Buoyed by a growing demand for space and general economic improvement, the New Jersey office market continued to show signs of recovery in the recently ended second quarter of 2014, reports Cushman & Wakefield. “Large blocks of vacant space have continued to impact the office market, but our research indicates that as available space has dwindled, asking rents have held steady and new leasing activity remains healthy,” said Kim Brennan, the commercial real estate services firm’s New Jersey Market Leader.
According to Cushman & Wakefield’s research, both Northern and Central New Jersey posted positive absorption during Q2, pushing the state’s overall vacancy rate downward to 19.3 percent. At the end of Q1, the vacancy rate stood at 19.7 percent.
“The quarter-to-quarter and year-over-year vacancy rate comparisons are increasingly positive,” said Brennan. “As the economy continues to rebound, we expect that trend to continue.”
In Central New Jersey, it was the “usual suspects” that accounted for the positive absorption – Woodbridge/Edison, Princeton, the I-78 Corridor and Monmouth County. The region saw its vacancy rate inch lower by 0.1 percentage point to 17.7 percent since the end of Q1.
In Northern New Jersey, meanwhile, only Morris County posted total net absorption during Q2 – amounting to almost 700,000 square feet of total net absorption. The driver was continued healthy demand within Parsippany, coupled with the Route 10/24 Corridor experiencing strong volume. The user sale of the 250,000-square-foot 160 Park Avenue in Florham Park to Automatic Switch Company also contributed to the absorption total. Overall, Northern New Jersey recorded a 0.6 percentage point decline in overall vacancy during the quarter to 20.4 percent.
While region-wide activity did not quite reach the two million-square-foot mark recorded during the previous two quarters, it remained steady at more than 1.8 million square feet. Such areas as the Hudson Waterfront, Newark, and I-78 did see some slowing of demand during the quarter, but other market segments recorded notable gains in quarterly leasing.
For example, Morris County saw its strongest quarter of leasing since 2011 with 605,000 square feet of new leases signed. Merck’s 150,000-square-foot lease at 2 Giralda Farms and Maersk’s 70,000-square-foot deal at 180 Park Avenue, both in Florham Park, drove the Route 10/24 total. In Parsippany, meanwhile, FM Global relocated to 55,000 square feet at 300 Kimball Drive.
In Central New Jersey, transactions in the 10,000- to 25,000-square-foot range accounted for 27 percent of the Q2 deal volume. However, it was smaller leases, those under 10,000 square feet, which accounted for the majority of activity in the Central part of the Garden State. Significant leases were signed in the region by Grant Thornton, 31,288 square feet in Metropark, and First Choice Loan Systems, 26,770 square feet in East Brunswick.
Renewal activity was healthy in New Jersey as well, as large tenants such as Celgene (95,847 square feet), First Energy (71,431 square feet), and OpenText (45,000 square feet) all opted to remain at their current locations.
Historically, asking rents in New Jersey have experienced minimal movement. Class A direct rents inched slightly lower during Q2, mainly due to some higher priced spaces leasing up in Metropark, Morris County, and along the I-78 Corridor. Areas such as the Hudson Waterfront, Morris Route 10/24, Princeton/Route 1, Newark, and Metropark remain the highest priced areas in the state, all averaging more than $30.00 per square foot.
Sales activity during Q2 was highlighted by the nearly $100-million sale of 22 Sylvan Way, Wyndham Worldwide’s headquarters in Parsippany, to Griffin Capital Essential Asset REIT. Also of note were the $31-million purchase by Salman Capital of 35 Journal Square in Jersey City, and the aforementioned sale of 160 Park Avenue to Automatic Switch Company.
Some large blocks of space continue to loom on the horizon in New Jersey. However, with some notable deals in the pipeline in the coming months, demand should be able to offset much of the new space additions, keeping absorption from falling too far into the red, and vacancy from spiking.