Jones Lang LaSalle’s Jonathan Meisel, managing director, left, and Stephen Jenco, vice president, suburban research
EAST RUTHERFORD, NJ—Despite sluggish leasing velocity and additional vacancies generated by consolidations in the New Jersey office market, the state’s class A rental rate rose 7.2 percent from $27.40 per square foot, according to Jones Lang LaSalle.
The state’s office market posted less than two million square feet in completed transactions in the first quarter of 2017, marking the lowest quarterly volume recorded since mid-2009. The overall office vacancy rate subsequently increased to 24.9 percent compared to 24.5 percent at year-end 2016.
“Most of the recent demand was fueled by smaller-sized leases rather than the 100,000-square-foot plus transactions needed to put a significant dent in the state’s vacancy rate,” says Stephen Jenco, vice president, suburban research with JLL. “However, the diminished leasing volume witnessed in early 2017 is expected to be temporary in nature, as nearly five million square feet of requirements were navigating the state’s office market.”
Banking/financial services firms and information/technology companies inked nearly half of the completed transactions in the Northern and Central New Jersey office market in the first quarter of 2017. The life sciences sector also stepped up to the plate in early 2017, accounting for nearly 30 percent of leasing activity. A leading factor behind this uptick was Bristol-Myers Squibb’s renewal of 201,710 square feet at 100 Nassau Park Boulevard in Princeton, the largest transaction completed in the office market during the first quarter.
The Northern and Central New Jersey class A office market recorded approximately 169,040 square feet of negative net absorption this quarter, a significant improvement from the 932,200 square feet of negative absorption seen during the previous quarter, following a wave of sublease space that overwhelmed the market.
“Most of the demand in the coming months will be focused on the state’s class A sector, which has remained the product of choice for office occupiers for the past several years,” says Jonathan Meisel, managing director with JLL. “Companies are expected to promote class A work environments to help retain staff and recruit new employees. Constrained rental rate growth in most of the state’s submarkets will also encourage companies to pursue space in amenities-rich class A buildings.”
Class A sublease space reached 4.2 million square feet in the first quarter of the year, but still only accounted for 16 percent of available class A space, compared with a high-water mark of 40 percent of available space in 2002.
The state’s office leasing market construction pipeline emptied during the first quarter following the completion of a 45,000-square-foot build-to-suit office building in Morristown for the law firm Fox Rothschild.
Highlights of the first quarter of 2017 include:
- Northern and Central New Jersey’s overall vacancy rate rose to 24.9 percent in the first quarter of the year, representing a 40-basis-point increase from the previous quarter. The state’s overall vacancy rate was 24.7 percent one year ago.
- The Northern and Central New Jersey Class A average asking rental rate for direct space increased less than one percent from the previous quarter to $29.37 per square foot, as new availabilities with higher asking rents continued to boost the average class A rental rate.
- With an average asking rental rate of nearly $42.93 per square foot in the first quarter, the Hudson Waterfront continued to maintain the highest class A rent in the office market. Metropark’s asking rental rate of $35.01 per square foot represented the highest class A rent in Central New Jersey. Both figures represent the highest rents ever recorded for each of the two submarkets.
- While banking/financial services firms initially populated the Hudson Waterfront submarket, other business sectors have continued to establish their footprints in this strategically-located market. In early 2017, Tory Burch leased 93,000 square feet at 499 Washington Boulevard in Jersey City. The fashion designer is relocating several of its business units from Manhattan after receiving a 10-year, $10.7 million Grow New Jersey award this past fall. In addition, L’Oréal USA, which acquired IT Cosmetics last summer, absorbed 60,000 square feet at 111 Town Square Place in Jersey City.
- Since bottoming out at 15.0 percent in mid-2016, the Metropark class A vacancy rate ticked higher and reached 19 percent by early 2017. Despite these increases, this submarket maintained the second lowest class A vacancy rate in Central New Jersey (exceeded only by the 18.2 percent vacancy rate registered in the Lower 287 submarket). The addition of 145,430 square feet at 399 Thornall Street in Edison contributed to the higher Metropark class A vacancy rate in the first quarter. Daiichi Sankyo occupied this space prior to consolidating its operations to Basking Ridge in mid-2016.