Just last month, the development of the Phillipsburg Logistics Center at 78, a 511,200-square-foot, Class A speculative industrial building in Phillipsburg, New Jersey, was announced by JLL Capital Markets, which provided financing for the project. Located on the Delaware River, Phillipsburg is part of the Lehigh Valley Industrial submarket, is in a position to serve businesses in the New York/New Jersey region, and is within a 24-hour drive of one-third of the nation’s population.

“Given its proximity along I-78 to the Ports of New York and New Jersey along with its phenomenal labor force,” said JLL senior managing director John Plower, “the Phillipsburg pocket of the Lehigh Valley is extremely attractive to developers, capital sources, and, most important, industrial users.”

If it seems odd that developers would plow ahead with speculative warehousing space during a pandemic, one only has to look at the numbers to understand why. Despite the current economic uncertainty, leasing for Class A space in the Garden State has accelerated recently, with volume hitting its second highest level since 2008 in the second quarter of this year.

Over 10 million square feet was leased in New Jersey during the second quarter, according to a recent JLL report. Pent up demand from the March and April lockdown could account for a flurry of deals closed in May and June. But the trend continued into the third quarter, with total leased space nearing 11 million square feet from July through September, according to Colliers International. Far from being an anomaly, the Phillipsburg development could represent a signal of things to come.

Class A industrial vacancies in New Jersey “remained at hyper-low levels,” noted JLL. “E-commerce is expected to dominate future leasing as it accounts for over 35% of active tenant requirements.” (The real estate services company CBRE defines Class A properties as those built since 1997 with at least 100,000 square feet and 28-foot ceiling heights.)

At the same time, lower quality buildings saw an uptick in vacancies, mostly due to sublease availability. Total statewide vacant space rose by 1.1 million square feet between April and June, and over 600,000 square feet of that was sublease space, according to the JLL report. Over 92% of the state’s vacant sublease space was found in Class B and Class C facilities.

“This suggests,” according to the JLL report, “that small to medium sized businesses, who don’t have as robust balance sheets as Fortune 500 companies, are less equipped to handle a prolonged shutdown.” Class A vacancies, on the other hand, held at 1.8% during the second quarter, driving average asking rents 5.9% higher year over year.

“The quarter’s demand was broad-based,” according to the JLL report, “but e-commerce was the most active industry.” Amazon leased nearly one-million square feet this year in Edison, N.J., in the central part of the state, noted Colliers.

The JLL report concluded that “economic uncertainty…stemming from the COVID-19 pandemic continues to create a fluid and evolving environment for the industrial market.” Nonetheless, “E-commerce demand is expected to continue to flourish. This bodes well for developers and landlords of Class A space.”