NJ Industrial Market Report: Exit 10

New Jersey’s Exit 10 is the second largest industrial submarket in the state, consisting of 42.2M sf of industrial space (second to the Meadowlands). The vast majority of the industrial supply in Exit 10 is in the Township of Edison, which has about 100,000 residents and a daytime population estimated at 300,000.

Raritan Center is a well-known micro-market within Exit 10, consisting of 11M sf of existing industrial supply, and considered the largest industrial park east of the Mississippi River (26 states). Raritan Center was part of a former Army arsenal that served as a major munitions port for the U.S. Military in World War I and World War II. In 1968, Frank and Vincent Visceglia bid $2.8 million for Raritan Center, capturing more than 100 old Army buildings, a dilapidated pier, and miles of bumpy roads in what evolved to be a very densely populated area, with a strong labor pool, and access to major highways like the Garden State Parkway, NJ Turnpike, Route 287, and Route 440. Raritan Center was eventually split into Federal Business Centers and Summit Associates, who are now the two major industrial landlords in Raritan Center. Since 1968 Raritan Center has added 11M square feet of industrial space, as well as office and retail space.

The largest competing landlord is Heller Industrial Parks, controlling 7.1M sf or 16.8% of existing supply. ?Heller’s 27 buildings at Exit 10 are in close proximity to each other, all accessible from Executive Avenue and Mill Road, and situated within a .5 mile drive.?While Heller has not delivered new construction at Exit 10 since 2001, with the average age of these buildings being 38 years old, they offer 24’ – 38’ ceiling heights, making them desirable to meet current tenant demand.

Trends/Forecasts

There is currently one building under construction at Exit 10, 1099 King Georges Post Road, in Edison. It is a 117,500 sf, Class A industrial development that is slated to be complete in June of 2023. Over the past 5 years, 2.4M sf of new industrial space has been delivered at Exit 10, with a single 208,000 sf build-to-suit warehouse delivered to Amazon, as the only industrial construction completion throughout all of 2022. Edison and Metuchen are the townships that make up Exit 10, and due to the population density, lack of available land, and declining support for new warehouses in local zoning boards, new construction has dwindled in recent years.

Rents at Exit 10 continue to climb, posting a 34% increase since 2018. 2022 saw an 11.5% increase year-over-year, the largest in decades. Rental rate hikes are forecasted to slow down within the next couple of years due to global inflationary issues and interest rate hikes.

Industrial asset sales recorded an all-time high in 2021. Total sales for Q2 alone of that year were $287 million because The Rockefeller Group bought “10Edison”, a 900,000 sf new industrial development, for $247 million ($274/sf). In 2022 total sales regressed to $44 million. There are currently 4 buildings for sale at Exit 10, with an average asking price of $244/sf. Exit 10 has seen steady increases in pricing over the past 10 years, but has surged over the past 8 quarters, recording a 28.8% increase from Q1 of 2021, now sitting at $205 per sf. The market cap rate has also held firm, now at 4.7%, which is in close range to the regional average for industrial assets.

Vacancy rates in these markets have hit all-time lows in recent years, recording a 0.96% vacancy rate in Q1 of 2022, and ticking up slightly to the current 1.9%. The vacancy rate remains tight at Exit 10 due to the robust demand for highly efficient distribution facilities from e-commerce tenants. ?

What’s the Tenant’s Perspective?

The Exit 10 industrial submarket continues to remain very attractive to industrial occupiers, as reflected in positive absorption rates and historicly low vacancy rates. This is mainly due to its location and consolidated ownership structure, which is held by 3 major landlords (Federal Business Centers, Summit Associates and Heller Industrial Parks), who together, control 42.2% of existing supply. This control on industrial real estate has pros and cons. On one hand, existing tenants can potentially expand and contract within the portfolios of these landlords. On the other hand, it’s very difficult for tenants to gain leverage over these landlords and push back on these historic rent increases because they are “the only game in town”. Lastly, this creates less opportunities for occupiers to purchase.

87% of this submarket’s available space is under 100,000 sf, so it is better suited for smaller industrial tenants. There is currently no space available over 200,000 square feet, a significant difference between neighboring market, Exit 8A, where 96.8% of available blocks of space are over 100,000 square feet.?