High Demand for Warehousing/ Distribution Spaces Will Continue to Power Northern NJ Commercial Real Estate Market in 2017
Scott K. Perkins, SIOR, CCIM, Managing Director of Corporate Services
This piece was originally featured in the January 27th issue of the Mid Atlantic Real Estate Journal.
There is ever-increasing demand for warehousing/distribution buildings from e-commerce distributors and 3rd party fulfillment operations. As consumer online purchases increase, expectation of delivery windows are decreasing from two-days to same-day shipping, spurring the continued demand for space closer to major population centers.
Northern NJ is one of the densest commercial markets in the country making the search for large pieces of vacant land very difficult. Owners of existing warehouse/distribution space are capitalizing on the substantial increase in demand and critically limited supply with rents per square foot for new, modern facilities in the double digits, for the first time ever.
In addition to current owners, developers and redevelopers have also recognized that warehouse/distribution centers increasingly represent the highest and best use for more and more commercially zoned land in northern New Jersey. Adding to this, we have seen an increase in the pace of the demolition of functionally-obsolete industrial properties to allow for the construction of new, modern warehouses able to accommodate the needs of the ports and e-commerce companies. We are also seeing the demolition of outdated suburban office properties to make way for warehousing/distribution oriented buildings.
Also impacting the movement of goods in the area is the project to raise the Bayonne Bridge. It looks to change the way the Port of New York and New Jersey handles incoming containers from ships. At its current height of 151 feet, the Bayonne Bridge only allows Panamax ships carrying about 5,000 TEUs (Twenty foot equivalent or one container) of cargo to enter Newark Bay to dock at the Port of Newark-Elizabeth. Slated for completion in 2017, the project, which will raise the Bayonne Bridge to 215 feet, will enable larger New-Panamax ships, with capacities of about 14,000 TEUs dock at Port Newark-Elizabeth
The mere fact that larger ships can dock at the port will not necessarily affect demand for goods in the area. However, it will change the way the containers move off port property; it will have to be done quicker and more efficiently. With consumer demand creating a change in how goods are delivered, the supply chain in which these goods flows must also change. The knock-on effect for warehouse buildings in the northern New Jersey commercial real estate market will be the need to accept these containers at expanded hours. This may create issues at a municipal level regarding truck traffic at off-hours and they may also have to adjust when they operate. There are a myriad of issues that need to be addressed in order of the real estate world to keep up with the relatively new era of e-commerce and move into the future.
Operations around the Port of Newark-Elizabeth will continue to be active leading up to and well after the completion of raising the Bayonne Bridge. E-commerce distributors will continue to search out modern warehouses near New York City and northern New Jersey, resulting in continued large-scale development and redevelopment of warehouse/distribution centers well into 2017 and beyond. As available industrial space dries up around the ports to due high demand and low supply, secondary industrial markets will benefit such as those along the Route 287 and 78 corridors.
At NAI James E. Hanson, we have seen e-commerce and warehouse/distribution related tenants in the northern New Jersey market looking to consolidate businesses into one larger facility versus several smaller buildings in multiple locations. Many landlords we work with are at or near full occupancy for their holdings and are consistently finding that they can secure premium prices for square-footage in modern buildings versus single digit rents for unimproved, older buildings.
Throughout our 60-year history, NAI James E. Hanson has been deeply rooted in the communities we serve and work in. Our commitment to community engagement and helping others in need has been a cornerstone of our company culture. We recognize that it isn’t enough to just have an office in a local community and that truly great companies are the ones who make a difference in the communities in which they live and work. We continue this proud tradition through our participation in the American Cancer Society’s Breast Cancer Awareness Month every October for the past three years. This year, the NAI James E. Hanson employees took part in the Denim Day Challenge and the Making Strides Against Cancer Walk in addition to other fundraising activities, raising over $10,000 on behalf of the American Cancer Society (ACS).
2016 marks the third consecutive year that NAI Hanson has broken our previous years’ fundraising records thanks to our employees raising more than $5205 and our company matching their fundraising efforts. We are already looking forward to breaking the record next year. “At NAI James E. Hanson we pride ourselves on the work we do for our communities,” said Mary Lovely, Vice President at NAI James E. Hanson. “I’d like to thank all of our employees for their participation. Through exceeding our fundraising goal and raising awareness of the work being done at the American Cancer Society, NAI James E. Hanson is making a difference!”
In addition to the ACS, NAI Hanson is a proud supporter of numerous local charitable organizations with employees generously donating their time, money, and items yearlong to causes such as the Center for Food Action, Eleventh Hour Rescue and Adopt-a Family at Christmas.
An Inside Look at the 2016 SIOR Fall World Conference and Why an SIOR Designation Continues to Be a Differentiator in CRE
Taking place from October 19th-22nd, the Society of Industrial and Office Realtors (SIOR) Fall World Conference was held at the Sheraton New York Times Square. Commemorating the 75th Anniversary of SIOR, this gathering allowed the most experienced commercial real estate brokers in the business to network and gain valuable insight on the trends and innovations that are the future of commercial real estate. NAI James E. Hanson was proud to send 10 associates to this conference including Managing Director Corporate Services Scott Perkins, SIOR, CCIM and Senior Vice President, Thomas Vetter, SIOR. Scott has been a member of SIOR since 2004 and currently serves as the Treasurer of the NJ Chapter. Joining SIOR in 2013, Tom was heavily involved in the planning of the conference and will succeed Scott as Treasurer of the NJ Chapter in 2017. They were happy to provide some insight into the importance of a SIOR designation and why this conference was such a valuable experience.
Why did you pursue the SIOR designation and what are the advantages of working with an SIOR?
SP: When I applied for SIOR membership, I already had several industry designations including Certified Commercial Investment Member (CCIM) and Royal Institution of Chartered Surveyors (MRICS). I added SIOR because the designation is viewed by corporate real estate executives as a sign of professionalism and expertise. When working with an SIOR, you know you are working with one of the industry’s best.
TV: Having the designation separates you from your competition. Corporate real estate managers and directors know they are being represented by a capable broker with a history of success in the industry. As a broker referring a client to an out of state broker, when I use an SIOR, I can do so with confidence that my client will be well taken care of by a knowledgeable, ethical broker with a proven track record.
What kind of advantages does a firm with multiple SIORs have over other firms with fewer SIORs?
SP: Firms with multiple SIORS are recognized as industry leaders and very prepared to work on any deal that comes through their doors. Having multiple SIORs work on an assignment lets the client know they are working with a very experienced team.
TV: An educated and active broker will always have an advantage when competing for business. I think it’s just a testament to the importance at NAI James Hanson that is put on continued education and involvement within the industry. SIOR is also very important to Peter & Bill Hanson who encourage all brokers in the company to strive for the SIOR
Why is networking so important for SIORs and was the Fall World Conference a great networking event?
SP: The real estate industry in constantly changing. The networking aspect of SIOR on a local, regional, national and now, international basis gives perspective and context to every assignment we work on.
TV: It is critical to develop relationships with other brokers that you can trade business with. Real estate transactions can become very complicated and challenging in a variety of
ways and the stronger relationship you have with a broker you are working with, the better chance you will have of overcoming obstacles, solving problems and ultimately providing the best possible service for the client.
What was your favorite part of the SIOR conference?
SP: The networking is an invaluable part of the SIOR conference and I left New York with countless contacts that I can partner with on projects moving forward.
TV: It’s always important to meet people in your field and gain insight from their experience. I am excited about working with the SIORs I met at the conference in the coming months.
What is your biggest takeaway from the SIOR Conference?
SP: A brokerage’s role is transitioning from purely transactional to advisory-oriented, and brokers are increasingly depended on to interpret and distill what’s relevant for clients. SIOR is a valuable resource for providing continuing education and networking opportunities to help in this advisory role. For brokers, the importance of being involved with SIOR cannot be stressed enough and for clients, partnering with SIORs will continue to be a worthwhile and meaningful part of every business relationship.
TV: Being involved with SIOR doesn’t just mean acquiring the designation and then not participating in SIOR networking events or continuing education. Brokers who are heavily involved in SIOR will have a leg up on the competition by receiving referral business and being able to send business to other brokers with the confidence that you’re properly servicing the client. SIORs are also in a position to learn about and embrace new technologies to use to their advantage as much as possible. This gives SIORs, and the firms employing multiple SIORS, a significant advantage in the field of CRE.
What advice would you give to someone considering applying for their designation?
SP: If your production levels warrant membership, just do it. If not, it is something to aspire to.
TV: Do it! You won’t be disappointed!
Russell J. Verducci, Associate Vice President
I started my career in commercial real estate 12 years ago. To put that into context, I started using email in high school and I did not have a cell phone until college. Mark Zuckerberg was still a normal (if not eccentric) college student and social media pretty much only consisted of MySpace and LinkedIn. I reference this period because I feel fortunate to have been born at a time that put me squarely between Gen X’ers and Millennials. This means I was young enough to pick up on these technologies and their uses rather quickly, while being old enough to remember a time when calling on your friend meant riding your bike to their house and knocking on the door. How does this put me at an advantage in my career? I’m glad you asked.
There is a generation gap in commercial real estate and I believe that this gap is most evident in how real estate professionals engage with one another, with their clients and with potential clients.
The older generation, the ones who I learned from when I entered the industry were not privy to email marketing, or social media. They would pick up the phone a few hundred times a day and go around knocking on doors to source leads. Things were done in-person, face-to-face. If you were not on the streets you were not finding deals. There were billboards and ads, direct marketing tools and flyers, sure, but a commercial broker would not be successful if they were not visible. A client was not found and a deal was not done until you looked someone in the eye and shook their hands.
That mentality still exists in commercial real estate and that is still a very important part of this business, but it is a skill that a lot of younger professionals just now entering the industry do not have inherently. Many of them are mavericks when it comes to technology and finding creative ways to connect with potential and current clients from a computer screen or tablet. There is email marketing, social engagement, real estate applications, virtual reality tools and new technologies every day that are being utilized by this generation as powerful tools to generate business and maintain relationships. The way that people are searching for properties, whether that is a cold storage facility or a one-bedroom apartment is entirely different today and it’s their generation that is changing it. They want as much information as they can get and they want it at their fingertips with the click of a button and a flick of the wrist. It really is revolutionizing the way we live our lives, but there are still some things that you can’t do digitally, behind a computer screen no matter how effective those resources are and that this industry will always value.
That has put me in the position within this company to serve as an intermediary between two generations in commercial real estate and with the opportunity to impress upon my younger colleagues the importance of in-person engagement and my older colleagues the importance of digital touch-points. It has been a fascinating undertaking and it is one of the reasons that a company like NAI Hanson, a company with 60+ years of experience, is investing great resources into the future of commercial brokerage and property management giving us an advantage over some of the larger, national companies and some of the smaller companies. We learn from each other, we guide each other and we invest in each other.
I expect that when I am ready to retire from this industry and these same younger professionals are running things it will be the ones who were willing to work on the skillsets that separated a successful commercial broker when I started, while also embracing the emerging technologies that will be in charge. Digital touchpoints are not going anywhere and the way people look for properties will continue to evolve, but I suspect that a handshake will still be the most important part of closing a deal.
Darren Lizzack, Associate Vice President
Randy Horning, Senior Associate
With more than 30 million newly insured people as a result of the Affordable Care Act (Obamacare), there is increasing demand in New Jersey, and across the country, for medical offices. New Jersey is more developed and densely populated, leaving physicians and other medical professionals in the dilemma of not being able to move to the suburbs and build out and own their own medical offices as is the case in much of the rest of the country.
The plight of New Jersey’s suburban office market in terms of high vacancies as companies increasingly gravitate to the urban centers may, in the long term, provide a potential solution, as these obsolete traditional office buildings and office parks have been the subject of discussion for conversion to other uses, including medical. Many questions remain, including the adaptability of such buildings to the technology required by medical users, with cost being a major factor, as well as something as basic as parking ratios and whether such sites have enough room for the higher ratios required by medical use.
And overall, the cost to build out medical, whether it is new construction or conversion of an existing building is substantial, particularly a factor at a time when the industry is in a relatively lag period. That factor circles back to what shakes out from Obamacare, given the fact that the program is under attack in some quarters, mostly political, and its future is uncertain.
There are legal issues facing the industry as well. For example, if medical office leases are out of compliance for six months, and they are not month-to-month leases, they lose safe harbor protection. At the same time, attorneys representing medical tenants are increasingly contacting commercial real estate brokers for space valuations.
The bottom line is that for the medical office sector, this is a time of both opportunity and uncertainty, a scenario that remains to be played out. It is incumbent upon those in the industry to carefully weigh their options before making any long-term decisions. Consider contacting a broker for a professional opinion. My phone is always on.
Darren Lizzack, Associate Vice President
The suburban sprawl. If you look at a satellite image of New Jersey, or any state, you will see the sprawl circling the more urban areas. This was the result of the exodus of urban centers in the 70’s and 80’s by Baby Boomers and Gen Xers. People wanted space. They wanted to drive places. They did not want to take mass-transit, they did not want sidewalks on their front lawns and they did not want to live on “main streets.”
Fast forward 30 years and a new generation of workers are on the rise. These workers are flocking to urban centers. These workers want to live and work and play in the same community. They don’t want to sit in hours of traffic just to get to work, they want to walk or bike there. Once at work, they want to walk or bike to restaurants, bars and shops, then they want to walk or bike home. These workers are Millennials and they are the future.
Unfortunately, the suburban sprawl as we know it, does not lend itself well to this type of lifestyle. For this reason, companies that are looking to attract and retain millennials (essentially all of them) are searching for the sort of amenity rich, walkable communities that these workers desire. This has led many townships to search for a way to keep these companies in their communities, increasing ratables and driving their economies.
Montvale is one example of a once strong suburban office market searching for the answers to attract and keep millennials and the companies that want to employ them. The mayor of Montvale, Mike Ghassali, and its council decided to create the Economic Development and Retention Committee and to recruit professionals from various industries to establish a plan to bring Montvale into the future. I was asked to join this committee and share my thoughts on what suburban towns can do to compete with urban centers.
The most important thing that a suburban town can do to attract millennials is to invest in developing a downtown area. This is not the type of investment that can be made overnight, but it is something that millennials and the companies that are employing them want. Employees want to be able to walk somewhere during their lunch hour or to happy hour and want to be in a downtown area with shops, restaurants and bars. If they can’t walk there, they want to be able to bike there. If they can’t bike there, they will drive, but it will likely be to somewhere else that has the downtown element they seek.
Another thing suburban markets need to consider is investing in their infrastructure and creating “complete streets.” This is a trend that is gaining considerable traction and will be a differentiator in your community. The amount of people who bike to work has increased 60% in the past ten years. Complete streets are biker and pedestrian friendly, with safer biking lanes and easier street crossing areas. They also benefit mass-transit systems that you might find in suburban areas like local buses. An investment in complete streets will also alleviate some of the rush hour congestion and parking issues facing Montvale and similar towns.
There is no one answer to finding ways to convert the outdated concept of suburban sprawl in order to compete with urban centers that are flourishing in this new amenity-and-transit-driven economy, but there is a singular direction that towns can look towards. How can I make my town more commuter friendly, more amenity rich and more walkable? Invest in a downtown area and complete the street.
You can contact me at any time by calling my direct line at 201-478-7404 or by emailing firstname.lastname@example.org.
The Morris County—and Northern New Jersey—office market is in transition, driven by macro economic and demographic trends. While leasing activity has picked up, the impact on net absorption has been minimal. A key factor has been the suburbs vs. urban markets scenario – responding to the desire of many millennials to flee suburban areas for urban, transit oriented communities, a trend known as the new urbanism. Millennial workers are using their influence as the future of the workplace to drive change, especially in the TAMI (Technology, Advertising, Media, Information) industries. These tech and associated firms are opting to do whatever necessary to attract well educated millennials and an ever increasing number of companies have opted for urban locations offering the “live, work and play” environments that millennials seek.
Transportation hubs in areas such as Morristown, Summit/ Chatham, Montclair and others as well as such larger cities like Newark, Iselin (Metropark) and Secaucus provide workers with the ability to quickly board a train or bus to work. This availability to mass-transit has been positive and stabilizing for many of these towns and some of the immediate surrounding municipalities.
Suburban office properties, many of them standing partially or fully vacant as a result, still provide opportunities for those investors/buyers willing and able to adapt that space. Potential uses can range from medical to healthcare, retail and even sometimes residential. Questions and risks remain with much of Northern New Jersey’s suburban office product as most was constructed in the 1980s and 1990’s. As such they are considered rather functionally obsolete for today’s office uses. Is a hi-tech infrastructure available? Is the parking sufficient? Local amenities? Might they be altered for medical use, general healthcare or even a retail use…are the aesthetics appropriate for residential. The answer may be as simple as, “Can I walk to a Starbucks?”
The bottom line is…These investment opportunities are there for the taking! I hold out that creative investors and developers have the insight and wherewithal to determine how to transform older office buildings and space into something desirable and useful. Even if the alternative is demolition followed by new ground-up construction of something other than an office building or park, there is a future!
In terms of new office construction there is very little activity except for our existing base of corporations (which is substantial) looking to modernize their facilities. One example of this type of redevelopment can be seen here: http://bit.ly/1SaXDVQ
This is unlikely to change in the foreseeable future given the macro trends noted above. The additional fact that it is expensive to do business in New Jersey compared to many other markets. As they say, “the world is flat” and it is not unusual for companies to look elsewhere. Fortunately, New Jersey has an extraordinarily educated and diverse workforce. For companies that stay in the Garden State, they increasingly turn to urban locations and/or properties that are located near mass transit, allowing millennials who do not drive easy access to work. This signals a long-term change that is here to stay for our state’s office market.
If you are an owner or tenant and interested in leasing or buying office space in Morris County, Northern New Jersey or anywhere else I would look forward to discussing those options with you. Please do not hesitate to give me a call.
Senior Vice President
Mobile : 201-280-4429
It goes without saying that technology is dramatically changing the world, and the impact of e-commerce on industrial real estate in New Jersey is a prime example. How much of an impact? According to the Russell 3000 Index, Amazon generates more than 33% of all Internet revenue, and the products it sells have to be shipped from somewhere. Still there is more room for growth in this sector as Alibaba, the world’s largest online retailer based in China, has taken e-commerce platforms global and certain vendors have seen incredible growth rates after switching from Amazon.
For New Jersey, that means one million-square-foot, state-of-the-art distribution centers in Robbinsville and Carteret, and a food distribution warehouse in Woodbridge. But e-commerce is more than just Amazon and the requirements of companies in that business are changing the traditional “warehouse” in more ways than one. For instance, e-commerce is currently transforming the food sector, adding pressure to supermarkets and food vendors to make changes to their locations and operations.
From a design standpoint, the e-commerce distribution center breaks new ground in the technology it utilizes. It also reaches skyward—multi-level facilities are becoming common.
From a location standpoint, traditional distribution centers were located far from population centers in areas more adaptable to sprawling facilities. But those locations can hamper next-day delivery demands of consumers, resulting in the construction and conversion of facilities in more densely populated areas. Indeed, for smaller, specialized e-commerce distributors, urban in-fill locations come into play. Port proximity is another factor for receiving incoming product, and New Jersey’s port access has been key in development of facilities near the ports.
Questions remain. For densely populated states like New Jersey, availability of land is a serious issue. There is minimal prime land available and local resistance to development can be a factor. Urban in-fill locations are one response, as mentioned, with many locations garnering urban redevelopment support through state and local incentives. Land availability is also less of an issue the further south one ventures down the New Jersey Turnpike, as Amazon and others have demonstrated. The amount of new industrial construction from Exit 8A south is testament to that.
The modern e-commerce distribution center, by volume alone, also requires more truck or car parking and office space than the traditional facility, another issue coming into play in the development of new facilities and availability of land, particularly in the more heavily populated areas.
Because of the sheer volume of product shipped in and out of the modern e-commerce distribution centers, mezzanines have become an important packing or staging area. These structures are useful for buildings with a less-than-ideal layout and allows for additional, separated space. The volume of product also impacts hiring. Because of volume, such facilities are more labor-intensive. They create a substantial number of jobs, boosting the economy, but questions remain about whether enough qualified employees are available.
As demographics change, and people, particularly the younger generation, order online and want product delivered quickly or on the same day, e-commerce’s evolution will continue to have a substantial impact on industrial real estate in New Jersey. Given some of the industry’s growing pains in terms of land and employee availability, there will be some “casualties” among smaller e-commerce companies ill-prepared to respond. But dominant companies such as Amazon, as well as FedEx and UPS, among others, are well-equipped to respond and keep growing.
You can contact me at any time by calling my direct line at 201-478-7376 or by emailing email@example.com
By Thomas A. Vetter, SIOR, Senior Vice President
Every real estate market, no matter how niche, is at its core a free-market which will pit larger institutional owners against the smaller independent real estate owners. Institutional investors with a value-add strategy will look for assets within the marketplace that they can quickly enhance (structurally and aesthetically) and fill with a tenant. The larger purse strings of these companies can leave independent owners at a serious disadvantage for luring top tenants, especially in a market as hot as the industrial Meadowlands market is right now.
Independent owners of industrial assets in the Meadowlands market may not be able to raise the ceilings of their buildings or remodel to a potential tenant’s specs like institutional investors can, but there is still so much they can do in order to compete with their newly-renovated institutional neighbors. The key is to maximize your investment.
Potential tenants are often lured by attractive branding and color schemes. (Think Prologis and Sitex Group). A professionally painted exterior / interior will pay for itself in attracting the type of tenant that you are hoping to secure. Likewise, many tenants are turned off by chipped, discolored and damaged floors. We recommend having the floor surfaces inside your building patched, painted and sealed (if you can afford to do it). This will immediately make you more competitive with institutional owners.
Another way that independent owners can stay competitive in the Meadowlands marketplace is to upgrade to energy efficient lighting fixtures throughout their building. This is really a win-win-win. You do well by the environment, your tenant’s pocket as they save on the electric bill and following the initial investment, energy efficient lighting really is the most sustainable way to keep your building lit.
If your asset has office space and you cannot afford to completely renovate it, consider my first point regarding a fresh coat of paint. New carpets would be a plus as well.
Independent owners who are having trouble competing with the more well-financed value-add institutional owners who are increasing their market share in the marketplace should at the very least feel confident in the fact that a rising tide lifts all ships and that a marketplace boasting a 6% vacancy rate will continue to be a landlord’s market.
We at NAI Hanson have been working with smaller, independent owners of industrial assets for decades and I believe strongly that my own experience within the Meadowlands marketplace can prove to be a valuable asset to anyone who would like to learn more about competing with their institutional neighbors.
You can contact me at any time by calling my mobile phone at (201) 723-2059 or by emailing me at Tvetter@naihanson.com.
We recently celebrated NAI James E Hanson’s 60th anniversary as New Jersey’s leading independent full-service commercial real estate firm. Over those past six decades a lot has changed in our industry but our values of honesty, integrity and accountability have not. It has always been our mission to amass a roster of the industry’s top commercial real estate professionals, dedicated to providing our clients with unrivaled service and innovative solutions.
These talented professionals are at the core of our business and our success. We’ve proudly operated independently since my grandfather founded the company in 1955. To stay competitive within the global marketplace, we were one of the first commercial real estate service firms to join the NAI Global network, which allowed our company to service our clients’ needs both nationally and globally, while remaining independent. In 1993 I assumed the leadership position of NAI Hanson and remain committed to growing and enhancing our services to provide the highest quality client service, while most companies are consolidating them.
Over the past few years I’ve watched as mergers and consolidations swept through our industry creating large conglomerates. This will be a trend that we’ll continue to see within the marketplace, but it is one that NAI James E. Hanson will not subscribe to. While NAI Hanson will continue to grow we will remain agile to respond to client needs and provide superior customer service that has become a cornerstone of our business for decades.
Our entrepreneurial spirit and culture has been a driving factor in our success for decades. We’ve adopted new technologies ahead of our publicly owned competitors to better serve our clients while our knowledge of the local, regional, national and global marketplaces has earned us an authority position within the industry.
Our diverse offerings and expertise in brokerage services, corporate and government services, property management, logistics, tenant representation, property valuations, investment and financing enables us to recognize opportunities quickly and help our clients take advantage of them. Through the expansion of our services we have fostered a culture of responsiveness, creativity and collaboration.
What has and always will differentiate us from the competition and this new wave of mega-companies is our agility and highly personalized approach which is ingrained in superior client service and most importantly our talented, dedicated team of experts.
Through this blog we hope to continue sharing insights and innovations from our specialist on a diverse set of topics and trends occurring within the commercial real estate marketplace to help you stay informed, adaptive and agile as you navigate the Sea of Consolidation.
Thanks for reading and stay tuned for posts on the industrial marketplace, e-commerce, and much, much more.