Leasing activity in the Northern and Central New Jersey office market was robust in the first quarter of 2015, driven by tenant renewals and relocations across submarket borders for Class-A space. However, some of the positive momentum in leasing activity was counterbalanced by the availability rate, which remained flat, with several large sale-leasebacks and corporate consolidations, according to new research from Colliers International.
In fact, the first quarter produced 3.0 million square feet of office leasing in Northern and Central New Jersey, a 30.3 percent increase over the 2.3 million square feet leased in the first quarter of 2014. The totals thus far would have been even more impressive, but a combination of large space givebacks in the Upper Parkway submarket and the harsh winter endured this quarter counteracted some of the positive momentum. However, activity in the next few quarters is expected to rise as several notable tenants from the technology/telecommunications, pharmaceutical, insurance, and financial services sectors are in the market with requirements in excess of 100,000 square feet.
The Northern and Central New Jersey availability rate remained relatively flat quarter-over-quarter, decreasing by only 10 basis points to 21.8 percent, as big blocks of space returned to the market in the Upper Parkway submarket. This market saw its availability rate more than double to 30 percent, up from 14 percent a year ago. New availabilities in the Upper Parkway submarket include 217,524 sf at 2 Paragon Drive in Montvale, 89,200 sf at 400 Chestnut Ridge Road in Woodcliff Lake, and 56,939 sf at 5 Paragon Drive in Montvale. Year-over-year, the availability rate decreased slightly by 30 basis points from 22.1 percent in the first quarter of 2014.
Even with little movement in regard to availability rates, net absorption for Northern and Central New Jersey remained positive for the third consecutive quarter, ending the first quarter of 2015 with 182,866 sf. At $25.20/sf the average asking rate for New Jersey’s Northern and Central office market was essentially flat, down from $25.26/sf last quarter, and up from $25.02/sf a year ago.
The average asking rate for Northern New Jersey’s office market decreased slightly to $25.82/sf from $25.88/sf last quarter, and increased marginally year-over-year from $25.69/sf. Similarly, the average asking rate for Central New Jersey’s office market slightly decreased to $24.35/sf from $24.38/sf last quarter, and increased moderately year-over-year from $24.08/sf.
Renewals drove leasing this quarter, accounting for 36 percent of all activity in Northern and Central New Jersey. Leasing activity was also impacted by a large number of tenants who relocated to different submarkets within Northern and Central New Jersey, seeking better quality spaces. This trend included the noteworthy relocations of: Langan Engineering & Environmental Services, Inc. to a 71,536-sf space at 300 Kimball Drive in Parsippany; Arthur J. Gallagher & Co. to a 51,210-sf space at 115 South Jefferson Road in Whippany; and State Street Bank to a 49,000-sf space at 1255 Broad Street in Clifton.
Eighty-nine percent of all office leasing activity this quarter was in Class-A properties, which signals the continuation of the flight-to-quality trend in New Jersey as users seek space at recently renovated or newer buildings.
“In the past, we’ve seen tenants congregate near transit hubs that are immediately accessible by employees and clients, but this quarter we’ve seen them flock to more suburban submarkets for higher-quality product and ample space for future expansion,” said Kim Brennan, Chief Operating Officer for Colliers International Tri-State. “This comes at a time when many tenants are looking to upgrade their corporate image as the economy and job growth continues to improve.”
Forty percent of all first quarter office leasing activity was concentrated in the Princeton, Parsippany, and Metropark submarkets. Some of the largest leases included: Solvay’s 110,000-sf relocation to 504 Carnegie Center in Princeton; Securitas’ 81,282-sf relocation to 9 Campus Drive in Parsippany; and Arthur J. Gallagher & Co.’s 51,210-sf relocation to 115 South Jefferson Road in Whippany. In addition to these large leases, Dun & Bradstreet consolidated in Short Hills, signing a new, 69,500-sf lease at 101 JFK Parkway in addition to renewing 123,000 sf at 103 JFK Parkway.
On the investment sales side, distressed and value-add office properties poised for repositioning have dominated the market, which indicates continued investor confidence despite the lack of core, single-tenant building trades. Major acquisitions this quarter included:
· CBRE Global Investors’ purchase of 250 Pehle Avenue in Saddle Brook from L&L Holding Company and Pearlmark for $75 million, or $147.75/sf.
· Extended Success’ purchase of 400 Plaza Drive in Secaucus from Hartz Mountain Industries for $30 million, or $116.07/sf.
· Intercontinental Real Estate Corporation’s purchase, in a joint venture with Ivy Realty, of Morris Corporate Center IV in Parsippany from MetLife Real Estate Investments for $29.25 million, or $84.73/sf.
The Northern and Central office market received an additional boost from an improving economy. Total employment in New Jersey surged by 12,400 jobs in January, with the private sector gaining 11,800 jobs and the public sector gaining 600 jobs. Private sector employers have added 180,800 jobs since 2010.Related Articles: