Southern NJ & Philadelphia CRE Markets Proving to Be Mostly Resilient

The commercial real estate sector has stood strong in the face of a challenging economy, with the retail and industrial segments taking the lead. While the office market continues to face obstacles brought on by the pandemic and its aftermath, there are glimpses of hope on the horizon. Inflationary pressures are gradually easing, accompanied by policies aimed at taming it, potentially offering a ray of optimism for the office market as well.

According to a recent analysis by WCRE, the commercial real estate brokerage, the fourth quarter of 2023 showcased a resilient regional market. Despite the Federal Reserve's anti-inflation measures causing disruptions earlier in the year and tightening credit through rising interest rates, signs of easing inflation, along with robust consumer spending and favorable market conditions, breathed life into the retail and industrial sectors of Burlington, Gloucester, and Camden Counties.

During this period, an impressive 297,206 square feet of new leases and renewals were executed in the region. New tenant leases accounted for approximately 171,689 square feet, while renewals and expansions encompassed about 125,517 square feet. The commercial real estate market remains promising, with a pipeline of pending lease deals totaling 500,000 square feet expected to close in the near future.

While challenges persist in the office market, this resilient performance highlights the potential for recovery in the coming months. The broader business landscape may experience a positive shift as inflationary pressures continue to ease and policies are adjusted accordingly. The retail and industrial sectors serve as beacons of hope, showcasing the potential bounce-back power of the commercial real estate sector.

A Setback in Vacancy Rates: Emerging Challenges in the Real Estate Market

The latest quarterly report on the real estate market reveals a concerning trend, with an overall vacancy rate of 20.25%. This represents a significant setback compared to the previous quarter, which reported a vacancy rate of 14.9%. The increase in vacant properties poses challenges for the industry, requiring a closer look at the factors contributing to this surge.

In terms of completed sales, the numbers stand at an impressive $54,285,000, covering a total space of 488,376 square feet. While this indicates some level of activity, the higher vacancy rates paint a contrasting picture of the market's current state.

New leasing activity takes the lead in the fourth quarter, accounting for 58% of all property deals. This surge in leasing demonstrates the market's resilience and the potential for growth and development.

Notably, average rents for class A and B properties show a remarkable stability, remaining unchanged during the quarter. These types of properties continue to command strong support with rental prices ranging from $10.00 to $15.00 per square foot NNN or $20.00 to $25.00 per square foot gross. These figures have remained consistently within this range for over a year, indicating the market's reliability and investor confidence.

Expanding its reach beyond the confines of its origins, WCRE now covers southeastern Pennsylvania, providing comprehensive insights into transactions, rates, and news from Philadelphia and the suburbs. Looking specifically at the fourth quarter in PA, some noteworthy highlights emerge:

A Steady Path Forward: Philadelphia's Commercial Real Estate Market

Amidst the uncertainty and challenges of the current economic climate, Philadelphia's commercial real estate market is demonstrating resilience and stability. While there is still progress to be made, the latest data reflects a market that is holding its ground.

In the office leasing sector, Philadelphia is outperforming comparable markets with an unchanged vacancy rate of 11% for Q4, maintaining its position as the second-lowest among the top 15 markets. Although there is room for improvement, this stability indicates a promising outlook for the future.

The industrial sector, a driving force in Philadelphia's real estate landscape, experienced a slight dip in Q4. However, it remains strong as demonstrated by a net absorption of 6.9 million s/f over the past twelve months. Despite the rise in new deliveries reaching 22 million s/f, the industrial market continues to show resilience.

Retail, particularly in the suburbs, has also exhibited a robust performance. Philadelphia's retail vacancy rate held steady at 4.2% for the quarter, mirroring the area's ability to adapt and thrive. Although average retail net absorption for the past twelve months decreased to 1.1 million s/f, this decline is a minor setback in an otherwise thriving sector.

Shifting focus to the Southern New Jersey retail market, the findings from WCRE's report shed light on the situation in Camden County. Retail vacancy in this area saw a significant increase, rising from 6.3% to 8.7%. However, average rents experienced a slight uptick, reaching $16.48/s/f NNN.

Burlington County's Retail Market Gains Momentum as Vacancy Decreases and Rents Inch Higher

Burlington County's retail sector is experiencing positive growth, with a decrease in vacancy rates and a slight increase in average rents. The retail vacancy rate in the county dropped to 6.9%, indicating a steady improvement in the market. Additionally, average rents rose slightly to reach around $16.09 per square foot NNN (Triple Net Lease). This development underscores the attractiveness and potential of Burlington County as a prime location for retailers.

Glimmers of Opportunity Emerge in Gloucester County's Retail Market

In contrast, Gloucester County's retail market faced a slight setback as the vacancy rate increased to 10%. However, average rents remained unchanged at approximately $18.22 per square foot NNN. Despite the increase in vacancy, the steady rents suggest stability in the market. Retailers in Gloucester County still have opportunities to flourish and tap into the local customer base.