12-18-20

N ew J ersey 8B — December 18 - January 14, 2020 — New Jersey — M id A tlantic Real Estate Journal

www.marej.com

INDUSTRIAL MARKET NAI DiLeo-Bram & Co.'s Northern/Central New Jersey, Fall 2020 Market Review Market working to find normalcy amid the prolonged pandemic M 11 Asking Rent $/SF/YR Figure 1: Net Asking Rates – INDUSTRIAL Market Review 30 OFFICE MARKET Figure 3 : Gross Asking Rates Asking Rent $/SF/YR – OFFICE Market Review RETAIL MARKET 27 Asking Rent $/SF/YR Figure 5 : Net Asking Rates – RETAIL ARKETOVERVIEW The COVID- 19 Pandemic has un-

t Review

As shown in Figure 1, average net asking rents hit another all-time high in Fall 2020, reaching $8.67 per sq. ft. The trend for overall asking rates have been climbing higher over the last five years, continually setting new records. Class A rents have also been elevating, with net asking rates ending Fall 2020 at $9.35 per sq. ft. Rents should continue to rise, with the demand for this product being increased by the pandemic economy. Figure 2 shows that direct Class A product continues to have very limited availability relative to other asset classes. This limited availability has fed the record asking rents being attained. Developers have certainly noticed New Jersey’s robust industrial market as the development pipeline continues to show investors’ excitement with over 5.5 million sq. ft. to be delivered. Absorption has been strong since the beginning of the pandemic, though much of the activity is driven by eCommerce and third-party logistics firms. Figure 3 helps tell this story as Amazon and other third-party logistics firms accounted for over 2.5 million sq. ft. in Fall 2020. David A. Simon While a highly effective vaccine will be welcomed by all, the upward trajectory of this product type in this market seems to be very positive regardless. New Jersey’s prime location, situated between New York and Philadelphia, provides access to more than 35 million consumers within a two-hour drive. With its superb access to ports and diverse labor force it will continue to be extremely desirable. derstandably shaped t e 2 0 2 0 CRE wo r l d and will continue to do so well i n t o n e x t year. Recent vaccine news has been en-

20% The direct vacancy rate has risen slightly year- over-year, ending Fall 2020 at 12.2%, this is 10 basis points (bps) higher than Fall 2019. Class A product continues to see direct vacancy rates climb. As of Fall 2020, the direct vacancy rate is at 16.8%, a full 100 bps higher than at the start of the year. As a result, tenants in the market have their choice of high-quality office product to choose from. Figure 5 d monstrates the distribution of direct vacant space by asset class and illustrates that Class A space is widely available. 55% Tenants with leases that are expiring soon are electing to negotiate shorter lease terms and are requiring cancellation options to maintain flexibility. As shown in Figure 6, most notable transactions have been lease renewals, like the US Customs and Border Protection lease, involving space reductions. The office market appears to be a cautious tenant’s market into 2021. 26% Class A Class B Class C Many office users have begun the process of re- evaluating their space needs amid the realities of the work-from-home (WFH) shift. Figure 4 captures the impact on rent trends as an increase in inventory is beginning to exert downward pressure on asking rates. Reduced asking rents and a nearly 30% jump in sublease availability from last year have created a tenant’s market. Only time will tell if the price trend will continue to creep lower but given the popularity of WFH, there is no reason to believe users will revert to pre-pandemic space requirements.

67% An interesting development to keep an eye on will be how the struggling retail market will receive the influx of dispensaries that are likely to open in the market with New Jersey voters deciding to legalize marijuana. This creates an opportunity in New Jersey within this emerging industry. The retail market will see relief from the pandemic with the upcoming vaccine but not likely until at least the middle of 2021. Class A Class B Class C Average net asking rents have fallen year-over- year by $0.72 per sq. ft., displayed in Figure 7. There has been some encouraging growth across Class A product but there is no denying that retail has been the hardest hit sector during the pandemic to date and will take the longest to recover. The innovation and flexibility shown by retail businesses has been a bright silver lining but with winter coming many of these innovations will be put to the test. It appears small businesses will continue to suffer as necessary COVID mitigations are increased over the winter-flu months leaving them in a position where they simply cannot withstand multiple months with near zero revenues. Class A product continues to have the smallest share of available direct space at 9%, see Figure 8. It i safe to expect additional space to hit the market should more stringent COVID mitigation policies be required. Despite the challenging outlook, market velocity has increased as the year has progressed, driven by new leases being completed, see Figure 9. 7%

MARKET AT A GLANCE

T AT A E

27 Arrows indicate direction of year-over- year change

Arrows indicate direction of year-over- year change

cate year-over- e

ect Vacancy %

Direct Vacancy 4.6%

Direct Vacancy 12.2%

Net Asking Rate $20.71 PSF

Gross Lease Asking Rate $24.18 PSF

Asking e 67 PSF

Fall 2020 I Industrial Unemployment figures have shown as low but steadymarch downward following genera- tional highs at the onset of the pan emic. The lowering numbers are encouraging, but the trend is fragile and tied to the severity of COVID miti- gations. Expect these figures to be linked throughout the pandemic. Figure 3: Notable Lease Transactions couraging but is believed to be more than six months away fr m widespread availabili y. Because of surging infecti n numbers and intermittent shutdowns economic volatil- ity is likely to continue into at least mid-2021. Despite these challenges, the market has found a working normal involving a cautious office market, an active industrial market and a retail market undergoing a transition. Until the v ccine is widely avail- able, all three asset classes will continue to operate under this newly formed paradigm. Consumers will continue to show a preference for services that enable minimal contact and minimize disruptions to their lives, even after vaccine availability, and the market will continue to build around these preferences. Source: NAIDB analysis of market activity, Fall 2020. Tenant Amazon Amazon LT Apparel G-III Apparel Group SalSon Logistics SalSon Logistics TSG Cabinets Source: NAIDB analysis of data fromNJ Department of Labor, Bureau of Labor Statistics, Costar. INDUSTRIAL MARKET As shown in Figure 1 , av- erage net asking rents hit another all-time high in Fall 2020, reaching $8.67 psf. The trend for overall asking rates have been climbing higher over the last five years, con- tinually setting new records. Class A rents have also been elevating, with net asking rates ending Fall 2020 at $9.35 psf. Rents should continue to rise, with the demand for this product being increased by the pandemic economy. Figure 2 shows that direct class A product continues to have very limited availability relative to other asset classes. This limited availability has

Fall '16 Fall '17 Fall '18 Fall '19 Fall '20

Asking Rates (All Classes) Class A Class B Class C

Net Absorption -267,758 SF

Asking Rates (All Classes) Class A Class B Class C

Net bsorption -827,013 SF

Absorption 56,578 SF

Source: NAIDB Research analysis of Costar data, Fall 2020.

Figure 4 : Percent of Direct Vacant Space by Asset Class Under Construction 421,948 SF

Figure 2: Percent of Direct Vacant Space by Asset Class Under Construction 525,785 SF

der nstruction 27,576 SF

Figure 6 : Percent of Direct Vacant Space by Asset Class

34%

25%

Class A Class B Class C

57%

Source: NAIDB Research analysis of Costar data, Fall 2020.

Figure 6: Notable Lease Transactions

Figure 9: Notable Lease Transactions

SF Size (SF) Local Market Exper ts l Global ly Connected Location

Type

4 © 2020 NAI DiLeo-Bram & Co. | continue to suffer as neces- sary COVID mitigations are increased over the winter-flu months leaving them in a position wh r they simply cannot withstand multiple months with near zero rev- enues. Type New Lease New Lease New Lease New Lease Class A product continues to have the smallest share of available direct space at 9%, see Figure 6. It is safe to expect additional space to hit the market should more stringent COVID mitigation policies be required. Despite the challenging outlook, mar- ket velocity has increased as the year has progressed, driven by new leases being completed. An interesting develop- ment to keep an eye on will be how the struggling retail market will receive the influx of dispensaries that are likely to open in the market with New Jersey voters deciding to legalize marijuana. This cre- ates an opportunity in New Jersey within this emerging industry. The retail market will see relief from the pan- demic with the upcoming vaccine but not likely until at least the middle of 2021. David A. Simon, SIOR is COO of NAI DiLeo-Bram& Co. MAREJ

2 Many office users have be- gun the process of re-evalu- ating their space needs amid the realities of the work-from- home (WFH) shift. SF Size (SF) location, situated between New York and Philadelphia, provides access to more than 35 million consumers within a two-hour drive. With it superb access to ports and di- verse labor force it will contin- ue to be extremely desirable. OFFICE MARKET Location 338,818 117,300 104,779 101,724 77,500 65,758 100 Metroplex Drive, Edison 7 Clarke Drive, Princeton Bierma Source: NAIDB analysis of data from NJ Department of Labor, Bureau of Labor Statistics, Costar Tenant Figure 3 captures the im- pact on rent trends as an increase in inventory is begin- ning to exert downward pres- sure on asking rates. Reduced asking rents and an early 30% jump in sublease availability from last year have created a tenant’s market. Only time will tell if the price trend will continue to creep lower but given the popularity of WFH, there is no reason to believe users will revert to pre-pan- demic space requirements. The direct vacancy rate has risen slightly year-over-year, ending Fall 2020 at 12.2%, this is 10 basis points (bps) higher than Fall 2019. Class A product continues to see direct vacancy rates climb. As of Fall 2020, the direct vacancy rate is at 16.8%, a full 100 bps higher than at the start of the

3 year. As a result, tenants in the market have their choice of high-quality office product to choose from. Figure 4 demonstrates the distribution of direct vacant space by asset class and illustrates that class A space is widely available. Tenants with leases that are expiring soon are electing to negotiate shorter lease terms and are requiring cancellation options to maintain flexibility. Most notable transactions have been lease renewals, like the US Customs and Border Protection lease, involving space reductions. The office market appears to be a cau- tious tenant’s market into 2021. RETAIL MARKET Type New Lease Renewal Renewal New Lease SF Size (SF) Location 58,441 21,450 12,680 12,000 s LLC 11,300 Average net asking rents have fallen year-over-year by $0.72 psf, displayed in Fig - ure 5 . There has been some encouraging growth across class A product but there is no denying that retail has been the hardest hit sector during the pandemic to date and will take the longest to recover. The innovation and flexibility shown by retail businesses has been a bright silver lining but with winter coming many of these innova- tions will be put to the test. It appears small businesses will

Tenant

953,595 343 Half Acre Road, Cranbury 900,022 2205 Route 27, Edison

New Lease New Lease

Eisai, Inc.

200 Metro Boulvard, Nutley 4 Gateway Center, Newark Michaels

buybuyBaby

675 US Highway, Woodbridge 617-701 W Edgar Road, Linden 901 Mountain Avenue, Springfield 77-81 Broad Street, Elizabeth

McCarter & English

610,000 301-321 Herrod Boulevard, South Brunswick 583,376 140 Docks County Road, South Brunswick 349,054 1120 Route 22 E - Bldg. 1, Bridgewater

Renewal Renewal

US Customs and Border Protection

1100 Raymond Boulevard, Newark Renewal 200 Crossing Boulevard, Bridgewater Renewal Dollar Tr e Aaron Associ

Brother International New Jersey Legal Services

New Lease New Lease New Lease

Source: NAIDB analysis of data from NJ Department f Labor, Bureau of Labor Statistics, Costar

IDB data from

550 Springfield Avenue, Berkley Heights New Lease

318,000 2801 Route130, North Brunswick 308,000 481 Weston Canal Road, Somerset

WuXi Biologics

ment of eau of stics,

Source: NAIDB analysis of market activity, Fall 2020.

Fall 2020 I Retail

Fall 2020 I Office

fed the record asking rents be- ing attained. Developers have certainly noticed New Jer- sey’s robust industrial market as the development pipeline continues to show investors’ excitement with over 5.5 mil- lion s/f to be delivered. Absorp- tion has been strong since the beginning of the pandemic, though much of the activity is driven by eCommerce and third-party logistics firms. While a highly effective vac- cine will be welcomed by all, the upward trajectory of this product type in this market seems to be very positive re- gardless. New Jersey’s prime This report utilizes data related to the fol- lowing New Jersey counties: Middlesex, Somerset, Union, Essex and Morris.

This report utilizes data related to the following New Jersey counties: Middlesex, Somerset, Union, Essex and Morris

NAI DiLeo-Bram & Co. is a member of NAI Global. With over 375 offices and over 6,000 professionals globally, NAI Global completes in excess of $20 billion in commercial real estate transactions throughout the world each year. Leveraging the powerful support of the NAI Global Network, NAI DiLeo-Bram & Co. offers a full suite of commercial real estate services backed by over 80 years of local commercial real estate experience.

For Further Information Contact David A. Simon, SIOR Chief Operating Officer 732 985 3000 ext. 220 dsimon@naidb.com

1315 Stelton Road Piscataway, NJ 08854 732 985 3000 naidb.com

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about the information contained herein. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by NAI-DiLeo-Bram & Co. clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of NAI-DiLeo-Bram & Co. Disclaimer: Infor ation contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about the information contained herein. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by NAI-DiLeo-Bram & Co. clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of NAI-DiLeo-Bram &Co.

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