As Founder and President of Franzwa Real Estate Advisors, LLC, I am thrilled to release our new website. Effective H2 2021, we have presented our current Industry Viewpoints for our four property sectors: Office, Life Sciences/R&D, Industrial/Flex and Medical Office. As each quarter progresses, we will update Industry Trends and collect them under Market Trends & Insights so you can stay up to date.
The flight to quality continues as Tenants pull up stakes in poorly managed buildings with a “we’re not going to take it anymore” attitude with a move toward Class A space. They are happy to pay close to the same rent (fair market rents) to be in a building owned by a stable, reliable Landlord who keeps up on building maintenance and janitorial services. These horizontal moves account for a substantial amount of activity in the market with some notable size reductions.
With Office Landlords hard hit by the pandemic, a unique window of opportunity exists for Tenants considering new or renewing existing space in 2021. We do believe this leverage will be short-lived and significantly reduced by 2023. Specifically, current market conditions are uncharacteristically favorable to Tenants. In particular, the pre-pandemic market was already weighed down by large blocks of vacant space caused by large corporate consolidations, which became greatly accelerated due to the Pandemic.
Demand for Life Sciences space powered through the Pandemic growing 34% across all major U.S. markets in the last 12 months. Rapid growth in funding and employment threw fuel on the fire creating a space shortage which is expected to drive development in the long term and conversions in the short term. Federal initiatives and potential investments further stoke the sectors growth.
With unprecedented high demand, the short list of available properties is rapidly changing. New opportunities continue to come on the market, but do not last long. Factors impacting this tight market are: On-shoring of manufacturing, e-commerce (last mile), Pandemic/lock downs, and the raising of the Bayonne Bridge providing huge impetus to area shipping. The impact of e-commerce grabbing large blocks of Industrial space began several years ago, only to be greatly accelerated by lockdowns during the Pandemic. New Jersey is experiencing relentless demand, resulting in record high rent pricing and an all-time low availability rate. E-commerce and logistics users have represented 51% of total leasing volume and will remain strong throughout the immediate future. Thus, smaller tenants face a harder time finding flex/industrial space due to a severe lack of available space.
Medical Tenants’ appetite for rental space remains robust. Medical Office is a very active market sector as physician groups merge and consolidate with a need for newer, high tech space. While the pandemic did have an initial negative impact on the leasing rates in the medical retail sector, it is picking up where it left off. Retail centers are emerging as a competitor to Medical Office buildings. Vacant retail space presents a growing opportunity for Medical Office users to locate in a town center or strip mall with plentiful parking and easy access for patients. The amenities found in strip malls and town centers combined with nearby community amenities are seen as a way to increase market exposure and accessibility. Retail offers a strong convenience factor for Medical Tenants and their patients.