Industrial Space Demand Continues in Q1 2024

On Apr 5, 2024

Cushman & Wakefield has released its first quarter 2024 industrial and office statistics for New Jersey, showing continued demand in the industrial market and the persistence of the flight-to-quality trend in the office market.

“The New Jersey industrial sector sustained its strong leasing momentum into the first quarter of 2024, underpinned by significant activity across both Northern and Central New Jersey,” said John Obeid, C&W senior research manager. “While the market faced challenges with negative net absorption and a deceleration in pre-leased deliveries, the Class A segment showed resilience compared to other segments.”

Strong leasing momentum in New Jersey’s industrial sector continued into the first quarter of 2024, with new leasing activity reaching 5.8 million square feet (msf), representing a 5.0% increase year-over-year (YOY), while remaining 11.9% above the two-year quarterly average of 5.2 msf. New leasing activity was evenly distributed between Northern and Central New Jersey, predominantly driven by TJX’s 1.3 msf lease in the Meadowlands.

Despite this strong leasing volume, the market recorded negative net absorption of -2.5 msf for the quarter. This downturn was primarily attributed to the slowdown in pre-leased deliveries and the re-emergence of large vacant spaces in the market, leading to a rise in occupancy losses. This dynamic increased the vacancy rate 80-basis points (bps) quarter-over-quarter (QOQ) to 6.6%.

The Class A segment demonstrated resilience amidst these challenges, with just 108,217 sf of negative net absorption recorded. Negative Class A net absorption was driven by one large new sublease vacancy totaling 735,000 sf at 700 Linden Logistics Way in Linden.

The completion of new warehouses, predominantly delivered fully vacant, also contributed to the increase in the vacancy rate. Of the ten projects totaling 1.8 msf completed in the first quarter, only one was delivered fully occupied. Pre-leasing figures also witnessed a decline, dropping 2.6% during the first quarter from a recent high of 89.2% in 2020.

“The flight-to-quality trend is still very prevalent in New Jersey’s office market, evidenced by numerous large new lease transactions at Class A properties during the first quarter. While the demand for top-tier office spaces has continued and these transactions are noteworthy, their immediate impact on vacancy and net absorption remained somewhat constrained due to the emergence of several large vacant spaces to the market,” added Obeid.

The onset of 2024 brought forth a varied landscape within New Jersey’s office market. Despite the challenges, the demand for office space remained resilient, with new leasing activity reaching 2.1 msf, up 11.1% from the two-year quarterly average. However, this positive trend was offset by a rapid influx of newly vacant spaces into the market during the quarter. The market grappled with ongoing occupancy losses, recording negative 3.2 msf of net absorption. As such, the vacancy rate continued to climb, increasing 280-bps YOY to 23.2%.

New lease transactions during the first quarter highlight the persistent demand for top-tier office space. In the largest new lease, Hackensack Meridian Health will consolidate their offices into a 142,916 sf, build-to-suit in Metropark. Additionally, Children’s Place’s renewal and Pierre Fabre’s relocation to 500 Plaza Drive in Secaucus further underscores the flight-to-quality trend.

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