The Northern and Central New Jersey office market reported its strongest quarter of leasing activity in 2015, with expansions and renewals fueling the market, particularly in the pharmaceutical industry, according to research from Colliers International. As in recent quarters, there was a continued flight to quality among tenants, and a significant uptick in transactions exceeding 100,000 square feet.
Northern and Central New Jersey registered 5.3 million square feet of total leasing activity in the third quarter, up 32 percent from 4.0 million square feet last quarter, and more than double the 2.6 million square feet from a year ago. At 12.3 million square feet, year-to-date leasing activity in 2015 already exceeds the 2014 full-year total of 10.5 million square feet. As a result, at 1.9 million square feet, total net absorption remained positive for the fifth consecutive quarter, up from 1.4 million square feet in the second quarter and up from 0.6 million square feet a year ago.
Increased leasing activity further reduced the third quarter availability rate to 20.5 percent, down 60 basis points (bps) from 21.1 percent the previous quarter — the first time it dipped below 21.0 percent since the first quarter of 2010 — and down 110 bps from 21.6 percent year-over-year.
Furthermore, overall third quarter asking rents for Northern and Central New Jersey reached their five-year high of $25.24/square foot, up from $25.02/square foot the previous quarter and $24.93/square foot year-over-year, with rents holding steady near the $25 mark for the fourth consecutive quarter.
“Most demand occurred in the class A segment of the market and as a result of rising rental rates, many tenants completed transactions earlier than they may have done in the recent past,” said David A. Simon, SIOR, Executive Managing Director and Market Leader for the New Jersey operations of Colliers International. “Within the class A segment of the market, we witnessed even higher demand for buildings that were located within a three-mile radius of a commuter rail line. These properties were able to generate average rental rates 13 percent higher than class A properties outside of this radius, proving that tenants will pay more if they feel that the property’s quality, amenities, and location will help them attract and retain the best talent possible.”
NORTHERN NEW JERSEY
The improvements in Northern New Jersey’s office market were fairly wide-ranging. Ten out of 13 submarkets recorded positive absorption this quarter, totaling 1.6 million square feet, up from 0.4 million square feet the previous quarter, and up from 1 million square feet a year ago.
Northern New Jersey’s third quarter office leasing activity totaled 2.1 million square feet, up 38 percent from 1.5 million square feet last quarter and up 9.4 percent from 1.9 million square feet a year ago. Increased leasing activity lowered the availability rate to 22.2 percent, down 80 bps from 23.0 percent the previous quarter and down 110 bps from 23.3 percent year-over-year, primarily driven by expansions along the Hudson Waterfront. In a major relocation from New York City, JP Morgan Chase inked a 343,805-square-foot lease at 545 Washington Boulevard, while Fidelity expanded by 45,261 square feet at 499 Washington Boulevard, both in Jersey City.
Meanwhile, average asking rents in Northern New Jersey reached $26.01/square foot, up from $25.49/square foot in the second quarter and $25.69/square foot year-over-year. Continued increases in asking rents at buildings such as 1 Bridge Plaza in Fort Lee, and new listings with asking rents priced above the market average — which occurred at 101 Hudson Street in Jersey City — contributed to the overall increase.
CENTRAL NEW JERSEY
Central New Jersey’s third quarter office leasing activity totaled 3.2 million square feet, up 28 percent from 2.5 million square feet last quarter and up a staggering 371 percent from 0.7 million square feet a year ago, driven in large part by early extensions from AT&T which signed an 879,315-square-foot renewal at 1 AT&T Way in Bedminster; and, Novo Nordisk which renewed for 563,289 square feet at 800 Scudders Mill Road in Plainsboro.
Net absorption in Central New Jersey totaled positive 383,195 square feet this quarter, which represents a substantial increase from the positive 98,336 square feet recorded last quarter. The Somerset/Route 78 submarket accounted for 25 percent of the net absorption this quarter, largely due to Valeant Pharmaceutics 310,000-square-foot expansion at Somerset Corporate Center in Bridgewater. However, large blocks of space brought to market this quarter counteracted any substantial gains.
The overall availability rate in Central New Jersey fell to 18.0 percent, down 40 bps from 18.4 percent the previous quarter and down 110 bps from 19.1 percent year-over-year. This improvement was fueled by large tenant expansions. In addition to the Valeant 310,000-square-foot expansion in Bridgewater, bringing its total footprint in the complex to 620,000 square feet, Oncobiologics inked a 102,000-square-foot expansion at 9 Cedar Brook Drive in Princeton.
Despite the increase in leasing activity, the overall average asking rent in Central New Jersey declined slightly to $24.17/a square foot, down from $24.42/a square foot in the previous quarter, but up from $23.84/a square foot, year-over-year. The recent decline in rents can be attributed to newly listed space priced below the market average, such as availabilities at 371 Hoes Lane and 1551 S Washington Avenue, both in Piscataway.
“The third quarter of 2015 was by far the most dynamic stretch of office leasing we’ve seen in Northern and Central New Jersey over the past five years,” said John Obeid, Senior Director, Research, for Colliers New Jersey operations. “Employer confidence is translating directly into transactions. The pipeline of pending transactions also suggests that we may continue to experience strong leasing activity over the next few quarters.”
Additional highlights from Colliers International’s 2015 Q3 New Jersey analysis include:
· New Jersey’s unemployment rate dropped for a third straight month, down to 5.7 percent in August, as private sector employment expanded by 13,800 jobs, according to the U.S. Bureau of Labor Statistics. New Jersey’s unemployment rate has dropped 0.8 percentage points since May, reaching a seven-year low not seen since August 2008 and down from a high of 9.8 percent in January 2010.
· The third quarter saw 11 transactions of 100,000+ square feet, compared with six in the first and second quarters combined, and 12 in all of 2014.
· Growth was fueled by the pharmaceutical industry, which accounted for 32 percent of all third quarter leasing activity. Additional pharma transactions include Zoetis’s 125,445-square-foot lease at 10 Sylvan Way in Parsippany. The building is being stripped to its steel frame and will be rebuilt by Normandy Real Estate Partners.
· Construction was completed at Prudential’s 750,000-square-foot tower at 699 Broad Street in Newark this quarter.
· Large blocks of space brought to market in Central New Jersey counteracted any substantial gains in the area’s availability rate. These large blocks included: 156,000 square feet at 291 King George Road in Warren; 138,026 square feet at 100 Nassau Park Boulevard in Princeton; and 92,725 square feet at 200 Somerset Corporate Center in Bridgewater.Related Articles: