New Jersey’s office market continued to struggle with the pandemic in the fourth quarter, according to a new report from Transwestern Real Estate Services.
The real estate firm’s Fourth-Quarter 2020 Office Market Report found that the sector experienced both a dramatic decline in leasing velocity and the highest vacancy rate since Q1 of 2014. The firm said nearly 4 million square feet of office space returned to the market during the year, erasing nearly four years’ worth of expansion.
While medical and life sciences companies continued to lease space — leading activity in Q4 — the leases were often signed by smaller tenants, with only one new lease over 100,000 square feet. In addition, much of the activity was in the Princeton Market, a noted center for the industry.
“While increased COVID-19 cases and additional waves of the virus may continue to stunt activity, New Jersey remains open for business, and market conditions should improve as we get deeper into 2021,” Matthew Dolly, the firm’s New Jersey research director, said in a prepared statement.
Sublease space, which was already trending higher since 2018, reached its highest level in a decade, although lower than the peak availability in the wake of 9/11. The pandemic and lockdown led to major small business closures, which is likely to exacerbate the available space situation.
The sector recorded three consecutive quarters of negative net absorption for the first time since 2012, and 15 of the state’s 21 submarkets saw occupancy losses for the year.
Asking rents fell slightly in the quarter, though the overall average was up 1.5% from the year-ago period, and, while rents decreased in 12 of 21 submarkets during Q4, only six were lower year-over-year.
“Due to economic uncertainty and the unpredictability of COVID-19, shorter-term leases are becoming much more common than in previous cycles,” James Postell, partner and city leader, said in a statement. “We expect that the pandemic will likely leave a lasting impression on the office market for many years to come, causing some permanent changes across the sector.”
One of those possible changes was the continued shift shift to the suburbs, Transwestern noted, as nine of the 10 largest leases in Q4 occurred in suburban submarkets.
“New Jersey’s Recovery Act (which created new tax incentive programs) could encourage increased interest from companies across the river that might be considering office space closer to the suburbs,” Dolly said.