Stro Cos. and KRE Group have kicked off their redevelopment of the former site of a data center in North Jersey into a last-mile warehouse, slated for an area that was recently rezoned to permit industrial facilities.

The real estate firms on Tuesday broke ground on the 136,741-square-foot property at 19 Vreeland Road in Florham Park. Stro, based in Ridgewood, New Jersey, acquired the 14.4-acre site in July 2021 for $7.3 million, according to Costar. At that time, Bank of New York Mellon had a 141,000-square-foot data center, which has now been razed, on the property. Stro owns a nearby manufacturing building at 4 Vreeland Road.

At the groundbreaking event, Florham Park Mayor Mark Taylor said the borough had rezoned an area — including the property where the warehouse is being built — in hopes of revitalizing and attracting tenants to that part of town. Previously, only office and manufacturing facilities were allowed in that area, not distribution. The street, Vreeland, has an excess of vacant properties, according to Taylor.

“We have buildings that are empty all the way down this road, and we decided to make a new zone to try and foster new ideas and new possibilities,” Taylor said. “I think this is the first of many.”

The industrial market in Northern New Jersey has seen some pressure, an increase in vacancy rates after hitting record lows, and now stands at 5.2%, according to CoStar data. The Garden State has become a large distribution hub because of its proximity to major seaports and airports and its location within a densely populated region. But major retailers’ pullback of their e-commerce operations and more supply impacting leasing, according to CoStar’s most recent report on the market.

“Last year marked a turning point, with tenant move-outs outpacing move-ins to the tune of 95,000 [square feet], the first negative annual tally since 2012,” according to the report. “New supply deliveries, meanwhile, totaled 4.2 million [square feet], an annual record for the metro. This dislocation between supply and demand has pushed the market’s vacancy rate to 5.2%, still well below the national benchmark but a level not seen here since 2018.”

But the new warehouse is scheduled to be completed in the second quarter of next year, which may turn out to be good timing, because the industrial pipeline in North Jersey “has been slowly depleting,” according to CoStar’s report.

“This development pullback should ultimately help to alleviate the upward pressure on vacancies,” CoStar said. “While the market is in the midst of a correction that includes higher vacancies and rent growth that more closely resembles pre-pandemic norms, fading supply risk should begin to benefit existing industrial owners by mid-2025.”

Bill Waxman, a Cushman & Wakefield vice chair, had the same take on the industrial sector and said he thinks it will benefit leasing for the Vreeland Road property.

“There was a lot of space [that] came to the market at once,” he told CoStar News. “What’s good about this particular building is … in the next four quarters, the market will be through all of the buildings that are available now, and the development pipeline is probably less than half of what it was. So I think in a year, year and a half, finding new buildings is going to be much more difficult.”

The warehouse will have 36-foot-clear ceilings, 26 loading docks, one drive-in door, 108 car spaces and 36 trailer spaces.

“The location is good for certain types of industry, clearly life science, last mile, anyone that’s servicing this very densely populated consumer zone,” Waxman said. “You can still efficiently get to New York from here.”

The warehouse can be also subdivided to accommodate tenants who want smaller spaces, according to Waxman.

“This building is being constructed so that you can divide it,” he said. “And we’ve seen very strong tenant demand for the smaller spaces.”

The executives at the groundbreaking included Jon Kushner, president of Jersey City, New Jersey-based KRE, and Steve Millstein, founder and principal of Stro.

Cushman & Wakefield Vice Chairs Bill Waxman and Mindy Lissner are handling leasing for the new warehouse.