CBRE: Office market downturn, while industrial market growing

CBRE Two real estate reports covering the office and industrial sectors were released for the second quarter of this year.

Office Market

CBRE said leasing activity in the northern and central New Jersey office markets totaled 831,000 square feet in the second quarter. That’s 31% below the five-year average and 45% below the second quarter of 2023.

Throughout the quarter, no office leases were larger than 100,000 sq. ft. Class A leasing also declined to 76% of all leasing activity this quarter, compared with more than 82% in nine of the past 10 quarters.

On the bright side, top-tier construction (which accounts for just 9% of inventory) is still 340 basis points lower, with availability at 21.5%.

Overall, negative absorption of 621,000 square feet pushed the availability rate up 40 basis points to 24.9%. This continues a six-quarter trend where the availability rate has remained within 50 basis points of the historical high of 25%.

Other data:

• Second quarter rents were $31.55 per square foot, also stable compared to the past six quarters;
• Sublease space grew this quarter, reversing a downward trend from the previous four quarters, reaching 19% of total available space.

Industrial Market

Industrial markets in northern and central New Jersey performed very differently, with growth rates reversing a slight decline in the first quarter.

Overall, leasing space was 5.9 million square feet, up 16% for the quarter.

The trend was led by strong demand from smaller tenants, particularly third-party logistics companies, which accounted for 47% of the market’s total leasing activity and pushed absorption to 1.7 million square feet.

Occupancy increased for the first time since the first quarter of 2023, even as 2 million square feet of new production pushed vacancy up 10 basis points to 5%. However, this was the slowest increase in vacancy since the second quarter of 2023.

Other data:

• Sublease area reached its highest level since the third quarter of 2020 at 6.5 million square feet;
• Average rents for Class A office space remained stable at $19.40 per square foot, while average rents for Class B and C space rose 3% to $16.62 per square foot.