NAI DiLeo: N.J.’s commercial real estate market continues to feel impact of COVID-19 pandemic

The effects of the COVID-19 pandemic on New Jersey’s commercial real estate will continue to be felt for some time, according to a Spring 2020 market review report by Piscataway-based NAI DiLeo-Bram & Co.

Industrial Market

Average asking industrial rents were at an all-time high in Spring 2020 ($8.64 per-square-foot), with overall asking rates also trending upward. Rents are expected to increase in this category given the already high demand for this product, NAI DiLeo said.

Class A product accounted for less than 20% of the state’s total inventory (the least availability). While the shutdown slowed the market’s absorption activity, third-party logistics and e-commerce firms drove it. Amazon alone accounted for more than 1 million square feet of leasing in the first five months of 2020.

“Industrial properties are a segment of the market that continue to see demand.  This is largely attributed to growth within e-commerce and third party logistics companies. The pandemic has increased the need for products to reach consumers quickly and efficiently,” David Simon, SIOR, chief operating officer of NAI-DiLeo, said.

Notable lease deals:

  1. Amazon, 661,741 square feet in Newark, new lease;
  2. Geodis Logistics, 611,320 square feet in Monroe, renewal;
  3. US Elongistics, 570,000 square feet in Flanders, new lease.

Office Market

The state’s average asking rents barely moved, ending the quarter at $24.68 per-square-foot, a $0.15 increase year-over-year. Class A rents also stagnated, with a $0.05 rent increase over the year to $29.51 per-square-foot.

NAI DiLeo said it’s too early to tell whether the coronavirus will reduce prices, but Class A rents have already fallen $0.20 per-square-foot from fall 2019.

“The amount of available sublease space will continue to rise, and this will likely prevent owners from increasing asking prices on direct space in the near future,” Simon said.

The vacancy rate decreased 190 basis points year-over-year to 12.8% and is 20 bps below Fall 2019. Class A product also fell 50 bps over the year but held steady at 17% from Fall 2019.

“There will be companies based in Manhattan that will want to reduce their footprint and lease space in the suburbs.  New Jersey provides an excellent alternative and will receive its share of interest in this regard,” he said.

Notable lease deals:

  1. Hackensack Meridian Health, 163,461 square feet in Edison, new lease;
  2. Huber + Suhner, 65,441 square feet in Warren, lease;
  3. BNP Parbias, 53,186 square feet in Iselin, renewal.

Retail Market

New Jersey’s average net asking rents for retail also were down over the year by $0.47 per-square-foot. While Class A growth is promising, the report said, there’s no denying that retail has been one of hardest hit real estate sectors of the pandemic.

“The retail sector has been impacted most directly and we will continue to see a lot of change in the amount of space occupiers lease and the way retail space is designed.  With curbside pick-up becoming so popular, especially for restaurants, many new retail locations will likely be selected to accommodate this trend,” Simon said.

Class A space takes up the smallest share of available direct space at 9%. It is anticipated that more space will come online as the impact of the virus shutters more businesses, NAI DiLeo said.

Notable lease deals:

  1. Planet Fitness, 32,000 square feet in Bellville, new lease;
  2. Old Navy, 12,500 square feet in Parsippany, new lease;
  3. Dollar Tree, 12,130 square feet in Succasunna, new lease;
  4. Walgreens, 11,000 square feet in Kinnelon, new lease;
  5. Kids Empire, 10,995 square feet in Watchung, new lease.

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