New Jersey Experienced Sustained Demand for Class A Industrial Properties, while Overall Office Leasing Continued to Slow
New Jersey – Cushman & Wakefield, a leading global real estate services firm, today released its fourth quarter 2023 industrial and office statistics for Northern and Central New Jersey, showing New Jersey’s industrial market recorded its highest level of quarterly new leasing activity in two years and, while demand for highly amenitized, Class A office properties has sustained, overall office leasing has continued to slow.
“New Jersey exhibited sustained demand in the industrial sector in the fourth quarter, marking the highest level of quarterly new leasing activity in two years, with Central New Jersey capturing most of the demand,” said John Obeid, Senior Research Manager for the New Jersey region. “With heightened new leasing activity, we also saw a surge in lease renewals, with the year’s total renewal activity standing as the second highest in the last decade. Class A warehouse space remained resilient, sustaining positive net absorption for the 34th consecutive quarter.”
New Jersey’s industrial market recorded its highest level of quarterly new leasing activity in two years, with 6.4 million square feet (msf) leased during the fourth quarter, up from the two-year quarterly average of 5.3 msf. Central New Jersey continued to capture most of the demand in the state, commanding a substantial 68.2% share of the total leasing activity throughout 2023. Leasing activity in Central New Jersey reached 14.7 msf, marking a 20.9% increase compared to the previous year.
Amid increased new leasing activity, the volume of lease renewals also surged. At 11.9 msf, the year’s total renewal activity stood as the second highest in the last decade, second only to the pandemic-fueled demand in 2021. After recording over 4.0 msf of negative net absorption in the prior two quarters, occupancy losses slowed in the fourth quarter to negative 348,477 sf. Full-year net absorption reached negative 2.0 msf and was driven by Northern New Jersey’s 3.3 msf of occupancy losses. This, together with a wave of unoccupied construction deliveries, increased the vacancy rate by 300 basis points year-over-year to 5.8%.
“New Jersey’s office market rallied in the fourth quarter with two impactful transactions over 100,000 square feet,” added Obeid. “We observed numerous direct leases and subleases at Class A properties, serving as a testament not just to tenants reaffirming their commitment to office space despite the lingering impacts of the pandemic, but also the persistent demand for top-tier office space that many markets across the country are experiencing.”
In the fourth quarter of 2023, New Jersey’s office market experienced two impactful transactions, marking a significant turnaround from the previous quarter’s shortfall in deals surpassing 100,000 sf. The most substantial transaction was Bank of America’s renewal and expansion, securing 547,962 sf in Jersey City, followed by Nokia Bell Labs’ 360,000-sf build-to-suit commitment at the HELIX project in New Brunswick. Additionally, recent subleases at Class A properties, including Marcum and Sompo International at 340 Mount Kemble Avenue, were noteworthy, serving as further evidence of the flight-to-quality trend and occupiers’ persistent demand for top-tier, highly amenitized office space.
Although the highlighted transactions were noteworthy, their direct influence on vacancy and absorption figures was limited. As such, net absorption remained negative this quarter at 1.0 msf, which brought the year-to-date total to negative 3.0 msf. These occupancy losses resulted in a 50-basis point uptick in the vacancy rate from the previous quarter, now standing at 21.6%. Average overall rental rates remained strong at $31.03 per sf.