Demand for New Jersey Office Space Countered by Additional Vacancies

On Jul 2, 2014

After ticking higher for three consecutive quarters and reaching 25 percent during the first quarter, New Jersey’s overall vacancy rate remained unchanged through mid-year 2014, according to JLL. Demand for Northern and Central New Jersey office space was effectively matched by new vacancies generated by corporate restructurings and relocations.

The Northern and Central New Jersey office market posted nearly 186,430 square feet of negative net absorption in the second quarter of 2014, equally distributed between Class A and Class B space. A closer analysis of activity at the submarket level revealed that much of this negative net absorption was attributed to additional availabilities in a small group of markets.

Only seven out of the 20 Northern and Central New Jersey office submarkets posted negative net absorption figures during the second quarter.

“While New Jersey’s unemployment rate reached its lowest level in May since November 2008, the job market has struggled to gain traction,” said Robert Kossar, executive managing director and market director for JLL’s New Jersey and Long Island operations. “The state’s shrinking labor force appears to be the contributing factor to the lower unemployment rate, rather than accelerating employment growth. The Garden State’s traditional drivers of demand — professional/business and financial services — collectively shed about 5,300 jobs in May, after a 7,900 job gain in January. The lack of consistent growth within these vital sectors continues to overshadow the office market.”

New Jersey witnessed a slight slowdown in leasing volume compared with the same time period this past year. The Northern and Central New Jersey office market posted about 2.0 million square feet in leasing transactions in the second quarter of 2014, slightly less than the nearly 2.1 million square feet recorded in the previous quarter, for a total of approximately 4.1 million square feet year-to-date. This was in contrast to 5.0 million square feet of office leases signed during the first half of 2013.

“The life sciences sector remains among the most active segments in the office market as companies expand their operations or shuffle their real estate holdings in the wake of mergers and acquisitions,” said Stephen Jenco, vice president of suburban tri-state research. “Life sciences companies accounted for more than one-quarter of the leases signed during the second quarter. Among the largest transactions completed in the office market were Sandoz’s lease of a 154,100-square-foot building at 100 College Road West in Princeton after relocating from Carnegie Center and Merck & Co.’s long-term lease for 150,000 square feet at 2 Giralda Farms in Madison.”

Highlights of the second quarter of 2014 include:

• The Northern and Central New Jersey overall vacancy rate remained unchanged from the first quarter at 25 percent. However, the vacancy rate remained above the 24.2 percent witnessed one year ago.
• The Garden State’s Class A product registered an average asking rental rate of $27.73 per square foot in the second quarter of 2014, an increase of $0.73 per square foot from one year ago. Class B rents inched $0.10 higher from one year ago to $20.72 per square foot in the second quarter.
• The Route 24 submarket absorbed nearly 600,000 square feet of Class A space this quarter, representing the largest volume of positive net absorption in the state. Contributing to this absorption was Automatic Switch’s purchase of the vacant 250,590-square-foot 160 Park Avenue in Florham Park. In addition to Merck’s lease at 2 Giralda Farms, Maersk relocated into 70,000 square feet at 180 Park Avenue in Florham Park. The Route 24 Class A vacancy rate subsequently plummeted nearly 7.0 percentage points from early 2014 to less than 24.0 percent — its lowest level in two years.
• After approaching 18.0 percent during the third quarter of 2013, the Hudson Waterfront Class A vacancy rate trended lower during the past three quarters in response to a rebound in demand. By mid-2014, the Hudson Waterfront Class A vacancy rate had fallen below 16.0 percent — the lowest vacancy rate in Northern and Central New Jersey. One of the largest leases was Thomson Reuters’ 72,000–square-foot expansion at Waterfront Corporate Center II in Hoboken. Thomson Reuters received a $25.9 million Grow NJ incentives grant to move 450 employees from Manhattan to Hoboken.
• With the Northern and Central New Jersey overall vacancy rate at 25.0 percent, opportunities remain for tenants large and small to pursue space options in the office market during the second half of the year. Relocations and consolidations are expected to drive market activity as companies strive to increase workplace efficiencies and reduce operating expenses.

JLL is a leader in the northern/central New Jersey commercial real estate market, with more than 500 professionals and support staff providing agency leasing, tenant representation, industrial services, strategic consulting, project and development services, property management and investment sales/capital markets services to New Jersey’s leading corporate tenants, investors and landlords. The firm, which assists clients from three full-service offices in Parsippany, Iselin (Metropark) and East Rutherford, also acts as local service provider for JLL global and national corporate clients in need of real estate assistance in New Jersey.

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