Avison Young’s New Jersey office highlights three big takeaways from its Second Quarter 2022 Northern & Central New Jersey Office Market Report. Perhaps unsurprisingly, those trends are affected by changing attitudes toward how and where we work, shaped by the pandemic.

The office vacancy rate is still elevated from pandemic levels (at 18.8%), AY said, even though inventory continues to decline. As office asset pricing and asking rents maintain the downward trend, AY projects that investment sales for the year are on pace to be 30% lower than 2021. Direct asking rent averaged $28.05, according to the report, with pricing staying steady for top-quality assets and declining at less desired, lower quality properties.

“Right now, we are experiencing a downturn in office leasing velocity and a 30% decrease in investment sales volume when compared to this time in 2021, despite asking rents remaining steady and strong investment activity,” said Principal and Managing Director Jeff Heller. “As corporate users reimagine their workplace strategy, they’re weighing more options on how to best leverage their office space assets.”

Taking a closer look:

Hybrid work’s influence on workplace strategy

AY reports corporate users are rethinking the ways they work as a result of lingering hybrid and remote arrangements. This dynamic has many companies reducing their office space, but also changing the space that remains. One way is with the increased inclusion of collaborative work areas. Offering an incentive in the office that isn’t readily available when employees are working offsite.

Investors reevaluate office properties for potential conversion

Over the last 12 months, AY reports that overall office inventory declined by 1 million square feet (to 250.6 million square feet) due to repositioning with just 352,000 square feet of new supply delivered during the same timeframe. That’s from investors and landlords increasingly acquiring unstabilized office assets (investment sales hit $1.4 trillion in Q2, according to AY) for potential conversion to industrial, medical or residential properties. While the industrial sector has experienced unprecedented demand, helped by COVID-19’s e-commerce boom, the medical sector has proven itself to be “pandemic proof” due to the services its occupants provide. And with more than 47 million square feet of vacant space on the market, AY anticipates this trend to convert will continue.

Workforce preferences guide leasing decisions

Those changing attitudes toward work? They’re not just affecting the physical layouts of workspaces, but also the footprint. Net absorption was -558.5 million square feet, AY said, with “traditional office suburbia” affected the most as live-work-play-style campuses see gaining interest. Vacancy rates, which AY reported at 18.8% overall, are highest in these suburban spots. With hybrid work becoming more prevalent – along with ESG concerns – attracting and retaining talent is playing a part in how and where employers choose to lease. Location is also important, as access to transit ranks high for workers.