Abstract
The market recorded 2.8M SF of positive net absorption in the second quarter, bringing the year-to-date total to 10.4M SF. Leasing activity totaled 15.6M SF for the first half of the year, marking the strongest first half of the year since H1 2022. Large-scale leases from the first and second quarter are helping to work through excess supply.
New Jersey
NATIONAL ECONOMY
The economic tailwinds we noted in our first quarter market report were transformed into stronger second quarter employment growth and sustained retail spending.
Looking forward, as we noted in our insight, “The Inverted Pyramid Economy”, economic growth is largely dependent on one sector, AI, making AI’s continued success a key factor in the economic success of the second half of this year and with it, demand for logistics space.
Additional factors we are also watching for their potential impact on the economy and demand environment for logistics space include domestic manufacturing investment, real wage growth, retail sales, trade policy, financial market conditions, and geopolitics among others.
New Jersey added 2,200 nonfarm payroll jobs in May 2026, bringing total employment to 4,388,200. During the same period, the state’s unemployment rate dropped to 4.7%. This is the lowest jobless rate in New Jersey since October 2024.
VACANCY
Vacancy edged lower still at mid-year 2026, dropping to 8.4% from 8.8% in Q1 - a decline of 40 basis points (bps) and a 180 bps decrease from Q2 2025.
In Northern New Jersey, vacancy ticked up slightly to 8.2%, up 30 bps over the prior quarter but down 100 bps from a year earlier, as leasing activity for this submarket reached 3.5 million square feet (M SF) in the first half of the year. Central New Jersey dropped 60 bps quarter-over-quarter (QOQ), as new vacancies were largely offset by strong leasing. Southern New Jersey saw vacancy drop 160 bps from Q4 2025 and 430 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 6.4% from a year earlier, with gains led in part by increases seen in Northern New Jersey.
All three submarkets posted annual increases except Southern New Jersey. Northern New Jersey rents climbed 12.0% YOY to $17.92 per square foot (/SF), while Central New Jersey rose 11.3% to $16.10/SF. Southern New Jersey rents edged down 6.3% from a year earlier to $11.98/SF, though they recovered slightly from $11.71/SF at the end of Q1 2026.
Rent growth had 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 had become more common, particularly in older or long-vacant properties, though newer, well-located buildings have been more insulated.
However, renewal leverage has remained strong throughout since tenants facing geopolitical uncertainty are staying put rather than relocating. Rents could see modest growth 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 2.8M SF of positive net absorption in the second quarter across a 457M SF inventory, bringing the year-to-date total to 10.4M SF. Northern New Jersey accounted for a sizable share with 4.1M SF YTD, while Central and Southern New Jersey posted 2.4M SF and 3.8M SF, respectively.
Leasing activity totaled 15.6M SF for the first half of the year, marking the strongest first half of the year since H1 2022. Central New Jersey leads the way in 2026, generating nearly 8.7M SF of YTD leasing volume.
Demand from Asian e-commerce firms and third-party logistics has seen an increase in the second quarter of 2026. Requirements and leasing activity from these groups, along with shipping companies and furniture importers tied to East and Northeast Asia, has continued to accelerate. While Q1 demand had begun to broaden modestly to other occupier groups, Q2 showed renewed dominance of Asian 3PL requirements.
CONSTRUCTION
Developers are building roughly 7.9M SF feet of new industrial space slated for delivery in 2026 and 2027, with about 4.3M 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 837,854 SF in the second quarter.
Large-scale leases from the first and second quarter are helping to work through excess supply. Additionally, the second half of the quarter saw demand pivot toward the sub-200,000 SF segment, which had been largely absent for the prior 12-24 months.
While demand will vary from submarket to submarket, supply is increasingly tight statewide keeping vacancy trending flat or downward.
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