Demand for industrial product normalized to pre-pandemic levels and overall office leasing continued to slow, according to Cushman & Wakefield‘s recently released second-quarter 2023 industrial and office statistics for northern and central New Jersey.
“Following unprecedented, historic growth over the past few years, demand in New Jersey’s industrial market has normalized to pre-pandemic levels,” John Obeid, senior research manager for the New Jersey region, said. “However, leasing activity in certain submarkets throughout New Jersey rose over the past few months, with central New Jersey being a large demand driver over this quarter. Additionally, average asking rents increased over the quarter, which can be attributed to new Class A deliveries priced above market average.”
In the second quarter, industrial leasing activity in northern and central New Jersey reached 4.8 million square feet, bringing the year-to-date volume to 10.2 million square feet. Central New Jersey drove demand this quarter, accounting for 67.1% of the total volume. A significant new lease in Cranbury by LVMH boosted leasing totals in central New Jersey. At 3.2 million square feet, leasing activity in central New Jersey is up 12.7% from the prior year.
Despite the strong leasing volume in central New Jersey, the overall market posted negative net absorption of 2.4 million square feet for the quarter. The acceleration of both vacant sublease and direct space drove negative absorption this quarter. This, together with new vacant deliveries, increased the vacancy rate this quarter to 4.1%.
The average asking rent increased again this quarter, to $17.15 per square foot, which is attributed to vacant deliveries of Class A product priced above market average.
“Centrally-located, modern offices captured much of the space demand this quarter as occupiers seek to create a more appealing workplace,” Obeid added. “This dynamic resulted in increased competition for new office product, exhibited by Stifel Financial’s relocation to Madison and NJ Transit’s new lease at Gateway Center in Newark.”
New leasing activity totaled 1.8 million square feet, down from the 2.1 million square feet recorded last quarter and down 11.8% from the two-year quarterly leasing average. Year-to-date leasing activity now totals 4 million square feet, down 7.5% from the 4.3 million square feet recorded at the end of the second quarter in 2022.
New vacancies rose this quarter, as new subleases continued to return to the market. As such, quarterly net absorption remained negative at 951,618 square feet, which brought the year-to-date absorption total to negative 2 million square feet.
Negative net absorption held the vacancy rate above the 20% mark for the second consecutive quarter, at 20.9%, up 190 basis points from last year. Average overall asking rents dropped to $31.17 per square foot, down from $33.08 per square foot at the end of the first quarter.