New Jersey's industrial and office real estate markets are approaching mid-year 2016 with a mix of successes and challenges, according to Colliers International Group Inc. (NASDAQ: CIGI, TSX: CIG). The global commercial real estate services firm reports continued record-breaking industrial demand and strengthening office leasing heading into the final weeks of the second quarter.
E-commerce driven activity led to 18.6 million square feet of industrial leasing in the first quarter, breaking the 12 million-square foot record set during the fourth quarter of 2015. Colliers International research findings show that big box leasing activity accounted for 12 transactions over 300,000 square feet during the first three months of the year - double the first quarter total. Net absorption reached 9.2 million square feet, improving the availability rate by 120 basis points to 8.4 percent.
"Industrial leasing activity in Class A properties experienced a dramatic uptick, representing more than 35 percent of first quarter leasing activity," noted Colliers' David Simon, executive managing director and New Jersey market leader. "Year-to-date, the top two new leases were completed by e-commerce companies, and this sector has generated more than 40 percent of the second-quarter activity recorded to date."
Developers continue to break ground on speculative construction projects to help meet this historic demand. They are catering new warehouse/distribution buildings to e-commerce and other major distribution users, with features like 36-foot plus ceiling heights, ESFR sprinkler systems and adequate parking for both employees and trailers.
The downside? The current shortage of available modern, high-quality space likely will dampen industrial leasing totals for the second quarter.
New Jersey's office market, on the other hand, has continued to feel the impact of large blocks returning to the market. Following an uptick in tenant activity during 2015, the market stalled in the first quarter of 2016.
"Office leasing activity totaled 2.6 million square feet during the first three months of the year, representing the lowest level since the second quarter of 2014 and down 15 percent from the five-year quarterly average," said John Obeid, senior director, Tri-State Suburban Research for Colliers International. "As a result, the availability rate increased 20 basis points to 20.7 percent, and overall net absorption totaled a negative 49,366 square feet."
The densification trend has continued during the second quarter, with some tenants consolidating operations and others leaving Class B space in flight-to-quality relocation moves. The largest block to become available in recent months is Citigroup's space at Warren Corporate Center, totaling 661,736 square feet.
The good news? While new office vacancies will counteract significant improvements in the availability rate, Colliers International reports that office leasing activity in the second quarter is on pace to surpass the first quarter total. A recent flurry of activity was led by Daiichi Sanko's 301,800-square-foot lease at 211 Mount Airy Road in Basking Ridge.
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