The industrial warehouse market reversed several quarters of rising vacancies in Q3, recording the largest quarterly decline in over three years, according to a new market analysis from JLL.
Vacancy decreased by 20 basis points (bps) in the third quarter, a turnaround largely fueled by strong demand for premium properties and a significant slowdown in new construction completions.
Class A driving market correction
The drop in overall vacancy was primarily driven by a pronounced “flight-to-quality” trend. The Class A segment posted a net absorption of +3.6 million square feet, which substantially offset the losses seen in the older Class B and C segments.
The key factors driving this vacancy compression were:
- Limited New Supply: Only 1.4 million square feet of vacant space was delivered in Q3, marking the lowest quarterly completions since the first quarter of 2021.
- Strong Leasing Momentum: Total leasing volume reached 10.7 million square feet, nearly 15% above the trailing three-year average.
- Executed Rents Show Flexibility: While headline asking rents remained stable at $15.84 per square foot, the report indicated that landlords are prioritizing occupancy. Executed rents for new Class A deals in 2025 averaged approximately $2.00 per square foot below asking rates, suggesting continued flexibility from property owners to stabilize their buildings. This flexibility also contributed to a significant increase in partial-building leases, which accounted for 53.3% of new Class A transactions in Q3.
Third-party logistics fuel activity
The leasing activity was dominated by large-scale deals for modern facilities and a re-engagement from logistics providers. New Class A deals over 100,000 square feet comprised 43.8% of the total leasing volume.
Off-shore Third-Party Logistics (3PLs) emerged as a significant contributor to the market revival. Following a resolution of trade disputes and increased clarity surrounding tariffs, these firms accounted for 44.7% of new Class A deals this quarter, transacting across multiple key submarkets along the New Jersey Turnpike corridor.
“After several quarters of adjustment, New Jersey’s industrial market fundamentals are beginning to tighten again. Vacancy is easing and leasing is outpacing the trailing three-year average,” Rob Kossar, vice chairman and head of JLL’s Northeast Industrial Region, said. “The return of larger Class A deals and renewed 3PL activity are encouraging indicators that demand remains structurally sound. If these trends hold, we’re likely to see sustained stability and more disciplined growth across the northeast industrial landscape heading into 2026.”
Outlook for continued compression
The market is poised for continued stability due to a more balanced construction pipeline.
Construction activity is normalizing across the state. While Northern New Jersey still has elevated construction levels, a high percentage (51.5%) of its under-construction product is already pre-leased. Crucially, construction levels in Central and Southern New Jersey are now below their 2015-2019 averages.
This combination of a balanced supply dynamic, sustained leasing activity, and reduced macroeconomic uncertainty could position the market for continued vacancy compression through 2026.
