By Joshua Burd
After a sleepy first half of the year, New Jersey’s office market woke up in the third quarter.
And it did so in a big way — thanks to a flurry of high-profile leases that reached the finish line.
“It’s a quarter of big deals,” said Jon Meisel, a Parsippany-based broker and managing director with JLL. “I think we had a little bit of a holding period — there was a lot of uncertainty in the markets for most the year — and I think we’re making up for the lost time.”
That has brought more optimism to the market, said Meisel, whose firm released its latest market report on the northern and central New Jersey office sector. Researchers with JLL recorded more than 1.5 million square feet of positive absorption during Q3, with a major boost coming from large tenants that were seeking to upgrade their space.
That surge — fueled by about 3.5 million square feet of leasing velocity — follows two quarters in which the region saw 210,300 square feet of negative absorption, JLL said. But the dramatic reversal has pushed vacancy down to 24 percent, its lowest point since early 2009.
In the process, it was New Jersey’s suburban submarkets that stood out during Q3, most notably the Route 24 submarket. JLL said the area boasted the largest volume of absorption of any submarket it tracks in the region, driven by Allergan’s 431,495-square-foot lease at 5 Giralda Farms.
The facility will be the Dublin-based pharmaceutical company’s new U.S. headquarters, thanks in part to a 10-year, $58.2 million Grow New Jersey that allows it to consolidate its Bridgewater, Jersey City and Parsippany offices. As a result, the Route 24 Class A vacancy rate plunged six percentage points from mid-2016 to less than 26 percent — its lowest level in two years.
“It was the transit-oriented and the urban markets that garnered the headlines during previous quarters, but I think that this quarter shows that the suburban markets are still in play,” said Stephen Jenco, JLL’s director of tristate suburban research. “That was encouraging, because many of the suburban markets were taking a bad rap during past few quarters or so, but I think what we saw in the third quarter was some renewed interest in these markets.”
Experts with JLL cautioned that the positive absorption can be overstated. Meisel said that big tenants in the market may in fact be expanding, but are also consolidating its footprint from several different locations.
In many cases, those different locations still have leases that don’t expire for several years and will ultimately become available for sublease, he said. But those availabilities may not be reflected in market statistics until subsequent quarters.
Still, Q3 brought a welcome boost to New Jersey’s office market.
Along with the success of the suburbs, Jenco said Q3 was also marked by tenants’ continued flight to quality. For instance, of the more than 1.5 million square feet of net absorption recorded during Q3, more than 80 percent of it was in Class A space.
“That’s a continuation of a trend that we’ve seen during the past few quarters — that migration to better-quality space,” Jenco said. “And that really manifested itself in the third quarter.”
JLL also found that, while banking, financial services, pharmaceutical and life sciences firms have historically led the way in office demand, information and technology companies have stepped up recently. They include iCIMS newly signed 350,000-square-foot lease with Somerset Development at the redeveloped Bell Works in Holmdel, along with iconectiv’s recent 115,000-square-foot deal at SJP Properties’ Somerset Corporate Center I in Bridgewater.
JLL’s Q3 market report also included several notes about rental rates in the region:
- The average asking Class A rental rate for direct space was just above $28 per square foot in Q3. The state’s Class A rental rate had inched less than 1 percent higher from one year ago.
- With an average asking Class A rental rate of nearly $38.40 per square foot, the Hudson waterfront maintained the highest rental rate in northern and central New Jersey.
- The Metropark submarket’s $31-per-square-foot Class A rental rate remained the highest rental rate among Central Jersey submarkets.