After posting its best year in terms of absorption in recent history, the Northern and Central New Jersey office market experienced a slight setback during the first quarter of 2017, but remained healthy as a whole to start the year, according to Cushman & Wakefield. While dispositions outpaced demand in the first quarter and some large blocks of space will loom in the Waterfront and I-78 Corridor the next few quarters, a solid, stable market is expected through the remainder of the year.
“Demand, while not reaching the record totals of 2015 and 2016, should remain healthy and offset some of the new supply,” said Andrew Judd, Cushman & Wakefield’s New Jersey Market Leader. “Meanwhile, both the flight-to-quality and desire to relocate or remain at buildings near mass-transit and live-work-play environments will continue to be at the forefront of tenants’ priorities in terms of locale. As a result, we foresee Class A rents trending higher in key segments, and as long as the local and national economies continue on their current trajectories, the New Jersey office market projects to have a solid year.”
Among the biggest challenges the market faced were substantial, but anticipated tenant relocations last year, pushing absorption levels into the red for the first time in two years, with overall vacancy ticking up 60 basis points (bps) to 18.0 percent, noted Jason Price, Cushman & Wakefield’s Research Director, Tri-State Suburbs.
He explained that Central New Jersey accounted for more than 70 percent of the negative absorption in the first quarter, with large dispositions in the Hudson Waterfront, Parsippany, Metropark, and the Princeton/Route 1 Corridor fueling the occupancy losses. Each posted more than 150,000 square feet (sf) in negative absorption totals, while Monmouth County saw a handful of mid-sized spaces come online.
Some of the notable spaces which hit the market were subleases, with available sublease space now accounting for 13 percent of all space on the market, up from 11 percent at year-end 2016. Furthermore, direct absorption for the quarter finished relatively flat, as it was newly available sublease space which mainly fueled the negative absorption.
The largest space returns included those resulting from:
Despite vacancy in these market segments edging higher, other submarkets experienced occupancy rate improvements since the close of 2016. The Meadowlands, Bergen County, and the I-78 Corridor all recorded slight decreases in overall vacancy, with Newark recording a 280 bps decline in Class A vacancy due to robust leasing totals.
“While the first quarter leasing total failed to reach the two million-square-foot mark for the first time since a year ago, demand was healthy in some of the key market segments,” Price said. He noted that Bergen County led the way with more than 600,000 sf of deal volume, propelled by Unilever’s 320,000-sf sale/leaseback in Englewood Cliffs and Jeep Chrysler’s 55,000-sf lease at 100 Sylvan Avenue, where the car dealership will renovate the building. The Hudson Waterfront, I-78 Corridor, and Newark also showed healthy demand.
Highlighting the quarter, though, was Broadridge Financial’s 160,070-sf relocation from Jersey City to Newark, while Tory Burch took 92,720 sf at Newport Office Center III, relocating from Manhattan, in the New Jersey Waterfront’s largest first quarter transaction.
Other first quarter highlights:
In regards to asking rents, continued demand for space overcame market setbacks. “Despite the addition of large blocks of space, the market remained healthy and asking rents continued to grow,” Judd said, who noted that, as a whole, both Class A and B asking rents ticked higher since the end of 2016.
He explained that the overall average Class A rental rate reached $31/psf for the first time in recent history and rose by 4.7 percent compared with on year ago, fueled by areas such as the Hudson Waterfront, which saw the average Class A rent rise to an historical high of $42.80/psf. Metropark and Princeton/Route 1 also edged higher to new recent highs at $36.74/psf and $34.18/psf, respectively. Other key market segments such as Morristown and the Meadowlands experienced similar upwards trends in Class A rents.Related Articles: