The COVID-19 pandemic has created a new dynamic in New Jersey real estate, with caution in the office market, activity in the industrial market and transition in retail, according to real estate firm NAI DiLeo-Bram’s Fall 2020 Market Review for the northern and central part of the state.
The Piscataway-based real estate brokerage said in its report that the market may continue its current response to the pandemic’s challenges until a vaccine becomes available on a widespread basis. The report covers five counties: Essex, Middlesex, Morris, Somerset and Union.
“With surging infection numbers and intermittent shutdowns, economic volatility is likely to continue into at least mid-2021,” Chief Operating Officer David Simon said in a prepared statement.
Here are some of the report findings:
The good — Industrial
Average net asking rates hit yet another all-time high in the fall, reaching $8.67 per square foot, NAI DiLeo-Bram said. This continues a five-year trend of rising rates and new records. Class A rents reached $9.35 per square foot for the fall, also on an upward trend. The rates were fed by the very limited availability of Class A product relative to other asset classes. Absorption has been strong, fueled by e-commerce and third-party logistics firms.
“Activity within the industrial market continues to remain strong, with demand outpacing supply,” Simon said in a statement. “There is no sign this will change in 2021 and, as a result, rental rates continue to rise.”
The bad — Office
Office users have been reevaluating their needs due to the work-from-home aspect of the pandemic, sending asking rents lower and creating a tenant’s market. NAI DiLeo-Bram said there is no reason to believe users will revert to former space requirements due to the popularity of working from home. Although the vacancy rate rose year-over-year, it only saw a slight increase of 10 basis points in fall 2020, to 12.2%. But Class A product saw a higher rate, at 16.8% vacancy, a full 100 basis points higher than the start of the year.
“After vaccines are introduced with proven efficacy rates, people will want to spend more time in offices to achieve the unique collaboration that occurs when people are working together in an office,” Simon said. “However, with available technology, working from home has proven effective and people are enjoying the flexibility. An alternating schedule is likely to continue going forward because it benefits employees while enabling business leaders to reduce occupancy costs.
“COVID-19 continues to have most office tenants taking a cautious, wait-and-see approach to their occupancy strategy.”
The ugly — Retail
The hardest-hit sector during the pandemic, with closures and other social distancing restrictions, the retail market saw average net asking rents fall 72 cents per square foot year-over-year. While the firm said retailers have shown some innovation and flexibility, small businesses are suffering and winter may exacerbate issues. Class A product does have the smallest share of space at 9%, but more space is expected to hit the market amid COVID restrictions and business failures.
“Retail continues to have major obstacles to overcome,” Simon said. “Increases in unemployment or additional lockdowns will further adversely impact this asset class. Online shopping will continue increasing, and curbside pickup will likely stay around after vaccines are available, as consumers have grown accustomed to the convenience and efficiency.”