By Jason Crimmins, The Blau & Berg Company
As we transition from the warmth of Summer to the crispness of Fall, the commercial real estate landscape is being shaped by a multitude of complex factors. The impending presidential election, potential interest rate adjustments, economic uncertainties, and changing demands of businesses seeking to establish themselves in the vibrant Northern New Jersey market are all contributing to a dynamic, evolving environment.
Following the initial post-pandemic surge, the intense demand for last-mile logistics facilities has stabilized, influenced by factors such as heightened delivery volumes, rising interest rates, and moderate consumer spending. This shift has led to a normalization in the market, with vacancy rates on the rise and rental prices experiencing a downward trend from 2023 through 2024. Despite these challenges, leasing activity has shown resilience, particularly driven by 3PLs, food and beverage companies, and an influx of Asian logistics firms. Noteworthy is the completion of fourteen significant deals exceeding 175,000 s/f in the first half of the year, a sizeable increase compared to the same period in 2023. Industrial rents have slightly decreased, and vacancies have risen to 6.5% in the first half of the year, primarily due to the completion of new distribution centers and an uptick in sublease availability. There has been a growing demand for smaller spaces within the 25,000-75,000 s/f range.
It is anticipated that the prevailing trends will persist throughout the remainder of the year. Looking ahead to 2025, a diminishing pipeline is expected to drive a surge in leasing activity. Landlords have already started and will continue to adjust their rental rates to attract high-caliber tenants and remain competitive in the market.
The office sector is grappling with the challenge of historically high inventory levels and persistent vacancy rates hovering around 25%. Major positive players include financial services, insurance firms, pharmaceutical companies, and the tech/information sectors, which have been at the forefront of significant transactions. Moving forward, the shift towards multi-use development is expected to alleviate some of the surplus inventory as older office buildings are gradually replaced by more versatile mixed-use spaces.
The brick-and-mortar retail sector is undergoing a period of transformation and adaptation, navigating challenges such as consumer confidence fluctuations, labor concerns, and the growing impact of artificial intelligence on consumer behavior and in-store product displays. While traditional retail faces hurdles, anchor centers are showing resilience, and the blending of retail spaces within mixed-use developments appears poised to shape the future of this sector.
Once we get past the election cycle and investors have a clearer picture of the economic landscape, along with a slow rollback on interest rates over the coming months, it is reasonable to anticipate a smoother 2025 as the economy finally puts the influences of the pandemic in the rear-view mirror. There was a sentiment of “Survive until 25” heading into this current year, and, while some sectors have remained relatively strong, there has been some pain through the unwinding of the untenable trends of skyrocketing industrial demand and plummeting office demand. There is cash on the sidelines, and 2025 should see some of that enter the market as clarity on the fiscal policies of the next four years and downward pressure on interest rates take effect.
Jason Crimmins is the president, principal, and broker of record of The Blau & Berg Company, a full-service real estate firm located in Short Hills, New Jersey.
Comments