Despite a slight setback in fourth quarter 2017, New Jersey’s office market recorded positive net absorption for the fifth consecutive year, according to Transwestern’s Fourth-Quarter 2017 Office Market Report. Year over year, the market experienced approximately half a million square feet of net absorption, with a diverse cross-section of industries leasing space in submarkets throughout the state.
However, the fourth quarter marked the slowest period for office leasing in New Jersey since first quarter 2016. The market failed to accumulate 1 million square feet of annual net absorption for the first time since the start of the five-year stretch, and it was the second consecutive year in which negative net absorption was recorded during the final quarter.
“For the past five years, New Jersey’s office market has continued to grow at a steady pace, and with employment at an all-time high in the state’s private sector, we anticipate that trend will continue in 2018,” said Matt McDonough, managing director at Transwestern. “While it may not be among the most rapidly expanding office markets in the country, the slow nature of the growth makes it among the most sustainable.”
After improving to an eight-year low of 14.8 percent during the third quarter, New Jersey’s office vacancy rate increased slightly in the fourth quarter, returning to its second-quarter level of 15 percent. Still, 12 of the state’s 21 submarkets reported lower-than-average vacancy rates.
The largest leases signed during the fourth quarter were mostly renewals, with no transactions greater than 100,000 square feet. Two-thirds of the deals signed were for less than 20,000 square feet, and the activity was spread throughout most of New Jersey’s suburbs, as eight of the 21 submarkets examined experienced more than 100,000 square feet of deal activity.
While smaller tenants are filling gaps throughout the suburbs, blue-chip companies such as Mars Wrigley Confectionary, Ralph Lauren, Quest Diagnostics and Konica Minolta all plan to invest in New Jersey in the near future, aided by the Grow New Jersey tax credit program, creating a positive long-term outlook.
“The years of growth experienced by New Jersey’s office market have been powered by the state’s diversity in terms of both industry and choice of office locale,” said Matthew Dolly, Transwestern’s New Jersey research director. “While the market was carried by smaller deals in 2017, large tenants are rapidly applying for tax credits as a transitioning state government puts the retention of Grow New Jersey in flux. Industry players are pushing for the continuation of the program to keep businesses from retreating to lower-costs states, though most agree that some modifications are essential.”
Additional highlights of the report include:
- Watchmaker Movado Group signed the largest renewal in northern New Jersey, a 90,000-square-foot lease in Paramus
- Altice USA, better known as Cablevision, signed the largest renewal in central New Jersey, remaining in 64,000 square feet in Piscataway
- The growing education sector contributed to the largest new leases during the fourth quarter, as Kumon North America committed to approximately 57,000 square feet in Ridgefield Park, while Universal Technical Institute signed on for approximately 55,000 square feet in Bloomfield
- Samsung leased approximately 53,000 square feet at Connell Corporate Center in Berkeley Heights
- Occupancy levels improved the most in the Monmouth East submarket during the quarter, as iCIMS opened its new 340,000-square-foot headquarters at Bell Works in Holmdel