Thursday, October 1, 2020

New Jersey Sees Uptick in Industrial Subleasing Amid Pandemic

 by Linda Moss Costar news

As the pandemic continued throughout the third quarter, New Jersey saw a rise in the subleasing of industrial space, a commercial real estate sector that still remains relatively strong in the Garden State.

The increase in the subleasing of office space across the nation during the COVID-19 outbreak has been documented, as tenants continue to allow their employees to work from home and reexamine their need for square footage.

But in a report this week, stated there has also been a notable uptick in the subleasing of distribution and warehouse space in New Jersey's industrial market. For example, Japanese apparel retailer Uniqlo is seeking to sublease roughly one-quarter of its space at a nearly 1 million-square-foot facility in northwest New Jersey.

The sublease-increase finding reflects the financial strain the ongoing pandemic is putting on companies, particularly smaller ones, prompting them to put space on the market, according to the firm.

"New Jersey’s industrial market did not see a significant uptick in new sublease offerings during 2Q 2020, but this trend reversed course in the third quarter." 

Based on newly available space 20,000 square feet and larger, in the second quarter just 652,230 square feet of new sublease space was added to the market. But during the third quarter, that number "ballooned" to 1.7 million square feet of sublease space, more than double the five-year quarterly average of 810,000 square feet, according to Obeid.

Significant Subleases

And this comes even though the demand for industrial properties in New Jersey remains unprecedented, because of the increase in e-commerce and the state's location in the middle of a densely populated region.

The rapid pace of subleasing in the third quarter occurred "as certain businesses have been affected by the pandemic," such as restaurants and hospitality. Most subleasing was one by smaller tenants who lease less than 100,000 square feet.

But there have also been "a handful of significant new subleases," including restaurant supplier I. Halper Paper & Supplies looking to sublease 152,958 square feet at 51-53 Hook Road in Bayonne.

And Uniqlo has put 253,000 square feet on the sublease market at 942 Memorial Parkway in Phillipsburg, New Jersey. Uniqlo signed a lease for that entire 975,761-square-foot building at the Bridge Point 78 complex in June 2019, according to CoStar data.

Blocks Are Moving

"Despite these new additions, demand for industrial product remains strong amid the pandemic, particularly from e-commerce and logistics users," Obeid wrote. "Moreover, some of the new subleases have already been leased in the third quarter, proving that new sublease blocks can move."

In its latest report on Northern New Jersey's industrial market, CoStar's outlook was more tentative. CoStar pegged the vacancy rate at 4.2%, running below its historic average. But its forecast for the sector was murkier.

"The pandemic has enhanced the importance of the logistics industry, but that benefit has been offset by the overall economic downturn. The global supply chain has been disrupted and the economy still faces several hurdles before making a full recovery."

Amazon has been leading the e-commerce trend by "gobbling up what little warehouse space remains available at a rapid pace since the end of 2019" in New Jersey. Between the fourth quarter last year and the third quarter this year Amazon has leased nearly 8 million square feet and accounted for 19.2% of the 41.2 million square feet leased during this period, the report said.

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