exceed the state average, is a testament to the submarket's strategic advantages. Notably, between 2015 and 2024, vacancy rates fluctuated from a high of 3.8% to an impressive low of 0.5% in 2021, before settling at a projected 2.8% for 2024.

This consistent demand is further underlined by the presence of billion-dollar entities such as Amazon, FedEx, HelloFresh, and Wakefern Food Corp, which actively seek out and absorb space within the Port Elizabeth/Newark area. Their occupancy decisions are strategically influenced by the reduced freight costs associated with the submarket's location—a mere few miles from the bustling port facilities. Such logistical efficiencies, coupled with the submarket's ability to maintain lower-than-average vacancy rates, underscore the competitive edge it offers to businesses. These factors collectively highlight the desirability of Port Elizabeth/Newark as a hub for major corporations looking to leverage New Jersey's robust industrial capabilities.

In 2022, the Port Elizabeth/Newark submarket witnessed a notable high in transaction volume, with over $600 million in property sales, significantly buoyed by Prologis' acquisition of Duke Realty assets. This year, however, sales activity has markedly decreased, with transactions totaling just $16 million.? This decline mirrors a national trend, stemming from challenging financing conditions and wider bid-ask spreads that dampen investor yields. The economic uncertainty is also prompting many businesses to reevaluate their space requirements.???

Despite the overall slowdown, some transactions have gone through. Notably, a class C warehouse on Pacific Street was purchased by State Line Construction for $6 million, or $351 per square foot, a rate likely influenced by its 100% occupancy rate and strategic location near key transport routes.? As we look to 2024, the current cautious approach to investment is expected to persist with high transaction prices and a conservative lending landscape possibly leading to continued restraint in sales activity.

The Tenant’s Perspective

From the Tenant’s Perspective, the Port Elizabeth/Newark industrial submarket presents a solid choice for companies looking to benefit from the region's strategic advantages. Its extensive 35.8 million square foot layout, distributed over 208 buildings, serves a variety of space requirements, and its port proximity supports robust activity and demand. This is evidenced by the heavyweight tenants like Amazon and FedEx, who choose this submarket for its operational efficiencies and lower logistics costs due to its closeness to significant transport hubs.

However, this comes at a steep cost to tenants. The submarket's asking rents, which have risen from $6.09 to $14.61 per square foot from 2015 to 2024, reflect a challenge for tenants that are renewing their leases or trying to break into the submarket. ?Moreover, the Port Elizabeth/Newark area maintains vacancy rates that are lower than the state average, making it difficult for tenants to find appropriately-sized space options.

In terms of sales, the recent dip in transaction volume, aligned with national trends, suggests a more cautious investment climate. Yet, noteworthy purchases, such as the Pacific Street warehouse, indicate that there is still a premium on strategic industrial locations. Looking ahead, tenants can expect a stable market environment, with ongoing interest in the submarket due to its location, infrastructure, and the promising completion of modern facilities such as 100 Frontage Road.