New Jersey’s economic “playing field” has (to an epic degree) been in an ongoing “time-out” as COVID-19 has severely impacted nearly every business, no matter the genre.
The state’s real estate industry, which has traditionally stood the test of time, was directly – and in many cases indirectly – impacted, requiring leaders on “the field” to call an “audible” regarding the game plan. This was true for many facets of the market, e.g. commercial office, industrial, warehouse and residential; in every submarket ranging from urban to suburban, as well as rural areas.
“There are many factors contributing to a broad redefinition and realignment in the tri-state real estate and development fields,” says George Kimmerle, PhD, AIA, who heads Kimmerle Group of New Jersey (New York and Connecticut). “As architects, planners and urban designers, we are witness to these trends and are in the midst of these transitions,” Kimmerle adds.
To that observation, the economic upheaval caused by the pandemic is no doubt benefitting certain areas of commercial real estate while simultaneously hindering others. This will ultimately lead to bolstering the already overwhelming demand in certain sectors, while seeing simultaneous repositioning, re-designing and even the complete redevelopment of sites in others.
For example, the industrial demand created by a never-before-seen e-commerce (online) sales surge has led to product storage, logistics and last mile delivery companies gobbling up suitable space in key areas. CBRE reports that the Northeast Industrial Corridor (encompassing New York, North/Central Jersey, Eastern, PA, and Greater Boston) ended 2020 with impressive statistics. Net absorption was an unbelievable 8 million square-feet higher than that of 2019, with overall rents increasing $0.25 per square foot for the year while vacancies continued to overwhelmingly decrease.
So, it will come as no surprise that New Jersey’s numbers were prolific in this category, as its vacancy rate for all classes of industrial space fell to an all-time record low in Q4 2020.
“The Northern New Jersey vacancy rate fell to 2.3%, while Central New Jersey saw vacancies of just 1.6%,” says Thomas Monahan, vice chairman of CBRE and one of the top industrial brokers in the US. “E-commerce and third-party logistics dominated the share of leasing activity, driven by continued COVID-19 stay-at-home protocols and holiday shopping. Wholesale and retail constituted a significant share as well, spurred by grocery sales and storage,” Monahan adds.
“In many ways, New Jersey came through 2020 surprisingly well, largely because we are a logistics state. The pandemic only increased demand in an industrial market that has never been stronger,” declares Mike McGuinness, CEO of NAIOP-NJ.
As far as the industrial forecast for 2021, “New Jersey’s industrial real estate sector will remain strong, despite the impact of the pandemic, and there is a shortage of available warehouse and distribution space to lease,” McGuinness says, matter-of-factly.
Meanwhile, numerous mitigating factors resulted in the decline of the commercial office market sector. These factors included the government-imposed (stop the spread) stay-at-home orders combined with people’s apprehension and anxieties caused by fear of COVID-19 itself. This all lead to the urgency to put work-at-home allowances in play.
Currently, many real estate analysts question whether few (or many) work-from-home strategies will be reversed. That remains to be seen.
“Contributing factors include the outcome associated with the recent pandemic of course, as well as the redefinition of the workplace being engendered by new back-to-the-office protocols, in which we are actively and currently engaged,” William Kimmerle, principal of Kimmerle Group, points out.
To add to that point, New Jersey’s office market has and continues to be on a downward trajectory as the uncertainty of COVID-19 continues, all while new safety measures are being navigated and put firmly in place by design experts, so again, the overall picture remains to be seen.
As a result, according to CBRE’s Q4 2020 New Jersey office report, leasing for Q4 was impacted, displaying just 909,000 square feet of activity, down 27% from the previous quarter. Moreover, office leasing for the year finished at 3.51 million square feet, a whopping 47% below the five-year annual average. In addition, the office market saw just 296,000 square feet in renewals during the fourth quarter, a considerable decline from the 2 million square feet posted during the previous quarter.
With some uncertainty lying ahead, NAIOP’s McGuinness makes a valid point: “While office space is seen as a weak spot, the pandemic could actually change that dynamic as more people prefer traveling to suburban satellite offices to working in the city.”
“I believe we’re progressing toward a recovery, but uncertainty remains, including tenants who are reassessing their space requirements,” explains Marcy Gross, president of Sheldon Gross Realty (West Orange/Wall Township).
“Some will abandon current leases to downsize, while others will look to expand so their teams can social distance more effectively,” Gross says. “In response, landlords are offering greater flexibility in lease agreements, with expanded tenant protections.”
On the “home front,” is the residential market, which remains strong, following a major uptick in 2020. The National Association of Realtors (NAR) reported that home sales in 2020 reached their highest level since 2006. New Jersey Realtors reported a 37.7% increase in closed homes sales in December 2020 compared to the previous year, in what is typically one of the slowest months of the year.
The rise in home sales is tied to the stay-at-home work environment shift. This current trend is allowing many workers more flexibility in terms of choosing their home’s location; not only basing it on commute times to work and back.
“For the first time in recent memory, many buyers have been able to choose homes based solely on the lifestyle they desire,” says Rob Norman, president, Coldwell Banker in New Jersey (and Rockland County).
“With fewer workers tethered to a central location, it’s been possible to broaden their search and attain more home for their dollar,” he adds. There’s ongoing evidence to support this, as an abundance of sales activity has been seen (non-traditionally) further away from urban areas, e.g. Hunterdon, Western Morris and Sussex counties.
“Most suburban areas and price points in New Jersey experienced a high level of market activity following the COVID-19 lockdown,” Norman continues. “The irony of the lockdown is that it ended up creating more freedom in living situations.”
Overall, a good barometer in the region for the residential market is how it finished out the year. December 2020 saw existing home sales in the Northeast climb 4.5%, recording an annual rate of 930,000, a 27.4% increase from a year ago. The median price in the Northeast was $362,100, up 19% from December 2019.
“NAR expects that momentum to continue into 2021,” Norman concludes.
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