99 Wood Ave. South in Iselin
By Joshua Burd
Office leasing in New Jersey slowed significantly in the second quarter, with renewals and extensions accounting for most of the activity as tenants navigated the coronavirus crisis.
Those are among the findings of a market report by Newmark Knight Frank, which cited more than 1.6 million square feet of negative net absorption during April, May and June. That came as availability increased by 80 basis points to 22.7 percent and the average asking rent declined slightly, although the report hinted at some reasons for optimism going forward.
“The Northern New Jersey office market experienced a severe disruption during the second quarter of 2020 as closed offices, postponed tours and stalled decision-making precipitated a decline in leasing activity,” NKF researchers wrote. They added: “However, over the past month, tenant activity started to resume coinciding with the phased reopening of New Jersey.”
The report by Mark Russo and Colin Hyde noted that more than 1.3 million square feet of transactions took place during Q2, despite the statewide lockdown, thanks largely to late-stage deals and short-term leases. They include McCarter & English LLP’s 10-year, 117,000-square-foot extension at Four Gateway Center in Newark — the largest lease of the quarter — which was negotiated prior to the public health crisis.
Still, leasing volume declined by 20 percent from the first quarter and is well below the 2 million-square-foot quarterly average seen during 2019, NKF wrote. The firm said renewals and extensions, including many short-term deals, accounted for some 60 percent of Q2 activity.
Among those to renew was Ernst & Young, which recommitted to its 62,000-square-foot space at 99 Wood Ave. South in Iselin.
The market also suffered from several large spaces being listed.
“Sublets accounted for the bulk of the increase, with the total amount of sublet space on the market increasing by 1.1 million square feet, to a total of 7.0 million square feet,” Russo and Hyde wrote. “The increase was felt across the market, with 17 out of 20 submarkets reporting an uptick in availability.”
The Somerset and Interstate 78 submarket was among the hardest hit in that regard, NKF said, pointing to a newly listed 674,000-square-foot sublet at Sanofi’s campus at 55 Corporate Drive in Bridgewater. Also listed was a 65,000-square-foot sublet by United Health at 131 Morristown Road in Basking Ridge, as availability in the submarket rose to 29.2 percent.
The report did highlight some positive signs, including the potential for Manhattan-based companies that are grappling with elevators, dense floorplans and transit dependence to move some of their workers to the suburbs.
“These concerns have generated an interest by some companies in shifting some employees out of the city, and Northern New Jersey has experienced an uptick in inquiries from Manhattan-based firms,” the report said. “To date, these inquiries have yet to lead to major transactions.”
One notable impact, however, was Citibank opting to backfill 300,000 square feet that was previously listed for lease at 480 and 499 Washington Blvd. in Jersey City, NKF wrote. The company is relocating a portion of its workforce from Manhattan.
NKF also noted that companies are planning a gradual return to the office as New Jersey moves into phase two of its reopening.
“As more tenants reboard into their space, real estate activity is expected to resume at a tempered pace,” the report said. “Tenants will likely continue to seek short-term commitments and flexibility over the coming months as the pandemic continues to disrupt daily life.”