20 — September 2024 — Fall Preview — M id A tlantic Real Estate Journal
www.marej.com
F all P review By David M. Zimmel, Zimmel Associates Office and Industrial Real Estate: Adapting to Market Shifts and Opportunities
A
s we navigate a post- pandemic world, the office and industrial
real estate markets are fac - ing significant changes. The office market is gradually ad - justing, influenced by hybrid work models, while the indus - trial sector is seeing a surge in available space, pushing rents down. In this shifting environment, landlords and tenants must adopt stra - tegic approaches to remain competitive and thrive. Office Market Overview: A Gradual Transition The office market is evolving slowly, with no major changes expected in the near future. Many companies are still adapting to post-COVID work models, with employees work - ing in the office only two to three days a week and the rest remotely. As leases expire, companies are reassessing their space needs, often choos - ing smaller spaces or redesign - ing their current offices to reflect the decreased demand for in-person attendance. While the office market is unlikely to experience dra - matic changes over the next year, prime-location A-grade buildings, such as those in Metro Park and Jersey City, are expected to outperform B-grade properties and less desirable locations. Larger companies that still need office space are increasingly drawn to buildings with superior amenities and are willing to pay a premium for these fea - tures. These companies can often afford higher rents per square foot because they are leasing smaller overall spaces. Industrial Market Developments: Surging Supply and Declining Rents The industrial market is witnessing a substan - tial increase in available space. A year ago, options for spaces ranging from 15,000 to 30,000 s/f were scarce.
Shown from left: Joel Natter, Executive VP; Jordan Zimmel, VP; David Zimmel, CEO; Jaime Zimmel, VP; and Jason Zimmel, Sales Associate.
Today, searches may reveal 8 to 15 potential vacancies, indicating a significant rise in supply. This increase has led to a reduction in rental rates, with rents falling by approximately 10% to 20% in some areas due to the supply-demand imbalance. Previously, landlords pushed rents aggressively when space was limited. However, with the current abundance of available space, landlords who are not heavily lever - aged are more willing to negotiate lower rents to fill their buildings rather than leave them vacant. In the big-box sector, the rise in available space has corresponded with a decline in rents. Demand is unlike - ly to match supply within the next year due to exces - sive overbuilding, making it probable that leasing up the vacant space will take more than a year. Although the industrial market is not as challenging as it once was, rents are expected to remain down by 10% to 20%, with ample supply for tenants to choose from. This increased availability will likely lead existing tenants to negotiate
“In a rapidly changing real estate environment, adaptability is essential. The office market is adjusting to hybrid work models, while the industrial sector faces a surge in space and declining rents.”
more aggressively when their leases are up, aiming to stay in their current buildings rather than relocating. With numerous vacancies, land - lords will likely be more in - clined to negotiate to retain tenants rather than risk prolonged vacancies. Presentation and Pricing Given these market condi - tions, landlords should focus on the presentation and pric - ing of their properties. Ensure that vacant spaces are well- maintained with updates such as LED lighting and clean floors and walls to enhance their appeal. It is crucial to keep rental rates competitive, especially if the property is not in a prime location. Being the most expensive building on the market may not be a viable strategy in the cur - rent climate. Instead, attract Recommendations for Landlords: Prioritize
tenants quickly by offering a well-maintained space at a fair price. The current market is af - fected by overbuilding driven by the post-pandemic rush to meet anticipated demand, which has not materialized as expected, leaving developers with excess inventory. Land - lords with existing properties and fewer financial obligations have the flexibility to offer more competitive rents, poten - tially leasing their spaces more quickly compared to those burdened by large mortgages. Industry Demand: Steady with Some Growth Regarding industry demand within the industrial sector, there has not been a significant surge in interest from new sectors. The need for space in the third-party logistics (3PL) sector remains, but it is not as intense as it was two
years ago. There has been a slight increase in interest from manufacturing and assembly operations. Additionally, the healthcare and pharmaceuti - cal sectors remain strong in New Jersey, with some proj - ects specifically catering to pharmaceutical use expected to perform well. In Summary: In a rapidly changing real estate environment, adapt - ability is essential. The office and industrial sectors each face unique challenges, from hybrid work affecting office demand to oversupply lower - ing industrial rents. However, with the right strategies and a proactive approach, landlords and tenants can successfully navigate these shifts and even find new opportunities for growth in an evolving market. David M. Zimmel is presi- dent of Zimmel Associates. MAREJ
Made with FlippingBook flipbook maker