By Joshua Burd
The state’s office market took a step back in the fourth quarter of 2016, according to new industry research, as leasing activity slowed and several large blocks of space hit the market.
The report, by Newmark Grubb Knight Frank, tracked more than 1.2 million square feet of negative net absorption in northern and central New Jersey during the final three months of the year. The drop in occupied space pushed availability to 22.7 percent, up from 22.5 percent in Q3.
The holiday slowdown marked a reversal from what was a robust summer season.
“While third quarter 2016 saw multiple blockbuster leases over 100,000 square feet, leasing activity during the fourth quarter was slower and dominated by smaller transactions,” Mark Russo, NGKF’s research manager in northern New Jersey, wrote in the market report.
He said Fidessa Corp., an affiliate of a British financial services firm, recorded the largest lease of Q4 with a 78,000-square-foot commitment at 70 Hudson St. in Jersey City. The firm was lured from Lower Manhattan with a 10-year, $30.6 million state tax credit.
Other transactions during the quarter included Connell Foley’s 71,000-square-foot lease at 56 Livingston Ave. in Roseland and Allstate Insurance Co.’s 66,554-square-foot lease at 1130 Route 22 East in Bridgewater.
By comparison, the largest deal of Q3 was Allergan’s 431,495-square-foot commitment at 5 Giralda Farms in Madison, where it will consolidate several locations into a new U.S. headquarters. Russo said that one of those locations, a nearly 223,000-square-foot space at Harborside Plaza 5 in Jersey City, is among the big blocks that were listed and ultimately contributed to the negative net absorption in the fourth quarter.
Other upcoming vacancies in the city include Deutsche Bank’s 213,206 square feet at Harborside Plaza 1 and Broadridge Financial Solutions’ 321,000-square-foot space at 2 Journal Square, according to NGKF. All told, the Hudson waterfront saw 1.3 million square feet of available space hit the market to end the year.
The Princeton submarket may follow a similar path, with Novo Nordisk and Tyco having listed space in Q4 and the potential that Bristol-Myers Squibb will do the same once its new 555,000-square-foot headquarters in Lawrenceville opens.
The five-page report by NGKF noted that “the impact on availability was softened” by the fact that redevelopment projects led several properties to be removed from the inventory.
“The market saw three vacant office buildings get demolished or converted during the fourth quarter, which contributed to the 1.1 million-square-foot reduction in inventory,” Russo wrote. “These types of redevelopment plays, where obsolete buildings in secondary locations are converted to other land uses, are a boost to the office market and are helping to lower availability.”
For instance, developers have razed 1 Lake Street in Upper Saddle River, a 475,000-square-foot complex that has sat empty since Pearson Education relocated to Hoboken in 2015. The demolition has paved the way for the construction of more than 200 luxury townhomes.
In Cranbury, Sudler Cos. recently started the process of tearing down a 500,000-square-foot office building to make way for a two-building industrial complex. The developer is seizing on the demand for new warehouse and distribution space along the New Jersey Turnpike, which is just a mile from the property.
The redevelopment projects were not the only bright spots during the quarter. The market report noted that capital markets activity continued to be strong during Q4, especially in Newark, where the headquarters towers for Public Service Enterprise Group and Panasonic Corp. of North America sold for $174.5 million and $165 million, respectively.
Russo said investors see Newark as a lower-cost alternative to the Hudson waterfront, where rents rose to $41.94 per square foot in Q4. That’s more than $15 higher than average rents in downtown Newark.
NGKF also said that, for all of northern New Jersey, average asking rent was $27.69 to end 2016, up from $26.22 a year earlier.
A copy of the firm’s report can be found by clicking here: