Warehouse Construction

Jersey Market Active for Distribution and Storage Facilities

Pent-up demand, a favorable economy, and access to transportation hubs have led to an uptick in warehouse construction, especially in the Garden State.

by Debra Wood

A convenient location and the need for additional warehouse and distribution space have helped to spur a wave of industrial construction in New Jersey and in other pockets of the region. The clear hub of activity is around New York Harbor.

About 5 million sq. ft. of new industrial warehouse space entered the market during the past year alone, according to data compiled by Cushman & Wakefield of New Jersey, an East Rutherford-based arm of the real estate broker and consultant. The firm also reports that more than 70 industrial users were seeking a combined 20 million sq. ft. of warehouse or manufacturing space earlier this year in New Jersey.

"There is a strong demand in corporate America for new state-of-the-art industrial buildings," said Stan Danzig, executive director of Cushman & Wakefield's regional office. "The right location for distribution makes the supply chain more efficient."

Much of the growth is taking place along the New Jersey Turnpike, near the Port Authority of New York and New Jersey's Port Newark-Elizabeth Marine Terminal, Danzig said. The facility has become busier because of overburdened conditions at the ports of Los Angeles and Long Beach, Calif., which has shifted more shipping activity to other locations.

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"The prime beneficiary is the Port of Newark-Elizabeth," Danzig said.

Port activity is also strong in other parts of the region. Last year, the entire Port of New York and New Jersey - of which Newark-Elizabeth is a part - set a new volume record, handling more than $110 billion in cargo. A multiyear, $1.6 billion project to deepen the port's channels will allow entry by larger ships, promising further growth potential.

Meanwhile several regional agencies have active infrastructure improvement programs. The New Jersey Department of Transportation has launched Portway, a series of 11 projects to improve access to the port and various rail, trucking, and transfer facilities in the region. And the Port Authority is working on a $600 million program to build and expand railway infrastructure at port terminals.

"Given the volume of cargo growth coming into the port - double-digit increases practically every year - we thought the way to improve efficiency was to look for [warehouse development] locations in close proximity," said Steve Coleman, a Port Authority spokesman.

Consequently, the Port Authority and the New Jersey Economic Development Authority earlier this year launched Portfields, a study evaluating 18 potential sites suitable for development of warehouse and distribution centers.

Catellus Development of San Francisco has begun demolition and sitework to raise the grade on one of the sites identified in the Portfields study. Construction for a 1.1 million-sq.-ft. structure will start in 2007, said Thano Tziforos, construction director for Catellus.

Having warehouses close to the port enables distributors to decrease handling time and labor costs on products. Access to tens of millions of consumers along the East Coast adds to the area's appeal, said Jeffrey Milanaik, president of Heller Industrial Parks of Edison, N.J., which owns 10.5 million sq. ft. of occupied warehouse space in central New Jersey.

"When you look at New Jersey, it's strategically centered between Boston and Washington, D.C., with a strong highway network," Milanaik added. "The growth is related to the ports, highway networks, and labor in this area."

Heller will add 4 million sq. ft. of warehouse space to its portfolio at Heller Park North in South Brunswick, N.J., including a 656,000-sq.-ft., tilt-up concrete building under construction. All new Heller warehouses have 36-ft. clear ceilings, wide bays, and early-suppression, fast-response sprinkler systems.

Warehouse users generally are looking for high ceilings, high load levels, modern sprinkler systems, large bays, and lots of trailer space.

Trailer space has become more important because of proposed changes to federal truck-driving rules, said Clark Machemer, director of real estate for Rockefeller Group Development of New York. The changes proposed by the Federal Motor Carrier Safety Administration would limit the amount of time that drivers can spend behind the wheel.

"When they come to the site, they don't want the trailer waiting," Machemer added. "The driver drops off one trailer, picks up the next trailer, and leaves to minimize downtime."

The Rockefeller Group has four warehouse projects along the N.J. Turnpike involving 6 million sq. ft. under development. It has already built the pad for a 1-million-sq.-ft. warehouse, with 300 trailer spaces, at exit 7 near the center of the state. At exit 8A to the north, the developer has created a 3.5-million-sq.-ft. "free-trade zone" where tenants occupy two buildings and where construction has begun on a 680,000-sq.-ft. structure, designed with flexibility to accommodate tenant needs.

Meanwhile, Matrix Development Group of Cranbury, N.J., began construction this spring on a 600,600-sq.-ft., speculative industrial facility off Interstate 195 in Hamilton, N.J. The one-story structure features 36-ft. clear ceilings and abundant trailer parking. Matrix also is building a 439,000-sq.-ft. distribution center near Turnpike exit 8A.

While in the past, environmental remediation concerns deterred some developers from tackling brownfields, the need for more distribution space close to the port is starting to make that work pay for itself.

"It's more and more difficult to build in green areas," said Jim Murray, a partner with Panattoni Development of Edison, N.J. "So we look at brownfields that were passed over."

The division of Panattoni Properties of Sacramento, Calif., is partnering with New York-based companies led by Paul Slayton and Aaron Malinsky to break ground this fall on the first of two brownfields redevelopment warehouse projects near the port.

When completed in 2006, I-port 12 will contain 2 million sq. ft. of warehouse space. But first, contractors will cap a 75-year-old municipal landfill in Carteret, N.J., which is now leaching waste. After pumping off the leach, the project team will use a structural slab to cap the landfill and place a warehouse atop piles.

The partnership also expects to begin construction next year on 1.2 million sq. ft. of industrial space in a project dubbed I-port 440 on a 176-acre tract in Perth Amboy.

Despite all of this speculative development, corporations increasingly seek to buy or build, rather than lease, their distribution centers, Danzig said. For example, Cushman & Wakefield projects the sale of more than 4 million sq. ft. of warehouse space by year's end.

Danzig said the low cost of capital contributes to the trend. "It buffers them from having to deal with market fluctuations and stabilizes their costs over the long run," he said.

As an example, Barnes & Noble, a New York-based bookseller, is building a warehouse in Monroe Township, N.J. The 1,145,000-sq.-ft. facility, slated for completion this fall, aims to "provide adequate space to handle the company's growth over the next decade," according to the corporation's 10-K filing with the federal Securities and Exchange Commission last year.

Outside of New Jersey, Family Dollar Stores of Matthews, N.C., broke ground in May on a 1-million-sq.-ft., distribution center in Rome, N.Y. Bob Jackson, project manager for Family Dollar, said the company picked the site due to its central location between Syracuse and Albany.

Construction was nearing the halfway mark in late summer at the site on a former U.S. Air Force base, said Kevin Turpin, senior vice president with Conlan Co., of Marietta, Ga., the main contractor. The structural steel-framed structure will have an insulated precast concrete exterior.

The project is Family Dollar's ninth new distribution center nationally in the past five years, each which it builds with a similar floor plan. <<

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