New Jersey’s office market is not immune to the impact COVID-19 is having on the economy.
Transwestern Research said in its Q1 2020 New Jersey Office Market report the economy is expected to sharply decline through second quarter of 2020, with those in the energy, tourism, hospitality, entertainment and small businesses sectors being hurt the most.
However, a majority of economists are forecasting a period of growth if social distancing measures are able to “flatten the curve” and businesses can begin opening up again by the third and fourth quarter, the report suggested.
Activity was steady moving into the new year, the report found, resulting in positive net absorption for Q1 2020. New lease deals were spread throughout the region, with the suburbs gaining strength. Leases by health care and life sciences companies led activity, with Hackensack Meridian Health’s two building lease in the Woodbridge/Metro Park submarket leasing up the most space.
The office market experienced its normal trend in occupancy gains as the vacancy rate improved by 10 basis points to 14.8%. As a result, Transwestern said, nearly 2 million square feet of space was absorbed over the past two years. Occupancy levels improved in 12 of the 21 submarkets, though only 10 were better when looking at year-over-year results.
The Top 5 markets with solid occupancy gains include:
- Princeton Area;
- Newark/Urban Essex;
- Morristown Region.
New office construction has been light. At the end of Q1 2020, Transwestern said only one small office building was delivered to market and 1.35 million square feet remained under construction.
Asking rents hit a historic high for the second time in the past three quarters, Transwestern said. The average rent for Q1 2020 office space was $27.57 per-square-foot, compared to $27.38 per-square-foot in Q4 2019 and up 2.6% year-over-year. Overall, rents have increased by 13.8% since the post-recession low in 2011. Most submarkets also had rent spikes, with 16 of the 21 recording rent increases both in the quarter and in the past 12 months and four recording double-digit year-over-year increases.
Transwestern said it expects the economy to decline sharply through the second quarter of 2020, but a turnaround is hopeful by the end of the year.