Center of the action New Jersey ups ante as distribution hub for e-commerce companies
22 Jan 2018
One of Gov. Chris Christie's last acts in office was a Jan. 11 sign-off on legislation that offers up to $5 billion of incentives to Amazon, if the online retail giant chooses Newark for its second headquarters. To further sweeten the pot, the city itself is offering another $2 billion of incentives.
Newark’s “vast public transportation network, international airport, supply of educated, tech-savvy talent and proximity to New York City” make it an attractive pick for any e-commerce retailer, according to Frank Giantomasi, a member of the West Orange-based law firm Chiesa Shahinian & Giantomasi PC, who is part of a group that advised Newark Mayor Ras Baraka about structuring the city’s bid. “Few other towns possess the ready-made infrastructure to welcome such a game-changing operation.”
The golden goose isn't everything
Amazon may be the golden goose when it comes to attracting e-commerce retailers, but New Jersey continues to be a magnet for e-commerce operations of all sizes, Giantomasi said.
“E-commerce is the new retail, and being close to your final consumer is important for e-tailers,” he said. “Besides being one of the most densely populated states around, New Jersey as a whole, and Essex County in particular — since it’s so close to New York — is an end-point distribution gateway that can rival just about any place. Add to that our top-grade transportation outlets, including Newark Airport, the Port of New York and New Jersey and our highway system, and you have a winning combination.”
But there also are some challenges, Giantomasi added.
“We’re running out of land,” he noted. “Many of the new e-commerce warehouses are big-box facilities — they need acreage, but many parts of the state are already getting built up. Also, operators face high costs of labor, taxes and tolls, all of which can put a drag on the appeal of New Jersey as a distribution center.”
So far, however, the stream of interest hasn’t dried up. In fact, prices for developable industrial land in northern and central Jersey continue to rise, according to brokers from commercial real estate services firm CBRE Group Inc.
Rising land prices
William Waxman, a Saddle Brook-based executive vice president for CBRE, noted that industrial land prices in north Jersey currently cost more than $1 million an acre for prime positions; while central Jersey land is fetching more than $500,000 per acre, according to Mindy Lissner, an East Brunswick-based CBRE executive vice president. But even the prospect of higher prices won’t put a dent in demand, according to analysts.
A report last month from CBRE found that distinct “development patterns have emerged to support e-commerce fulfillment, and are reflected in the increasing cost of land,” and that land prices “rose sharply for development of warehouses” because of strong demand and a diminishing supply of viable sites.
Making a case to the zoning board
When Frank Giantomasi makes his case for warehouse clients to local zoning boards,
he sometimes faces a skeptical audience.
“Traffic is the No. 1 concern they cite,” said the member of the West Orange-based
law firm Chiesa Shahinian & Giantomasi PC. “Putting a distribution center in just
about any location in central or north Jersey raises the prospect of truck and
other traffic. But I remind them that a warehouse distribution facility also brings
tax ratables and jobs. As some retailers close down, these warehouses become
the new retailers.”
Traditional stores used to keep inventory “in a back room or the basement,” he added.
“But now they’re using a localized distribution center. Towns that have suffered
a retail exodus and now have empty commercial buildings are more amenable
to warehouse distribution facilities. There’s a lot going on inside of these buildings.”
In the 10 most active warehouse construction markets, rising land prices are contributing to higher rental rates, which remain a small component of total logistics costs,” the report said.
When e-commerce providers grow in New Jersey, they attract ancillary support businesses to the area, including packaging suppliers and delivery services, noted Lissner.
“As the demand for brick-and-mortar retail space changes, warehouse growth continues to be robust as more people order online,” she said. “As this trend picks up steam, we’re seeing office and retail space being redeveloped as warehousing and distribution facilities. We’re currently working with a developer who’s considering the purchase of a large retail site in central New Jersey and planning to knock it down or convert it to a warehouse complex.”
In Lyndhurst, municipal officials are considering a developer’s proposal to tear down an existing office building and replace it with a 90,000 square-foot industrial warehouse, Waxman added.
“In the Meadowlands, we’re also looking at office buildings, which are currently partially or entirely vacant, with an eye to converting them into supply chain/logistics centers,” he said. “E-tailers and even brick-and-mortar retailers with an e-commerce presence are being forced to act faster to get their products to the consumer, who wants that sweater, detergent or other purchase in their hands as soon as possible. As some e-commerce sites push for one- to two-hour delivery times, warehouses will need to be located closer to the customer base, and cities and towns are beginning to understand that.”
Lissner is concerned, though, about the “lack of developable dirt” or available space in the state.
“That could be a constraint on our growth,” she explained. “In some of the state’s submarkets, Class A industrial vacancy rates are down to about 2 percent, and new construction is being preleased even as it’s going up.”
Nevertheless, she doesn’t appear to be too worried.
“Who knows what will happen,” she said. “As e-commerce becomes more ingrained and warehouses become more automated — not to mention the possible development of self-driving vehicles — we may find that the need for parking will shrink a bit allowing for greater coverage for the footprint of warehouses.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2021 revenue). The company has more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.