New Jersey’s industrial market experienced strong leasing activity in the second quarter, while office leases exhibited a continued slowdown with tenants increasingly favoring central, modern office spaces, according to Cushman & Wakefield‘s latest statistics for North and Central Jersey.
“The industrial market continues to show resilience, with strong leasing activity and significant construction completions,” John Obeid, C&W’s senior research manager, said. “While the influx of new space has increased the market’s vacancy rate, the Class A segment remains robust with positive net absorption, indicating sustained demand for high-quality logistics properties.”
In the second quarter, New Jersey’s warehouse and distribution market demonstrated persistent demand, with 5.8 million square feet of new leasing activity, bringing the midyear total to 11.6 million square feet, reflecting an 11.2% increase compared with the same period last year. While large-scale leasing continued, there has been a noticeable shift in tenant composition, with Asian third-party logistics firms significantly increasing their market share.
Net absorption for the quarter was negative 164,648 square feet, a substantial improvement from the previous quarter’s negative 2.4 million square feet. Despite the occupancy losses in the overall market, the Class A segment showed resilience, recording 1.4 million square feet of positive net absorption in the second quarter.
Over the past two years, new supply has surged, raising the vacancy rate from a low of 1.5% in Q2 2022 to 7.6% in Q2 2024. This rise can be attributed to a wave of vacant deliveries, new sublease availability and consolidations.
Although the market is unlikely to surpass 2023’s record of 14.4 million square feet in new deliveries, it is on track for the second-highest year on record. However, new construction starts have slowed, providing an opportunity for the market to absorb the recent surge in supply and improve occupancy rates.
“Despite a historically high vacancy rate, competition for top-tier office properties remains fierce, as tenants continue to seek centrally located and modern office spaces, aligning with the flight to quality trend we have been experiencing over the past several years,” Obeid said. “The market’s shift towards quality over quantity is evident as large-scale new leases have declined.”
Over the second quarter, office leasing demand slowed, with new leasing and renewals reaching its lowest point since 2020 due to a decline in large new transactions. Notably, there were no new leases or renewals exceeding 100,000 square feet this quarter, compared to four leases last quarter and two in Q2 2023. Despite a historically high vacancy rate of 23.2%, competition remains fierce for top-tier properties as tenants are increasingly favoring newer, highly amenitized properties.
New supply and sublease space continued to rise, as consolidations persisted. Vacant sublease space has exceeded 7 million square feet for seven consecutive quarters. Significant consolidations have also contributed to the availability of new space.
Office demolitions and conversions are ongoing throughout New Jersey.
