By Joshua Burd
Office vacancy in northern and central New Jersey saw little change during the third quarter, as slow leasing activity was offset by news that older buildings would soon be repurposed.
In a new market report, Cushman & Wakefield said overall vacancy declined to 17.8 percent from 17.5 percent during Q3. That was despite the slowdown in which leasing activity failed to reach the levels of the previous two quarters, the real estate services firm said, as larger transactions seem to be taking longer to complete than in recent history.
C&W said there were no new leases greater than 100,000 square feet signed during the quarter, while there were five leases exceeding 50,000 square feet, all within Class A buildings. The firm also noted that a handful of larger spaces came online in submarkets such as the Interstate 78 corridor, the Hudson waterfront and Parsippany, contributing to a lack of net absorption.
If anything, the firm said negative absorption was limited by the fact that some office landlords have moved ahead with redevelopment plans for their aging buildings. For instance, in Parsippany, Mack-Cali Realty Corp. has proposed redeveloping buildings on Littleton Road and Campus Drive to make way for apartments and other uses.
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“The New Jersey office market may not revert back to the historic levels of 2015 and 2016 in terms of absorption and demand, but occupancy is anticipated to remain relatively stable going forward as many of the large dispositions are now in the rear-view mirror,” said Andrew Judd, Cushman & Wakefield’s New Jersey market leader. “Potential redevelopments of other obsolete or outdated office product will help the market’s vacancy rate from swelling once again, as we should see demand pick up in some of the key market segments.”
“Overall leasing is expected to improve during the final months of the year.”
According to C&W, some of the largest Q3 leases in northern and central New Jersey included:
- Gibbons PC renewing its 112,000-square-foot lease at 1 Gateway Center in Newark
- Billtrust’s 89,000-square-foot relocation to 1009 Lenox Drive in Lawrence Township
- Hovnanian leasing 60,613 square feet at 90 Old Matawan Road in Old Bridge, moving from its previously owned headquarters building Red Bank
- International Flavors & Fragrances’ 60,000-square-foot relocation into Bell Works in Holmdel
- GS1 reportedly committed to a 50,000-square-foot build-to-suit at 300 Princeton South Corporate Center in Ewing
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Jason Price, Cushman & Wakefield’s tristate suburbs research director, said Bergen County and the Princeton/Route 1 corridor led the way in terms of leasing volume, with each submarket eclipsing 250,000 square feet of new demand during the third quarter. They were among the submarkets to experience quarter-over-quarter improvements in occupancy.
Other regions such as the Hudson waterfront and the I-78 corridor saw vacancy rise because of large dispositions, despite an improvement in deal volume in the former.
Price added that computers and technology firms, life sciences, health care and manufacturing companies all contributed to the Q3 leasing total. The firm also found that a majority of leases completed over 20,000 square feet were within Class A buildings, although a lack of larger deals caused Class A vacancy to tick upward to 19.6 percent from 19.1 percent.
When it came to rents, overall asking rates were at $27.80 per square foot through the end of the third quarter and have risen 5.3 percent over the last year, Price said.
“Since the second quarter, both central and northern New Jersey have experienced further increases, mainly driven by those premium submarkets which are close to mass transit — such as the Waterfront, Metropark, and Newark,” Price said. He added that some of the more prestigious, amenity-rich suburban office buildings are seeing healthy leasing activity and charging a premium over those office buildings that have not been updated or upgraded.
As a result, overall Class A asking rents in New Jersey surged by 6.9 percent since one year ago, Price said, pointing to transit-centric locales as well as Princeton and the Route 10/24 corridor. He also said improving conditions in Monmouth County have pushed the submarket’s average Class A rental rate above $31 per square feet, the first time in recent history the submarket has reached such highs.
