The pandemic-related shift in the real estate industry has caused very different changes for the office and industrial markets, according to a pair of new reports from Colliers.
The firm said in its New Jersey Office Market Overview for the first quarter that a year of COVID-19 and the related shutdowns has left the sector with a glut of sublease space, accounting for 15.5% of the total available space, a high since 2010 and the global financial crisis.
On the other hand, the shift in consumer buying habits has led to a near-record 15.7 million square feet in industrial leasing activity for the quarter, according to the New Jersey Industrial Market Overview. That was accomplished with just 4.1% inventory availability and without a significant lease from Amazon, which has otherwise been a major taker of space in the state.
Several large office spaces returned the market for the second quarter in a row, the report noted, with the five largest spaces given back adding up to more than 1 million square feet of space. That led to a fifth consecutive quarter of negative net absorption, at -2.2 million square feet — the second quarter in a row over the negative-2 million mark.
On the bright side, leasing activity did show a rebound in Q1 after record-low demand in 2020. Total activity reached 2 million square feet, up 42.6% from the prior quarter, though still 13.3% below the three-year quarterly average.
“While office leasing activity rebounded to open 2021, renewals accounted for nearly half of the 2 million square feet leased, as the pandemic has delayed relocations, prompting some users to renew short-term,” Colliers’ senior director of research, John Obeid, the author of the report, told ROI-NJ. “Still, we remain cautiously optimistic that, with a vaccine, the market will make a turnaround in the near future.”
In addition, the average asking rent seems unaffected by the turmoil, up 2.1% year-over-year, to $28.86 per square foot, Colliers said. However, the repricing of space has turned negative in the past two quarters, as some landlords have reduced asking rent.
On the other hand, the industrial market saw its second-highest quarter of activity, at 15.7 million square feet, Colliers said. Distribution and other logistics users accounting for 38.5% of the total activity, and preleasing activity surged — with users taking 4.1 million square feet during the quarter.
That led developers to accelerate their construction pipeline, as supply shrank, the report said, with 49 buildings totaling 11.1 million square feet currently underway. About 6 million square feet should be delivered next quarter, the report said, but Colliers anticipates demand keeping absorption positive and availability low.
“New Jersey’s industrial market continues to be one of the few beneficiaries of the COVID-19 pandemic,” Obeid said. “It has accelerated the shift in consumer buying habits toward online purchases, and has incentivized industrial occupiers to increase their surplus inventory, leading to significant occupancy gains over the last year.”
Net absorption was positive for the 33rd consecutive quarter, and topped 2.5 million square feet for the fourth consecutive period. Availability set another record low, with the rate improving 60 basis points year-over-year, to 4.1%.
The average asking rent increased 12.9% year-over-year, to $10.05 per square foot, Colliers noted, although the firm said preleasing activity could lead to a drop in pricing.