Office and Industrial Sectors Experience Improved Leasing Activity

On Jan 6, 2023

Cushman & Wakefield released its fourth quarter 2022 office and industrial statistics for New Jersey, showing improved leasing activity in the office market and strong demand in the industrial market.

“2022 marked a year of improved leasing fundamentals with new leasing velocity returning to levels we saw pre-pandemic in 2019,” said Josh Cohen, managing director. “Significant commitments from large corporate, life science and healthcare institutions bolstered activity, continuing an accelerated flight to quality trend. Encouraging momentum from year-end into 2023 is marked by firms of all industries and sizes reassessing footprints and reimagining the purpose and strategy of the office going forward. There is no doubt that this trend endures and we are watching its impact to net absorption and the ongoing need to repurpose obsolete office inventory.”

Leasing activity totaled 1.6 million square feet (MSF) in the New Jersey office market during the fourth quarter, bringing the full year volume to 8.3 MSF, the highest leasing total since 2019, up 9.7% year-over-year. Class A leasing accounted for 69.6% of the total activity, up from the 54.2% recorded last year as the flight to quality trend accelerated. The healthcare and life science industries remained active office occupiers. Despite strong demand, large blocks of vacant space continued to return to the market, stalling further improvement. The vacancy rate increased 70 basis points year-over-year to 20.7% as net absorption totaled negative 2.6 MSF, with all but one county recording negative net absorption figures.

“Despite the current macroeconomic environment, strong demand for warehouse space in the port region persisted as East Coast ports continue to gain market share amid unresolved labor negotiations at the West Coast ports,” added Chuck Fern, executive vice chairman. “A rebound in new leasing activity together with a wave of new occupied completions improved net absorption this quarter. Although annual leasing activity and net absorption figured are down from a historic 2021, New Jersey’s industrial market ended 2022 strong and is heading into the new year with positive momentum.”

The Port of New York and New Jersey moved 723,069 twenty-foot equivalent units during November, outpacing both the ports of Los Angeles and Long Beach and solidifying New Jersey’s four-month streak as the busiest port in the United States. Fourth quarter net absorption in the New Jersey industrial market surpassed the 1 million-square-foot mark, after failing to do so in the previous two quarters. The average asking rent for warehouse space continued to improve, with the direct asking rent reaching a high of $15.59 per-square-foot, up 27.9% year-over-year. Quarterly new leasing activity for warehouse space reached 5.2 MSF, bringing the year-to-date volume to 20.8 MSF.

Q4 net absorption for warehouse space increased to 2.1 MSF, leading to 5.4 MSF of positive net absorption for the year. While absorption figured remain positive, a wave a new construction added additional space options for occupiers. In total, 12.2 MSF of new industrial product were delivered in 2022, of which 52% was pre-leased. The vacancy rate for warehouse space closed out the year at 3.0% and remained relatively stable quarter-over-quarter. Sublease vacancies also increased during the fourth quarter, as the top five newly available subleases added over 800,000 square feet of vacant space to the market. Despite these new additions, strong demand during the quarter offset any negative effects from the increase of new sublease space.

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