New Jersey’s office vacancy rate hit a 15-year high in the second quarter.
The 18.8 percent figure includes 9.1 million square feet of empty space available for subleasing, according to Avison Young’s quarterly market report. The share of vacant sublease space in the total vacancy was 16.5 percent, the highest since 2005. But it could get worse.
“This ratio is expected to increase as companies continue to assess their long-term real estate needs,” the report said.
As many in the region continue to work remotely, employers have been cautious about long-term leasing decisions. Only 21.4 percent of the workforce in the New York metro area went back to workplaces as of June 23, according to Kastle Systems, which aggregates data from its swipe-card access system.
The Garden State’s office leasing volume in the second quarter was 2.1 million square feet, up almost 20 percent compared to the pandemic-stricken period last year, but nearly 23 percent lower than the 2019 level. The total leasing volume this year is expected to be 46 percent smaller than the 20-year annual average, according to the report.
“There is no moden precedent for the post-Covid slowdown in leasing activity,” the report said.
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Base rents in the second quarter decreased by 1.8 percent to $29.49 per square foot from the 2019 peak. The level of decline, however, is much smaller compared to that in the wake of the dot-com crash and the Great Recession, when pricing declined by 5.9 percent and 11.3 percent from the respective peaks.
The pandemic hasn’t slowed New Jersey’s office investment sales, with several major deals being signed in recent months, including the Birch Group’s $255 million purchase of a Short Hills office portfolio and Opal Holding’s $254 million acquisition of the Metro Park portfolio, both from Mack-Cali Realty.