Cushman & Wakefield has released its second quarter 2023 industrial and office statistics for Northern and Central New Jersey, showing that demand for industrial product has normalized to pre-pandemic levels and, while demand for highly amenitized, Class A office product has sustained, overall office leasing has continued to slow.
“Following unprecedented, historic growth over the past few years, demand in New Jersey’s industrial market has normalized to pre-pandemic levels,” said John Obeid, senior research manager for the New Jersey region. “However, leasing activity in certain submarkets throughout New Jersey rose over the past few months, with Central New Jersey being a large demand driver over this quarter. Additionally, average asking rents increased over the quarter, which can be attributed to new Class A deliveries priced above market average.”
In the second quarter, industrial leasing activity in Northern and Central New Jersey reached 4.8 million square feet (msf), bringing the year-to-date volume to 10.2 msf. Central New Jersey drove demand this quarter, accounting for 67.1% of the total volume. A significant new lease in Cranbury by LVMH boosted leasing totals in Central New Jersey. At 3.2 msf, leasing activity in Central New Jersey is up 12.7% from the prior year.
Despite the strong leasing volume in Central New Jersey, the overall market posted negative net absorption of 2.4 msf for the quarter. The acceleration of both vacant sublease and direct space drove negative absorption this quarter. This, together with new vacant deliveries, increased the vacancy rate this quarter to 4.1%.
The average asking rent increased again this quarter to $17.15 per square foot, which is attributed to vacant deliveries of Class A product priced above market average.
“Centrally-located, modern offices captured much of the space demand this quarter as occupiers seek to create a more appealing workplace,” added Obeid. “This dynamic resulted in increased competition for new office product, exhibited by Stifel Financial’s relocation to Madison and NJ Transit’s new lease at Gateway Center in Newark.”
New leasing activity totaled 1.8 msf, down from the 2.1 msf recorded last quarter and down 11.8% from the two-year quarterly leasing average. Year-to-date leasing activity now totals 4.0 msf, down 7.5% from the 4.3 msf recorded at the end of the second quarter in 2022.
New vacancies rose this quarter, as new subleases continued to return to the market. As such, quarterly net absorption remained negative at 951,618 sf, which brought the year-to-date absorption total to negative 2.0 msf.
Negative net absorption held the vacancy rate above the 20% mark for the second consecutive quarter at 20.9%, up 190 basis points from last year. Average overall asking rents dropped to $31.17 per square foot, down from $33.08 per square foot at the end of the first quarter.
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