Cushman & Wakefield: New Jersey Office Market Continues to Rebound

On Jul 2, 2015

The New Jersey office market picked up where it left off at the close of the first quarter of 2015, continuing to experience robust demand, declining vacancies and higher asking rents, reports Cushman & Wakefield. The commercial real estate services firm’s latest research findings indicate occupancy gains in many major submarkets as tenant demand easily offset new supply for the second straight quarter.

“The momentum that fueled strong first quarter leasing has continued to build,” said Jason Price, Cushman & Wakefield’s Research Director. “Quarter-to-quarter and year-over-year comparisons overall are increasingly positive, and we anticipate the current upward trend to continue as the local economy improves.”

As a whole, New Jersey recorded more than 3.7 million square feet in new leasing activity during the second quarter, the highest total since the fourth quarter of 2011.  Central New Jersey accounted for 62.2 percent of this activity, driven by the 1.4 million-square-foot Verizon sale-leaseback at 295 North Maple Avenue in Basking Ridge. Year-to-date, just under 6 million square feet of lease transactions have been completed in the New Jersey market, making this the strongest first half since 2001.

While volume was up substantially from the previous quarter, the number of transactions also was on the rise, as small businesses continued to lease office space at a brisk pace. Tenant demand focused on class A product, which accounted for 80 percent of second quarter transactions.

In Central New Jersey, healthy activity continued in Woodbridge/Edison, the I-78 Corridor, Route 10/24 and Princeton/Route 1 submarkets, as well as along the Hudson Waterfront. In addition to the Verizon sale-leaseback, significant transactions included a 185,000-square-foot lease by MetLife for a build-to-suit (67 Whippany Road, Whippany) and a 144,532-square-foot lease by GlaxoSmithKline (184 Liberty Corner Road, Warren). Taiho Pharma also took 60,000 square feet at 101 Carnegie Center in West Windsor.

Bergen County and the Meadowlands also continued to see healthy leasing activity, while almost 160,000 square feet of transactions were executed in Newark. The submarket’s most notable second-quarter deal involved a 90,000-square-foot lease by the New Jersey Board of Public Utilities at 2 Gateway Center.

Brisk leasing activity and limited new supply in most market segments had a positive impact on overall net absorption, with more than 690,000 square feet of absorption recorded during the quarter. The Hudson Waterfront, Morris County, I-78 Corridor, and Upper 287 saw the highest space gains, while the only submarket to experience substantial negative absorption was the Bergen Route 17 North/Garden State Parkway Corridor, where two blocks of space in excess of 50,000 square feet came onto the market.

Vacancy fell to 19.3 percent, a 0.8 percentage point decline since the first quarter. In Northern New Jersey, the rate dropped from 21.3 percent to 20.5 percent, while in Central New Jersey it edged lower by 0.9 percentage points. Quarter-over-quarter vacancy decreases were notable in the I-78 Corridor, Newark, Upper 287, Parsippany, and Meadowlands submarkets, while the Hudson Waterfront, Woodbridge/Edison, and Morristown submarkets saw nominal improvements. Class A vacancy diminished region-wide by 1.2 percentage points to 21.0 percent.

As quality space tightened in many market segments, rents for class A product inched higher. Driven by northern submarkets such as the Hudson Waterfront and Parsippany, the average direct asking rent rose to $29.68 per square foot. The trend was similar in Central New Jersey, where Woodbridge/Edison, I-78, and Princeton/Route 1 all recorded slight increases.

With private employment on the upswing and industries utilizing office space showing recent gains, Cushman & Wakefield anticipates continued stability and recovery in the New Jersey market. “Some large blocks of space may be vacated in the next six months, but we expect tenant demand to offset the new supply,” noted Price. “In addition, notable deals in the pipeline point to another quarter of healthy leasing activity.”

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