Zimmel Reports Demand for Warehouse and Flex Space Point to a Strong 2014
A Conversation with David Zimmel, president, Zimmel Associates Corporate Real Estate Services, Edison, NJ
January 1, 2014

David, What is your opinion on warehouse space in New Jersey?  All aspects of warehouse space have come back full circle and the prospects going forward are good.   Two and a half years ago exit 8A of the NJ Turnpike had about 25 big box distribution- type buildings available—now there are probably less than ten. The absorption rate has been dramatic. We’ve also seen some speculative warehouse building in certain areas, and it has been successful.

Why do you think this is the case?  As we climb out of the recession, corporations have cash—they were not spending money to expand for a few years, and there was a lot of pent up demand. Three to four years ago they pulled in the reins quite a bit, not knowing if consumers would be spending. The increased demand applies to all types of warehouse, not just big box.

What about rents for warehouse space? Rents have increased 10 to 20 percent this past year.  Rents will continue to rise with demand and lack of available buildings.  Ultimately interest rates are going to rise. Landlords will raise rents to service their debts. Three years ago potential tenants would start with lowball offers. During the height of the recession most landlords lowered rents. Today the situation is different.  For example, in Carteret quality space runs from the low five’s to $6.75 triple net.  I have heard of deals in the mid sevens—for a brand new building.

What would you say to a potential investor?  The biggest demand in today’s industrial market is for flex space. We represent 4 .5 million sq. ft. or so of exclusive space in New Jersey and about one third of it is flex space, with units from 5,000 to 15,000 sq., ft. Our flex is 100 percent rented. Most landlords have low vacancy for good flex space. There is a high demand for the smaller units. To most investors, I say, go for a flex building. With big box if you lose your tenant, you have a whole building empty. Whereas with flex, you lose one tenant, one unit, you can handle it.

Are there good deals out there now? There are always good deals. The fact is, industrial buildings are very popular with investors as opposed to office.  More tenant improvement dollars are needed for office, there is more risk, less demand.  People with money are chasing industrial buildings so the cap rates have declined. Yet, with so many investors looking for industrial deals there is always one group that steps and pays more. They want the deal because it is a solid investment.

What excites you about 2014?  The industry is getting back to a situation where there is less product available. Banks are lending again. Interest rates remain low for now.  Companies that were on the sidelines are ready to make a move.  I can tell by the sheer volume of phone calls and inquiries that there is more activity.  At Zimmel, we don’t rely on one product type. We have the flexibility of different types of properties. I am happy to say, “The market is looking good.“

David Zimmel is a Costar Power Broker.

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