Avison Young New Jersey Releases Q2 2020 Office and Industrial Sector Reports

7/27/20

Office vacancy rate drops year-over-year, while market awaits long-term effects of COVID-19; Industrial sector remains solid as e-commerce strengthens its grip on retail

The New Jersey office vacancy rates fell year-over-year with a 70-basis point drop since the second quarter of 2019,as the sector waits to see what effects the coronavirus has on the market. Meanwhile, the industrial sector remains strong as e-commerce strengthens its grip on retail.

These are the major findings of the Avison Young New Jersey Q2 2020 office and industrial sector reports.

“Historically real estate usually trails the economy in a time of recession so we will see

what effects COVID-19 has on the New Jersey office market over the next few quarters,” noted Jeff Heller Principal and Managing Director of the Avison Young New Jersey office.“However early indications are that e-commerce has bucked the trend and increased its grip on the future of retail, resulting in the strengthening of an already strong industrial market.”

Office Sector:

Vacancyrate dropped from 13.4 percent in Q2 2019 to 12.7 percent this year, but also saw a 20-basis point jump from the first quarter of this year.Market rents rose $.34 year over year to $30.56 per square foot and net absorption continued its hot streak,posting a positive number for the ninth-straight quarter.

There were several major office transactions over the last quarter, including the following:

  • One of the largest deals of the quarter was the New Jersey Resources 157,511 square foot renewal at 1415 Wyckoff Road in Wall. The energy services holding company signed a fifteen-year lease to maintain their presence attheir headquarters in Wall, where they occupythe entire building.
  • In another major renewal this quarter, McCarter & English signed a ten-year extension at 117,300 square foot location at 4 Gateway in Newark.
  • In one of the largest sale transactions of the quarter, Lincoln Equities Group and H.I.G. Realty Partners purchased the former Bristol-Myers Squibb campus in Hopewell. The 1.2 million square feet of office, flex, and lab space sits on over 433 acres and includes
  • PTC Therapeutics as its main tenant.
  • In their second large purchase of the year, Opal Holdings purchased 1100, 1150 and 1200 American Boulevard in Pennington. The 380,417 square foot complex is fully occupied by Merrill Lynch, who currently has a lease in place through November 2024.


The Future of the Office Sector:

As offices begin to reopen, the question remains on what value do they bring. While for the most part warehouses have remained open during the pandemic, most office buildings have remained closed. Companies and landlords are tasked with coming with a plan to keep their employees and tenants safe.

Landlords are taking numerous steps to help keep their tenants feeling safe including limiting the number of people in the elevator,upgrading their HVAC systems, providing more maintenancestaff, mandating face-covering in public spaces, and providinghand sanitizer dispensers among other things.

As companies continue to return from COVID-19, the value of the office will be discussed and examined in nearly every boardroom across the country. Landlords will be forced to reimagine how they will develop and market their buildings to demonstrate the value their properties can provide to their tenants and their workforce.

Industrial Sector

The New Jersey industrial sector vacancy rate dropped to 2.8 percent compared to the first quarter of 2019 when it was 3.1 percent, while the historic ascent of industrial market rent has continued its rise to $8.96 per square foot net. E-commerce continues to drive retailwhich in turn boosts the alreadystrong industrial market. The next fewquarters will be important as we get a clearerpicture of the effects the virus has on theNew Jersey industrial market.

There were several key industrial sector transactions over the last quarter, including:

  • Amazon, the world leader in e-commerce, finalized a slew of leasesin New Jersey during the second quarter, further demonstrating their belief that New Jersey's central location remains essential for servicing its customers in the Northeast. Deals were closed atthe following locations:
  • oAlfieri’s 343 Half Acre Road in Cranbury(953,595 SF)
  • oCenterpoint’s 1800 Lower Roadin Linden (386,296 SF)
  • oPrologis’ 8-B Court South in Edison (289,698 SF)
  • oDuke Realty’s1 Paddock Street in Avenel (185,017 SF)
  • oRTC Properties’ 5 Logistics Drive in Kearny(181,440 SF)
  • oBrookfield’s 10 Patton Drive inWest Caldwell (167,894 SF)
  • oBlack Creek’s 5Paddock Street in Avenel (156,307 SF)
  • oCT Realty Investors’ 79 Thomas McGovernDrive in Jersey City (95,808 SF)
  • Mark Anthony Brewing Inc. signed aseven-year, 419,460-square--foot lease atBridge Development Partners’ BridgePoint 78 in Phillipsburg, joining clothing retailer Uniqlo atthe six-warehouse, 3.85 million square-foot industrial campus.


The Future of the Industrial Sector:

While the industrial market has seemingly not missed a beat as aresult of the pandemic, with e-commerce taking on a larger role inthe retail space, there have been and will be few changes occurring both in the short and longterm.

The first is the size of the space available. While the pandemic hasbeen a boon for many big-box retailers, many small to medium sizeusers of industrial space were affected negatively, forcing many ofthem to leave their space. This has resulted in an uptick of availablespace 50,000 square feet and less. Eighty-one percent of spacethat has come to the market since February has been less than50,000 square feet, compared to sixty-seven percent of the

space that has been marketed as available before February.

The second trend having both a short-term and long-term effect on the industrial market is an emphasis on reverselogistics - the part of the supply chain thathandles merchandise returns. The increased rise in e-commerce has causedthis part of the supply chain to receive more attention fromcompanies. Inthe short-term, there is an expected increase in returns with many consumersreturning merchandise that they could not because of store closures during COVID-19. In the long-term reverse logistics is expected to continue to play a larger role in companies’ supply chain.

While this emphasis on issues like reverse logistics did not justappear during the COVID-19 pandemic, like many of the changeshappening in the industrial marketplace, it was just accelerated. It has forceddecisions to be made on employment, training, safety, and realestate among others a lot quicker than most experts expected it tobe.

Avison Young is the world’s fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its Principals. Founded in 1978, with legacies dating back more than 200 years, the company comprises thousands of real estate professionals in more than 100 offices around the world. The firm’s experts provide value-added, client-centric investment sales, leasing, advisory, management and financing services to clients across the office, retail, industrial, multi-family and hospitality sectors.