MARKET REPORT PORT OF NY & NJ SEAPORT & INDUSTRIAL MARKET

Transcription

1 MARKET REPORT PORT OF NY & NJ SEAPORT & INDUSTRIAL MARKET

2 EXECUTIVE SUMMARY Port of entry markets in the United States remain among the key drivers in the industrial market. As imports have risen steadily over the last few years in many of the ports across the country, the appetite for nearby industrial space has been robust. A major driver of demand, imports increased 7.6% in 2017 and represented 63% of all loaded cargo volume total in 2017 for the top 13 ports in the U.S. The National Retail Federation is predicting imports will be up 4.9% in the first half of With the explosive growth occurring in ecommerce, the demand for industrial space in warehouse, distribution, and fulfillment centers has been soaring. The U.S. industrial market has now recorded over 240 msf of absorption for four consecutive years the strongest run on record. These banner numbers do not occur without healthy port markets, which accounted for 28% of the net absorption registered in 2017 and recorded a vacancy rate of just 3.5%. Warehouse vacancy rates remain below prior cycle lows in many industrial markets, with conditions tightening further in Q as rates track below 5% in nearly half of all U.S. markets. At year-end 2017, the tightest U.S. markets included Savannah, Los Angeles, Orange County, the San Francisco Peninsula, and Oakland/East Bay, all of which have vacancy rates at 3.0% or below. Serving the most populous region in the country, the Port of NY & NJ is expected to remain one of the top ports in the country. The port set a new record in 2017, with 6.7 million TEUs handled, up 7.3% from The Northern & Central New Jersey industrial market has benefited from the robust import totals over the last few years as vacancy has dwindled to a historic low of 3.8%. Over 52.0 msf of industrial product has been absorbed in the market over the last four years with another 18.0 msf of absorption forecasted over the next two years.

3 MARKETBEAT MARKETBEAT

4 15% 6% 440,000 $25.7B The Port of NY/NJ boasts a 15.0% market share in terms of cargo volume handled nationally Import volume at the Port of NY/NJ rose by 6% in 2017 compared to the previous year There are approximately 440,000 port-related jobs in the NY-NJ region The Port is responsible for $25.7 billion in personal income and $64.8 billion in business income in the region

5 MARKETBEAT MARKETBEAT PORT OVERVIEW Total TEU Volume Year-End 2017 PORT FACTS 6.71 Million The Port of New York & New Jersey is the largest seaport on the East Coast and the third-largest in the nation. It encompasses the region within a 25-mile radius of the Statue of Liberty and runs along 650 miles of shoreline around NYC and Northeastern NJ. The Port of NY & NJ services one of the wealthiest consumer markets in the world. With a population density of 2,361 people per square mile (psm), compared to the national average of 90 psm, the New York Metro area is the densest concentration of affluent consumers in the country. The region is home to 20.3 million people, 69% of whom are over the age of 25. At $105,408, the metro area has an average household income 29.8% above the national average. Vehicles leaving the port can reach 24.6% of the U.S. population or 80 million people within an 8-hour drive time, reaching up north to Maine, as south as North Carolina, and as far west as Ohio. The port region is serviced by three Class I railroads, and shippers out of the Port of NY/NJ have extensive market reach to the Eastern half of the U.S., Eastern Canada, and beyond. A new study by the North Jersey Transportation Planning Authority reported that the port supports 229,000 workers employed directly by port businesses and 171,000 jobs indirectly associated with the port. This marked a 20.0% increase since Of the total, almost 345,000 of those jobs were located in New Jersey. Loaded Import: 3.40 Million Loaded Export: 1.42 Million Channel Depth (feet) 50 Total Cranes / Post-Panamax Cranes 61 / 47 Container Terminals 6 Major Trading Partners Rail Operators Rank Port Name 2017 Total Container Volume (TEUs) ANNUAL TEU VOLUME AND GROWTH RATE China, India, Germany CSX Intermodal, Norfolk Southern, Canadian-Pacific Railway Annual Change 2017 vs Total Total Container Volume (TEUs) 1 Los Angeles 9,343, % 8,856,783 2 Long Beach 7,544, % 6,775,172 3 New York/New Jersey 6,710, % 6,251,953 4 Savannah, GA 4,046, % 3,644,527 5 Northwest Seaport Alliance 3,665, % 3,615,752 6 Virginia/Norfolk 2,841, % 2,655,705 7 Houston 2,459, % 2,182,720 8 Oakland, CA 2,420, % 2,369,576 9 Charleston, SC 2,177, % 1,996, Jacksonville 1,076, % 981, Everglades (Fort Lauderdale) 1,074, % 1,058, Miami 1,047, % 1,030, Baltimore 962, % 870,115 During 2017, the port handled 6.7 million TEUs, breaking the record previously set in 2015 by 5.3%. The Port of NY/NJ boasts a 32% market share for east coast ports and a 15.4% market share nationally. The top import nations for 2017 were China, India, and Germany. Meanwhile, the top commodities imported into the Port of NY & NJ during the year were furniture, appliances, and beverages. 7,000 6,000 5,000 4,000 3,000 2,000 1, % 20% 10% 0% -10% -20% TEU Totals (In Thousands) Annual Growth

6 FORECAST MARKETBEAT MARKETBEAT INDUSTRIAL MARKET CONDITIONS The New Jersey industrial market is the third-largest in the nation with msf of product. The rise of ecommerce, robust import cargo volumes, a strong economy, and the desire by consumers to receive goods rapidly have all propelled the New Jersey industrial market to new heights by the end of The market absorbed over 10.0 million square feet (msf) for the fourth consecutive year while vacancy reached yet another historical low at 3.8%. Meanwhile, new developments hit a century high mark this past year as the need for big-box modern warehouse facilities remains strong. Almost 9.8 msf of new industrial product was built during 2017, 83.4% of which has been leased up. Of the 10.5 msf of industrial space that is being developed, 54% has been pre-leased. Tenant demand totaled 25.6 msf during 2017, the market s third-highest total in recent history. Nine tenants signed new leases greater than 500,000 sf during the year, a recent annual high, and four were within facilities not yet built. With unemployment levels healthy and consumer confidence at or near all-time highs, the demand for warehouse space near the most populous region in the country should remain strong. The continuous need for consumers to receive online orders rapidly will also continue to fuel leasing for ecommerce and retail companies for last-mile delivery. MARKET STATISTICS YE 2017 Size of the market (SF) 628,920,096 Overall Vacancy Rate 3.8% Y-O-Y change -120 bps Annual Direct Asking Rent ($PSF/NNN) $8.15 Y-O-Y % change +5.2 YE 2017 Net Absorption (SF) 13,524,052 YE 2017 Leasing Activity (SF) 25,608,362 YE 2017 Construction Deliveries (SF) 9,791,029 Under Construction (SF) 10,285,896 OVERALL VACANCY & AVERAGE DIRECT RENTS $ % $ % $6.00 8% 6% $4.00 4% $2.00 2% $0.00 0% Avg. Net Rental Rate Overall Vacancy Vacancy Leasing Rents Construction 2017 SIGNIFICANT LEASE TRANSACTIONS PROPERTY SF TENANT LEASE TYPE 1 Brick Yard Road, Cranbury 1,346,088 Wayfair New Construction 2 Brick Yard Road, Cranbury 991,348 ecommerce firm New Construction 2170 Route 27, Edison 923,000 ecommerce firm New Construction 171 River Road, Piscataway 725,400 Best Buy New Construction 980 High Street, Perth Amboy 718,219 Target New Lease

7 MARKETBEAT MARKETBEAT INDUSTRIAL MARKET CONDITIONS The Port Region is one of the most mature submarkets in New Jersey, with an average warehouse age of over 53 years. Approximately 13.5% of the square footage is concentrated within facilities with a clear height of 32 or greater. Despite much of the inventory being considered older, the submarket remains a prime location for companies needing direct access to the Port and NYC. Vacancy has fallen steadily since 2014 and has declined 110 bps within W/D product to 3.3% since The second half of 2017 yielded 1.1 msf of net occupancy gains in the submarket. Existing Class A* availabilities greater than 50,000 sf remain scarce in the submarket with just a handful available for lease. The lack of vacant quality space in the submarket has kept the asking rental rate from edging even higher, recently. At $6.83 psf, the rate for W/D space has climbed by 22.6% over the last two years. While activity for the year lagged the 2016 total, it was not due to lack of interest by tenants in the area, but to limited existing available supply. Land constraints are evident in the submarket as just one new project is under construction on a speculative basis in Newark with another two anticipated to start construction in the coming months. In Bayonne, The Bayonne Logistics Center will break ground in the next 12 months, which should help support the growing demand. MARKET STATISTICS YE 2017 Size of the market (SF) 73,583,620 Overall Vacancy Rate 3.3% Y-O-Y change -50 bps Annual Direct Asking Rent ($PSF/NNN) $7.08 Y-O-Y % change +1.7% YE 2017 Net Absorption (SF) 970,987 YE 2017 Leasing Activity (SF) 1,776,552 YE 2017 Construction Deliveries (SF) 1,000,336 Under Construction (SF) 831,063 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 OVERALL W/D VACANCY & AVERAGE DIRECT RENTS % 10% 8% 6% 4% 2% 0% PORT REGION SUBMARKET MAP Avg. Net Rental Rate Overall Vacancy 2017 SIGNIFICANT LEASE TRANSACTIONS PROPERTY SF TENANT LEASE TYPE 700 Kapkowski Road, Elizabeth 541,000 Allied Beverage New Construction 535 Dowd Avenue, Elizabeth 158,735 Duro Bag New Lease 629 Grove Street, Jersey City 130,963 This Is It! Productions New Lease 100 Industrial Drive, Jersey City 126,672 Fabuwood Sublease 158 Mount Olivet Street, Newark 116,283 Seafrigo Cold Storage New Lease *Class A warehouses are modern facilities with a 32 clear height or greater

8 THE FUTURE OF THE PORT REGION Infrastructure Investments In anticipation of the Panama Canal expansion project in recent years, the Port Authority of NY & NJ enacted and continues to invest in forward-thinking infrastructure improvements to improve capacity. ExpressRail, Port Authority s ship-to-rail system, set a new record in 2017, accounting for 14.8% of all container lifts at the port. The Port Authority aims for the ExpressRail system to account for 20% of container lifts by 2020, investing over $600 million in its intermodal rail infrastructure. The Port Authority and the U.S. Army Corps of Engineers recently completed the $2.1 billion dredging of the New York-New Jersey channel to 50-foot depth. Since 2013, the Port Authority has been undertaking a navigational clearance project to raise the Bayonne Bridge from the original 151 feet to 215 feet over the Kill Van Kull strait, which connects Bayonne, NJ with Staten Island, NY. The new elevated roadway opened to vehicular traffic in early 2017, and navigational clearance for larger container vessels was granted in mid Together, these two projects allow larger, more efficient container vessels to reach the region s marine terminals in Newark, Elizabeth, and Staten Island. The port is now able to take advantage of the Panama Canal s new locks, allowing transit by ships with the capacity for up to 18,000 containers. Since the clearance height was raised in June 2017, the Port Newark Container Terminal handled 24 cargo ships 10,000 TEUs or greater, mainly coming from the far East. In anticipation of the surge in mega-ship calls, the Port Authority is implementing a system to increase the flow of vehicles through the Port Newark terminal. A state-of-the-art gate system is expected to come online in the spring of 2018, condensing trucks arrival, equipment inspection, and slot and container assignment from three stops to one. This upgraded system is expected to decrease the average trucker turn time by 25%. Other improvements in the works include expanding the port s current footprint, improving electrical, global positioning, and wi-fi equipment, and adding four super-post Panamax cranes. What s in store for the industrial real estate market in the Port Region? With limited land opportunities and a relatively small inventory of modern warehouse facilities, the Port Region submarket has its challenges. However, the strong desire for companies to be in close proximity to the seaport will keep occupancy rates at or near historically high levels and rental rates continuing their current upward trend. Asking rents are forecasted to increase almost 15.0% through 2020 to $7.80 psf for existing warehouse space in the area. However, that number is significantly higher for new construction, pushing the average into double digits. Developers are expected to take advantage of the current robust industrial expansion cycle and build on a speculative basis in the next few years, as market conditions should remain tight as demand persists. Even areas surrounding the port along the NJ Turnpike down to Exit 12 have seen robust tenant demand as opportunities in the immediate Port submarket have been limited. Matrix Development is currently developing over 2.2 msf of warehouse product on Staten Island with over 1.8 msf leased to Ikea and an ecommerce company.

9 WHAT YOU NEED TO KNOW Higher U.S. Drayage Costs Ahead The ELD (Electronic Logging Device) mandate that took effect on December 18, 2017 has led to further increases in driver attrition leading to higher freight rates. The Department of Transportation limits hours of operating over the road to 10 hours per day and no more than 14 hours per shift including dwell time, loading and unloading, and a lunch break. For years, drivers have kept manual logs for inspection, but new federal legislation mandated that all carriers must implement the ELD. ELDs and tighter regulatory enforcement of driver hours will compound the problem for the industry that is already facing capacity issues and a massive shortage of drivers. Drivers will not be able to break the 10-hour driving/14-hour on-duty time rule and conceal violations in fake paper log books. With this new legislation, drivers will not be able to do the number of turns at port terminals or rail yards they are accustomed to handling each day, which may make it harder for them to stay in business. Many drivers are opting to leave the industry or retire. WHAT DOES THIS MEAN? Since ELD implementation, drivers have to either 1) add another driver, swapping driving responsibilities, or 2) spend the night at the final destination. Regardless, the change will have direct impact on driver shortages, which has already had a direct impact on freight rates, which are up 5 to 7% since this legislation went into effect. As a result, truck drivers many of whom are owner-operators are more interested in servicing distribution warehouses in locations such as Southern California s Inland Empire or Central New Jersey and the Lehigh Valley transloading facilities that service the Port of New York-New Jersey than in longer hauls to secondary and tertiary markets. Increased warehouse rental costs and transportation costs will force BCOs (beneficial cargo owner) to optimize their supply chains by locating close to both the ports handling their imports and the consumer markets they serve in the urban cores. Industrial rental rates in the secondary and tertiary markets could experience downward pressure, and those markets may see a decrease in truck capacity as drivers gravitate toward higher-paying work with more turns per day in the seaport regions. However, each market has its own dynamics, and the secondary and tertiary markets will make adjustments to fill their needs. As truck rates increase, BCOs are focusing more than ever on optimizing their supply chain by taking space at transloading facilities close to seaports and are paying higher rental rates. Virtually every industrial real estate market in the U.S. has posted low vacancy rates, strong demand for warehouse space, and rising rental rates. As ecommerce adoption continues to grow, it seems likely that the market for industrial space will remain resilient. In Q4 2017, ecommece sales jumped to $119 billion a 16.9% increase year-over-year. They represented approximately 26.8% of GAFO (General Merchandise, Apparel and Accessories, Furniture and Other Sales), which is the highest share on record. Ten years ago, that share was 11%. In addition, consumer confidence jumped in early February 2018 to its second highest level since All of these aforementioned factors bode well for the Port Region submarket due to its ideal location to not only the Port of NY & NJ, but also to major highways connecting it to the largest consumer base in the country. Asking rents should trend even higher as demand for modern warehouse space in the area is forecasted to remain strong.

10 ABOUT CUSHMAN & WAKEFIELD Cushman & Wakefield is a leading global real estate services firm with 45,000 employees in more than 70 countries helping occupiers and investors optimize the value of their real estate. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit or on Twitter. NATIONAL PORTS PRACTICE GROUP CONTACTS Kevin Turner Executive Director, Logistics & Industrial Services Ports & Intermodal Practice Group Co-Lead kevin.turner@cushwake.com Matt Poreba Consulting Manager, Logistics & Industrial Services Ports & Intermodal Practice Group Co-Lead matt.poreba@cushwake.com PORT OF NY & NJ CONTACTS NEW JERSEY Jules Nissim Jules.nissim@cushwake.com NEW JERSEY Stan Danzig Stan.danzig@cushwake.com For more research information, please contact: Jason Price Market Research Director NY Tri-State Suburbs Jason.price@cushwake.com Christa DiLalo Associate Market Research Director New Jersey Region Christa.dilalo@cushwake.com Cushman & Wakefield Copyright All rights reserved. The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.