The lobby of 2 Gateway Center in Newark — Courtesy: C&K Properties
By Joshua Burd
New Jersey’s two largest cities started the year with high-profile office deals, but consolidations have caused an uptick in vacant space for the regional leasing market in the state.
That’s according to new first-quarter market reports issued Friday by two real estate services firms, Newmark Grubb Knight Frank and Cushman & Wakefield. Both identified a slowdown in the positive momentum that was felt during 2016 in northern and central New Jersey, thanks to dispositions that outpaced new leasing activity for the quarter.
Newmark Grubb Knight Frank, which tracks availability, said Q1 leasing activity actually improved from the fourth quarter, with larger deals taking place in the state’s urban markets. Those deals included a 160,070-square-foot commitment by Broadridge Financial Solutions at 2 Gateway Center in Newark and a 93,720-square-foot deal by Tory Burch at 499 Washington Blvd. in the Newport section of Jersey City.
But the firm found that availability in the market ticked up to 22.9 percent in the quarter from 22.5 percent at the end of 2016. That was due to negative net absorption of 836,398 square feet.
“After increasing by 30 basis points during the fourth quarter of 2016, availability in (northern) New Jersey moved higher yet again in first quarter 2017,” NGKF Research Manager Mark Russo wrote in the report. “Recent corporate mergers and consolidations ,combined with an ongoing trend of workplace densification, outpaced new leasing activity.”
In a separate report, Cushman & Wakefield said the northern and central New Jersey office market “experienced a slight setback during the first quarter of 2017,” after what was its best year in terms of absorption in recent history. But the firm said the market “remained healthy as a whole to start 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.”
Researchers with C&W pointed to large blocks of space that will loom along the Hudson waterfront and Interstate 78 corridor in the coming months, adding that large dispositions took place along the waterfront, Parsippany, Metropark and the Princeton/Route 1 corridor. Each posted more than 150,000 square feet in negative absorption totals, while Monmouth County also saw a handful of midsized spaces come online.
Cushman & Wakefield also noted that available sublease space now accounts for 13 percent of all space on the market, up from 11 percent at year-end 2016. Spaces were put on the market in Parsippany and Metropark by pharmaceutical company Daiichi Sankyo, which is consolidating to Basking Ridge, and as a result of iCIMS’ move from multiple locations in Monmouth County into the Bell Works campus in Holmdel.
C&W also said Bristol-Myers Squibb is relocating from 400,000 square feet at Scudders Mill Road in Plainsboro as it phases into its newly built 550,000-sqare-foot headquarters on Princeton Pike. Novo Nordisk and Tyco have also placed more than 165,000 square feet and 110,000 square feet on the market for sublease, respectively, also in the Princeton submarket.
The firm, which tracks vacancy, said the overall number ticked up to 18 percent from about 17.4 percent. Still, certain submarkets such as the Meadowlands, Bergen County and the I-78 corridor all recorded slight decreases in overall vacancy.
“While the first quarter leasing total failed to reach the 2 million-square-foot mark for the first time since a year ago, demand was healthy in some of the key market segments,” said Jason Price, Cushman & Wakefield’s tristate suburbs research director. He pointed to more than 600,000 square feet in deal volume, fueld by Unilever’s 320,000-square-foot sale-leaseback in Englewood Cliffs and Jeep Chrysler’s 55,000-square-foot lease in the borough.
Despite the overall decrease in occupied space, both NGKF and Cushman & Wakefield pointed to rent growth in northern and central New Jersey. Russo of NGKF pointed to a continued “slow climb” in asking rents, which he said rose from an average of $27.90 per square foot to $27.95 per square foot during Q1.
Along the Hudson waterfront, which saw a slight rebound from rocky Q4, average asking rents rose to $41.71 per square foot, Russo said. That marks “robust year-over-year rent growth” of 6.8 percent.
Cushman & Wakefield, meantime, pointed to upticks in both Metropark and Princeton/Route 1 that brought average asking rents in both submarkets to around $35 per square foot.
“Despite the addition of large blocks of space, the market remained healthy and asking rents continued to grow,” Judd said, adding that, as a whole, both Class A and B asking rents ticked higher since the end of 2016.