11-19-21

N ew J ersey 10B — November 19 - December 23, 2021 — New Jersey — M id A tlantic Real Estate Journal

www.marej.com

New Jersey Office Market

Despite increase in overall vacancy, sublease volume slows Southern New Jersey Office Market

se in Overall Vacancy, Sublease Volume Slows

T ce market continues to face issues related to nt. Economic uncertainty is causing many their real estate needs. Activity in the market ot yet returned to pre-COVID-19 levels. We as employers become more comfortable with is not likely to occur until early 2022. Some gned; however, larger na ional tenants tend to possible wait g for conditions to improve. On olding steady on their asking rent l rates, overall deal economics through increased nger-term transactions. eased to 18.9%, up from 18.2% in he previous higher than a year ago when the rate was l space this quarter was direct, rather than d during the first half of 2021. The amount of anded by only 0.6% quarter-over-quarter, after e first six months of the year. Average asking F, a 0.1% uptick from the second quarter; still %, when the rate was at $20.90/SF. Quarterly re feet; an improvement from the second et.

he Southern New Jer- sey office market con- tinues to face issues related to COVID-19 and the Delta variant. Economic uncertainty is causing many tenants to delay decisions on their real estate needs. Activ- ity in the market is slowly increasing but has not yet returned to pre-COVID-19 levels. We expect this trend to continue as employers be- come more comfortable with returning to the office, which is not likely to occur until early 2022. Some long-term leases are being signed; how- ever, larger national tenants tend to be on the sideline as much as possible waiting for conditions to improve. On the plus side, landlords are hold- ing steady on their asking rental rates, although they are improving overall deal economics through increased concessions, especially for longer-term transactions. The overall vacancy rate increased to 18.9%, up from 18.2% in the previous quarter, and 320 basis points higher than a year ago when the rate was 15.7%. Most of the addi- tional space this quarter was direct, rather than sublease, which was the trend during the first half of 2021. The amount of available sublease space expanded by only 0.6% quarter-over-quarter, after increasing by 8.2% during the first six months of the year. Average asking rental rates grew to $18.96/s/f, a 0.1% uptick from the second quarter; still down from a year ago by 9.3%, when the rate was at $20.90/s/f. Quarterly absorption was -66,945 s/f; an improvement from the second quarter’s -101,987 s/f. While leasing velocity re- mains slow, there were some notable leases signed during the third quarter. The largest was by Edmund Optics for 27,812 s/f at 101 Woodcrest Rd. in Cherry Hill. In the Marlton submarket, WestRock signed for 14,449 s/f of space at 10 Stow Rd. In Mount Laurel, AnnieMac Home Mortgage renewed its lease at 700 East Gate Dr. for 12,410 s/f and First Children leased 11,350 s/f at 11000 Commerce Park- way. In Voorhees, CH Rob- inson leased 5,849 s/f at 220 Laurel Rd. in the Voorhees Town Center. As the Southern New Jersey office market closes out the 10% 2% 14% 16% 18% 20% 1Q19 2Q20 3Q21 Vacancy (%)

rates but they will be more flexible with other concessions on longer-term leases. Nega- tive absorption is projected to climb at a slower pace in the fourth quarter, ending the year in negative territory. Owners of certain single- story properties face leasing challenges and are well-aware that demand for industrial space is robust, particularly in Burlington County, where a limited number of new options exist in smaller sizes. Con- sequently, we may see some office to flex/warehouse con- versions over the next couple of quarters. With the retail sector’s occupancy struggles, property owners are reevalu- ating their options to utilize this unoccupied space and there could also be an uptick in retail-to-medical office conver- sions similar to what occurred at the former Sears store in the Moorestown Mall where the 165,000 s/f facility was repurposed by Cooper Univer- sity Health Care. territory. Owners of certain single-story properties face leasing challenges and are well-aware that demand for industrial space is robust, particularly in Burlington County, where a limited number of new options exist in smaller sizes. Consequently, we may see some office to flex/war house conversions over the next couple of quarters. With the retail sector’s occupancy struggles, property owners are reevaluating their options to utilize this unoccupied space and there could also be an uptick in retail- to-medical office conversions similar to what occurred at the former Sears store in the Moorestown Mall where the 165,000-square-fo t facility was repurposed by Cooper University Health Care. Economic Conditions The unemployment rate for the Camden, New Jersey, met- ropolitan division declined from 7.9% in June to 6.7% in August. Payroll employment increased by 0.4% in August. Compara- tively, a year ago, a decline of 7.6% was reported. The leisure and hospitality (+26.4%), busi- ness and professional services (+5.6%) and education and healthcare (+5.4%) sectors all experienced the largest gains over the past 12 months of all industries tracked in the Cam- den, NJ, metropolitan division. The economic outlook for the remainder of the year and into early 2022 looks promising com- pared to the past several quar- ters. Large employers who are still remote are likely to make a return to the office in early 2022, which will spur additional growth in some sectors that are currently lagging behind. Expect payroll employment to increase and unemployment to decline further over the next six months. MAREJ Current Conditions – Vacancy climbed to 18.9% in the third quarter of the year, up 70 basis points from the second quarter of 2021. – Average asking rents for all classes remained fairly level from the previous quarter. Increasing slightly to $18.96 per-square-foot. – Sublease volume increased marginally to 953,476 square feet in the third quarter, a 0.6% increase since the second quarter. Qtr Absorption (SF) YTD Absorption (SF) Class A Asking Rent (Price/SF) Class B Asking Rent (Price/SF) Total Asking Rent (Price/SF)

Current Conditions – Vacancy climbed to 18.9% in the third quarter of the year, up 70 basis points from the second quarter of 2021. – Average asking rents for all classes remained fairly level from the previous quarter. Increasing slightly to $18.96 per-square-foot. – Sublease volume increased marginally to 953,476 square feet in the third quarter, a 0.6% increase since the second quarter. RESEARCH Q3 2021 RESEARCH Q3 2021

Market Summary While leasing velocity remains slow, there were some notable leases signed during the third quarter. The largest was by Edmund Optics for 27,812 square feet at 101 Woodcrest Road in Cherry Hill. In the Marlton submarket, WestRock signed for 14,449 square feet of space at 10 Stow Road. In Mount Laurel, AnnieMac Home Mortgage renewed its lease at 700 East Gate Drive for 12,410 square feet and First Children leased 11,350 square feet at 11000 Commerce Parkway. In Voorhees, CH Robinson leased 5,849 square feet at 220 Laurel Road in the Voorhees Town Center. Current Quarter Prior Quarter Year Ago Period 12-Month Forecast Total Inventory (SF) Southern New Jersey Office Market 16.8M 16.8M 16.8M  Vacancy Rate 18.9% 18.2% 15.7% 

Quarterly Net Absorption (SF) Average Asking Rent/SF As the Southern New Jersey office market closes out the year, expect a rise in vacancy but not at the pace experienced during the first half of the year. Rents are anticipated to remain flat as landlords remain firm in their asking rates but they will be more flexible with other (66,945) (101,987) 8,928  $18.96 $18.94 $20.90  Despite Increase in Overall Vacancy, Sublease Volume Slows

Under Construction (SF)

0.0

0.0

0.0

1 The overall vacancy rate increased to 18.9%, up from 18.2% in the previous quarter, and 320 basis points higher than a year ago when the rate was 15.7%. Most of the additional space this quarter was direct, rather than sublease, which was the trend during the first half of 2021. The amount of available sublease space expanded by only 0.6% quarter-over-quarter, after increasing by 8.2% during the first six months of the year. Average asking rental rates grew to $18.96/SF, a 0.1% uptick from the second quarter; still down from a year ago by 9.3%, when the rate was at $20.90/SF. Quarterly absorption was -66,945 square feet; an improvement from the second quarter’s -101,987 square feet. NET ABSORPTION The Southern New Jersey office market continues to face issues related to COVID-19 and the Delta variant. Economic uncertainty is causing many tenants to delay decisions on their real estate needs. Activity in the market is slowly increasing but has not yet returned to pre-COVID-19 levels. We expect this trend to continue as employers become more comfortable with returning to the office, which is not likely to occur until early 2022. Some long-term leases are being signed; however, larger national tenants tend to be on the sideline as much as possible waiting for conditions to improve. On the plus side, landlords are holding steady on their asking rental rates, although they are improving overall deal economics through increased concessions, especially for longer-term transactions. -300 -200 -100 0 100 200 300 2Q15 3Q16 4Q17 1Q19 2Q20 3Q21 concessions on longer-term leases. Negative absorption is projected to climb at a slower pace in the fourth quarter, ending the year in negative Submarket Statist cs Total Inventory (SF) Under Construction (SF) Total Vacancy Rate Cherry Hill 3,658,936 - Marlton 2,481,145 - Moorestown 1,047,939 - Mount Laurel 5,886,235 - Pennsauken/Camden 2,442,317 - Voorhees/Gibbsboro 1,336,748 - year, expect a rise in vacancy but not at the pace experi- enced during the first half of the year. Rents are anticipated to remain flat as landlords remain firm in their asking

RATE

21.9%

33,660

-85,679

$23.33

$20.20

$20.43

Market Summary

18.0%

14,133

25,917

Prior Quarter $24.90 $25.25

Year Ago Period $15.13

12-Month Forecast $18.65

4Q17

Current Quarter

g Rent (per SF/FSG)

17.5%

2,958

25,906

$19.92

$21.30

Total Inventory (SF)

16.8M 16.8M 16.8M

Vacancy Rate 19.3% -36,568

-261,712

$21.01

$16.19

$17.79

18.9% 18.2% 15.7%

Quarterly Net Absorption (SF) Average Asking Rent/SF -1,072

9.6%

3,758

$27.90

$15.15

$18.24

(66,945)

(101,987)

8,928

28.3% -80,056

-112,330

$26.25

$17.17

$17.75

$18.96

$18.94

$20.90

Under Construction (SF)

Market

16,853,320

-

18.9% -66,945

-404,140

0.0 $23.11

0.0 $17.46

 $18.96

0.0

Market Analysis

ASKING RENT AND VACANCY RATE Select Lease/User Transactions Tenant

NET ABSORPTION

Submarket

Building

Type

Square Feet

$16 $17 $18 $19 $20 $21 $22

20%

100 200 300

Edmund Optics

Cherry Hill

101 Woodcrest Road

New Lease

27,812

18%

WestRock

Marlton

10 Stow Road

New Lease

14,449

16%

AnnieMac Home Mortgage

Mount Laurel

700 East Gate Drive

Renewal

12,410

-300 -200 -100 0

14%

First Children

Mount Laurel

11000 Commerce Parkway

New Lease

11,350

12%

10%

2Q15

3Q16

4Q17

1Q19

2Q20

3Q21

2Q15

3Q16

4Q17

1Q19

2Q20

3Q21

Average Asking Rent (per SF/FSG)

Vacancy (%)

NEWMARK Q3 2021 SOUTHERN NEW J ERSEY OFF I CE MARKET REPORT 2

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