By Joshua Burd
Leasing volume in New Jersey’s office market has trended downward since last year, but observers are finding reasons to be optimistic heading into the spring.
New market reports from JLL and CBRE highlighted several encouraging signs for the market in the first quarter, despite only about 1.3 million square feet of leasing activity. Those signs included new commitments by existing tenants and positive net absorption, thanks in part to the removal of several obsolete office buildings from the inventory of available space.
“Despite lackluster overall leasing activity during the first quarter of the year, the New Jersey office market did present a number of positive aspects that are providing optimism for the remainder of the year, including several large renewals,” said Ed DaCosta, executive vice president with CBRE. “Another real cause for optimism on the leasing front is in the form of several large deals that we are monitoring and which are on track to close in the second and third quarters of 2018.”
As both reports highlighted, leasing velocity has slowed significantly since Q1 2017, when transactions totaled more than 2 million square feet in northern and central New Jersey. CBRE also found that first-quarter leasing this year was well off the five-year average of 1.74 million square feet.
JLL, meantime, cited a lack of large deals as a factor.
“(Most) of the demand witnessed during the past year was fueled by smaller-sized leases,” JLL wrote in a summary of its findings. “This was evident during the first quarter by the lack of completed transactions larger than 100,000 square feet in size.”
Still, the firm found that the northern and central New Jersey overall office vacancy rate slipped 20 basis points from year-end 2017 to 23.9 percent, which was the first time the vacancy rate had been below 24 percent since early 2009. That was due in part to the removal of 1.7 million square feet from the inventory base from former office buildings that are slated to be razed or converted to alternative uses.
The trend has helped bring down Class B vacancy in markets such as Parsippany, where a developer is slated to demolish two buildings at 1515 Route 10. The removal of the buildings, which total nearly 290,000 square feet, will make way for a new mixed-use project planned by Stanbery Development.
One of the largest transactions also took place in Morris County, where Lonza America expanded and extended for a total of more than 77,000 square feet at 412 Mount Kemble Ave. in Morristown.
JLL also found that average asking Class A rental rate for direct space in northern and central New Jersey climbed 2 percent from year-end 2017, to just above $30.20 per square foot. Most of the increase was attributed to higher rents in the Hudson waterfront submarket, where the average asking Class A rental rate was nearly $44.60 per square foot in early 2018, the highest in the state.