Abstract
Due to record levels of net absorption, vacancy declined across the New Jersey market. Rents increased in tow, up 7.2% YOY. Construction activity has waned, yet a need for space exists in the bulk-warehousing sector, as there is a lack of availabilities over 400,000 SF in the market.
New Jersey
NATIONAL ECONOMY
The U.S. economy entered 2026 with several supportive forces underpinning growth, including expanded tax incentives for business investment, increased personal tax refunds and continued capital flows into artificial intelligence. Additional expectations for reshoring-driven domestic investment have further buoyed sentiment.
Consumer activity showed renewed strength early in the year, with retail sales accelerating in January and February following a softer holiday season. Meanwhile, labor market conditions improved modestly: average monthly job gains rose to roughly 70,000 in the first quarter, up from 20,000 a year earlier. Hiring, however, remained concentrated in healthcare, while wage growth continued to ease.
Looking ahead, the trajectory of economic expansion will hinge on several variables, including sustained employment gains, continued AI investment, broader domestic capital spending, and evolving trade and fiscal policy. External risks, such as disruptions in the Strait of Hormuz, also present potential headwinds, particularly for consumer purchasing power.
VACANCY
Vacancy edged lower at the start of 2026, slipping to 8.8% from 9.7% at year-end - a decline of 90 basis points (bps)- though it remains above the market’s long-term average of 6.1%.
In Northern New Jersey, vacancy fell to 8.0%, down 150 bps from the prior quarter and 100 bps from a year earlier, as leasing activity reached 2.7 million square feet (M SF) in the first quarter. Central New Jersey held steady at 8.2%, with little change from both the prior quarter and a year ago, as new vacancies were largely offset by leasing. Southern New Jersey saw vacancy drop 140 bps from late 2025 and 250 bps year-over-year (YOY).
Despite remaining above historical norms, vacancy rates across submarkets are trending lower. A thinning construction pipeline is expected to support further declines through the year.
In Southern New Jersey, vacancy is increasingly concentrated in smaller properties, with 82% of available space in buildings under 500,000 SF, underscoring renewed demand for larger, big-box facilities.
RENT
Rent across New Jersey rose 7.2% from a year earlier, with gains led in part by several large leases in Northern New Jersey.
All three submarkets posted annual increases. Northern New Jersey rents climbed 1%, while Central and Southern New Jersey rose 11.0% and 12.8%, respectively. Southern New Jersey, however, was the only region to see a quarterly dip, with rents easing to $11.71 per square foot (/SF) from $11.75/SF at the end of 2025.
Rent growth has been tempered in recent quarters by rising concessions, as landlords continued to prioritize occupancy to start the year. Free rent periods and more generous tenant-improvement packages have become more common, particularly in older or long-vacant properties, though newer, well-located buildings have been more insulated.
Rents could firm in the coming quarters if vacancy continues to decline or stabilize. Elevated land costs, longer entitlement timelines and a shrinking supply of developable industrial sites remain key constraints.
New supply is expected to slow sharply, with construction starts well below prior cycle peaks. As landlords work through remaining vacancies and tenants face fewer options than in recent years, rent growth is likely to pick up in the near and intermediate terms, although growth challenges for class B and C older stock are likely to persist.
NET ABSORPTION
The market recorded 6.9M SF of positive net absorption in the first quarter across a 452M SF inventory. Northern New Jersey accounted for a sizable share with 2.7M SF, while Central and Southern New Jersey posted 1.6M and 2.6M SF, respectively.
Leasing activity totaled 9.1M SF, marking the strongest quarterly start to a year since Q1 2022. Central New Jersey leads the way in 2026, generating 4.6M SF of leasing volume.
Demand from Asian e-commerce firms and third-party logistics providers remained a key driver through 2024 and 2025 and has carried into early 2026. Leasing activity from these groups, along with shipping companies and furniture importers tied to East and Northeast Asia, has continued to accelerate. While those users are expected to remain dominant in the near term, demand has begun to broaden modestly to other occupier groups.
CONSTRUCTION
Developers are building roughly 10.8M SF feet of new industrial space slated for delivery in 2026 and 2027, with about 2.5M SF completed so far this year.
New construction starts remain subdued, as developers wait for recently delivered projects and space under construction to be absorbed. Groundbreakings totaled just 436,000 SF in the first quarter, down 83% from a year earlier.
Large-scale leases are helping to work through excess supply. Of the 9.1M SF leased in the quarter, about half came from the big-box sector of the market (inventory 400,000 SF+), much of it in newly built properties that had sat vacant. With several sizable tenant requirements still in the market, that absorption trend is expected to continue through 2026.
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