Conditions in the New Jersey office market shifted further in favor of tenants during the first quarter of 2023 as the gap between supply and demand widened, according to Colliers‘ first-quarter 2023 New Jersey office research report.
Leasing activity amounted to 2.3 million square feet, a 20.8% decrease quarter-over-quarter, but up slightly from one year ago. Reduced demand and increased sublet supply caused availability to increase from 22.8% to 23.5%, exceeding previous peaks during the pandemic and 2008 financial crisis.
Office key takeaways:
- Buildings in transit-oriented submarkets with nearby amenities such as Morristown and Metropark continued to draw new tenants, including major leases signed by Sanofi and Wells Fargo during the quarter.
- Despite an overall reduction in demand, Class A space accounted for 90% of quarterly leasing activity as corporate occupiers seek modern work environments to attract talent and stimulate in-person collaboration among employees.
- The market’s outlook is improving on both with 1) several large or midsized companies touring the market; and 2) more than 13 million square feet of excess supply rumored for conversion or currently being redeveloped.
Meanwhile, Colliers said the New Jersey industrial market softened during the first quarter of 2023 as a challenging economic environment and decelerating occupier demand resulted in reductions in leasing and occupancy as well as a cooldown in the pace of rent growth from the historic highs experienced in recent years.
Net absorption turned negative for the first time in more than 10 years as new availabilities outpaced leasing volume by 1.6 million square feet. As a result, the availability rate increased to 4.1%, up 40 basis points from the end of 2022, but still low from a historical perspective.
Industrial key takeaways:
- The first quarter of 2023 was the first quarter in more than 10 years in which net absorption (the change in occupancy) turned negative, and availability remains historically low at 4.1%.
- A softening in the market will provide some relief to tenants, which previously had very few options and very little leverage in lease negotiations.
- Demand for well-located, modern space with high ceilings remains strong along the New Jersey Turnpike Corridor, as evidenced by recent leases signed by DMI Inc., CODA Logistics and Distribution and Vanguard Logistics.
