200 Metro Blvd. at the ON3 campus in Nutley and Clifton — Courtesy: Prism Capital Partners
By Joshua Burd
Office leasing in New Jersey rebounded modestly in the third quarter, even as the pandemic continues to weigh on the market and fuels a sizable uptick in availabilities.
A new report by Newmark Knight Frank found that availability in the region rose to 23.9 percent in the third quarter, its highest level in more than six years, after the market was upended by the COVID-19 outbreak in mid-March. Office space in northern and central New Jersey showed some resiliency from July through September, with leasing volume up 54 percent from the second quarter thanks to more than 2 million square feet of commitments by tenants.
According to NKF, the activity included several long-term deals by large tenants. Leading the way was Eisai Inc., a Japanese pharmaceutical company, which took more than 300,000 square feet at Prism Capital Partners’ ON3 campus in Nutley for the largest office deal of 2020 to date. In Jersey City, insurance giant AIG and Organon, a Merck & Co. spinoff, combined for 339,000 square feet at the 42-story Goldman Sachs tower at 30 Hudson St., while BNP Paribas signed a 150,000-square-foot renewal and extension at 525 Washington Blvd.
The report by Mark Russo and Colin Hyde, NKF’s research manager and analyst in northern New Jersey, respectively, also pointed to Brother International’s 102,000-square-foot renewal at 200 Crossing Blvd. in Bridgewater.
“While a possible second wave of COVID-19 infections and a presidential election give reasons for caution over the next quarter, the recent uptick in leasing over the summer shows a market that is possibly thawing out after the initial impact of the pandemic,” they wrote.
Still, the report was tempered by the fact that year-to-date leasing activity is 14 percent below the level seen during the first three quarters of 2019. What’s more, North Jersey recorded nearly 3.7 million square feet of negative net absorption through Q3, as the Route 46/Wayne region was only submarket to see significant positive absorption during the quarter thanks to the Eisai lease.
Other submarkets are now being saddled with additional availabilities. NKF noted that the single largest new block of space on the market totals nearly 200,000 square feet and is located at 95 Christopher Columbus Drive in Jersey City, consisting of five floors given back by Pershing following its recent renewal. Along with new sublease spaces, this caused availability along the Hudson waterfront to increase by 70 basis points to 20.9 percent.
More than 100,000 square feet also became available at 1 Giralda Farms in Madison, which was previously home to Pfizer, contributing to 267,000 square feet of negative net absorption in the Morristown area during the third quarter of 2020, the report said. In Clark, the owner of 100 Walnut Ave. has listed 90,000 square feet after its previous tenant, DSV Air & Sea, opted to move to 200 Wood Ave. in the Iselin section of Woodbridge.
“Despite an uptick in leasing activity, new significant blocks of space hit the market during the summer, pushing availability up from 23.1 percent to 23.9 percent over the quarter,” Russo and Hyde wrote. “The increase was widespread, with 16 out of 20 submarkets reporting an uptick in availability.”
The research team added that more than 7.2 million square feet of sublet space is now on the market, up from 5.5 million square feet at the end of 2019. In July, a 106,000-square-foot sublet became available with MedAssets at 1 Route 17 South in Saddle River, while Tyco put its 138,000-square-foot space at 250 West Industrial Way in Eatontown on the market for sublease.
NKF noted that capital markets activity has been a bright spot in the state’s office market, pointing to Onyx Equities’ recent purchase of a 10-building portfolio in Morris County from Mack-Cali Realty Corp., as part of a joint venture that will look to reposition the buildings. Meantime, Opal Holdings acquired 194 Wood Ave. South in Iselin from AIG, paying $140 million for the fully leased, 470,000-square-foot building in the Metropark submarket.
The report also said asking rents across northern New Jersey have been relatively stable despite rising availability since the onset of the pandemic. Over the past quarter, asking rents declined slightly from $30.10 to $30.07 per square foot, which is 0.6 percent lower than a year ago.
Repricing is expected but typically takes more time following an economic event, NKF said, although some movement is already occurring along the Hudson waterfront. Average asking rent in the submarket declined 2.7 percent over the past quarter from $45.28 to 44.07 per square foot, with the report noting that waterfront asking rents dropped more dramatically than the rest of the state during the last recession.