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The basics:

• Life sciences accounted for 30% of NJ office leasing in Q2
• Three of the quarter’s five largest office deals came from the sector
• Demand for modern lab and R&D space supports rent growth
• JLL cites flight to quality as tenants seek premium facilities

As a flight to quality persists, life sciences led the share of New Jersey office leases in the second quarter, JLL reports.

According to recently released research shared with NJBIZ, the sector was responsible for 30% of leasing volume in Q2. In fact, three of the five largest office deals from the period are attributed to life sciences companies, JLL said.

That one-third cut toward life sciences represented the highest volume of activity within any business sector, JLL noted.

Senior Managing Director Jason Benson, leader of the company’s New Jersey Life Science and Biotech practice, offered further insights on the data.

Flight to quality persists

Benson said rising asking rents and vacancies over recent quarters reflect market dynamics specific to the life sciences sector. “What we’re seeing is a ‘flight to quality’ and tenants willing to pay premium rents for state-of-the-art lab, manufacturing and office spaces that offer superior on-site infrastructure and purpose-built design, which are critical to their operations,” he explained.

It’s that demand for trophy spaces that has supported year-over-year rent growth, Benson said, despite the uptick in vacancies.

And employers in the space are seeking, and building, high-quality spaces with matching amenities to attract and retain top talent. For instance, Sanofi debuted its new Jersey flagship in Morristown this past May.

Benson also noted that vacancies rose in Q2 thanks to 1.2 million square feet of space being introduced at NEST in Kenilworth.

“This isn’t a sign of weakening demand, but rather the result of new inventory entering the market all at once,” he explained. “If you remove the NEST Center’s impact, the overall vacancy rate would drop substantially, reinforcing the validity of current rent levels.”

The Northeast Science and Technology Center at 2000 Galloping Hill Road comprises nine buildings. The property features office, lab, R&D and support facilities. Prior to NEST’s acquisition by a joint venture of Onyx Equities LLC and Machine Investment Group, the Kenilworth site served as Merck’s headquarters.

When it comes to who is taking space in the local market, Benson said a lot of the activity involves existing in-state companies either expanding or upgrading to modern lab and manufacturing facilities. However, he highlighted notable entrants to the region, as well.

“Year over year, we typically see one or two significant relocations into New Jersey,” he said, citing Cellares’ expanding residency in Bridgewater as well as India-based biologics manufacturer Enzene’s entrance to the state.

“Additionally, Regenlab’s move from the Brooklyn Army Terminal in New York to 95 Greene St. in Jersey City stands out as a major cross-market relocation,” Benson said.

H2 outlook

Noting macroeconomic and funding headwinds, JLL expects leasing to cool heading in the second half of the year.

The physical moves in the industry also come amid several reorganizations and workforce downsizing. Recent examples include Merck, Rocket Pharmaceuticals Inc., Kenvue and Bristol Myers Squibb.

That said, Benson noted the life sciences space in New Jersey “remains stable and resilient, supported by a remarkably diverse mix of tenant requirements.” He said that helps the market standout among peers. “Companies searching for specialized space here span a wide range of industries, from consumer products, advanced manufacturing to biochemistry and biologics manufacturing.”

And that varied demand also helps to feed future market growth.

“The diversity creates a rich, specialized labor pool that continues to attract and sustain companies across the life sciences spectrum,” Benson explained.

Plus, many of the companies growing here are already established in their own rights. Benson characterized them as having “a track record of stable growth, often less dependent on venture capital or private equity funding.

“This maturity in the tenant profile further underpins the New Jersey market’s strength, offering a stable foundation for continued activity and investment in lab, manufacturing and R&D facilities.”