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Cushman & Wakefield – NJ Office Markets Remain Flat

New Jersey’s office markets remained flat during the third quarter, marking a continued post-recession struggle for the state’s 187 million-square-foot corporate space inventory, according to Cushman & Wakefield’s third quarter research findings released today. Within this context, bright spots included an active period for financial services firms, strengthened leasing activity in the Northern New Jersey region and rising Class A asking rental rates in the Central counties tracked by the commercial real estate services firm.

In fact, financial services commitments accounted for 24.0 percent of the state’s 2.1 million square feet in office leasing volume during the past three months, Cushman & Wakefield reported. While the pharmaceutical, healthcare and technology sectors remained relatively quiet, combined they still accounted for just under 20.0 percent of the total.

“With 1.4 Million square feet in office leasing activity, Northern New Jersey experienced its most active quarter since late 2011 and is on pace to see its highest annual volume since then,” said Cushman & Wakefield’s Kim Brennan, New Jersey market leader. “The region’s 3.9 million square feet of transactions through the first nine months of 2014 represents a 33.9 percent year-over-year increase.”

The Hudson Waterfront drove third quarter demand in Northern New Jersey, with more than 530,000 square feet of activity. This was propelled by leases involving JP Morgan Chase (226,000 square feet) and RBC (206,000 square feet) at 480 Washington and 30 Hudson Street in Jersey City, respectively. In Bergen County, United Water’s 116,000-square-foot commitment in Paramus represented that county’s largest year-to-date transaction.

Office demand within the Meadowlands also remained strong, and the submarket now has posted two straight quarters with an excess of 120,000 square feet in new deals. Conversely, the Parsippany and Route 10/24 submarkets saw activity dwindle since mid year.

“Despite its strong leasing performance, Northern New Jersey saw very little movement in available office space, and the vacancy remained flat at 20.3 percent,” Brennan said. “At the same time, this fundamental varied significantly market-by-market.” For example, the Hudson Waterfront experienced a 1.9 percentage point decline in vacancy since mid year, while Morris County saw vacancy spike by 1.6 percentage points as slow leasing coupled with major dispositions in Parsippany, and Route 10/24 lead to more than 535,000 square feet of negative direct absorption.

“Meanwhile, in Central New Jersey, office leasing activity totaled just over 650,000 square feet during the third quarter, down slightly from the volume recorded during the second quarter,” Brennan said. “The year-to-date total of 2.3 million square feet is 19.8 percent lower than the total at this time in 2013.”

The I-78 Corridor, however, experienced an up-tick in activity with more than 250,000 square feet of office transactions inked, accounting for 38.4 percent of the Central New Jersey third quarter leasing total (652,520 square feet). The largest deal in that submarket involved United Healthcare’s 56,000-square-foot lease at 131 Morristown Road in Basking Ridge.

Princeton/Route 1 also recorded a quarter-over-quarter rise in deal volume. TRAC International’s 80,000-square-foot commitment at 750 College Road East in Princeton represented Central New Jersey’s largest third quarter office lease. At the same time, demand slowed notable in the Woodbridge/Edison submarket, which posted its slowest quarter of new leasing since mid-year 2013.

“Corporate dispositions outpaced leasing in Central New Jersey, and the vacancy edged higher by 0.7 percent during the third quarter to rest at 18.3 percent,” Brennan reported. “Many market segments were marred by mid-sized space additions, ranging from 25,000 to 75,000 square feet, which exacerbated the impact of slower demand.” As such, despite its active quarter, the I-78 Corridor saw office vacancy edge higher by 0.4 percentage points. Both Princeton/Route 1 and Woodbridge/Edison recorded slight increases in vacancy as well.

The continued turmoil within the New Jersey office market translates to continued volatility in asking rents, according to Cushman & Wakefield’s findings. While average rents are up 0.6 percent from last year at this time, they trended slightly downward quarter over quarter. The NNJ average Class A asking rental rate fell by $0.41 per square foot to $29.79, mainly due to high priced space leasing up in the Waterfront. The Central portion of the state experienced the opposite trend, climbing $0.36 psf to $28.76 per square foot, as higher-priced space came online in Princeton and the I-78 Corridor.

“Looking ahead, we anticipate a continuation in New Jersey’s lackluster office market performance through the remaining few months of 2014,” Brennan noted. “That said, there are promising signs for increased momentum in 2015. A number of notable deals in the pipeline should bolster leasing volume. Additionally, state incentives continue to drive interest in New Jersey among major space users looking to expand or establish a presence here.”

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