EAST RUTHERFORD, NJ—After a setback during the first quarter when large dispositions in some key market segments led to negative absorption, the Northern and Central New Jersey office market stabilized during the second quarter, according to Cushman & Wakefield. While leasing remained below the historic levels of 2015 and 2016, class-A demand rebounded somewhat while vacancy remained flat. Furthermore, asking rents in some key market segments continued to climb, specifically in the Hudson Waterfront.
“As long as the current economic cycle in the state continues and office jobs are created, demand for space should remain steady and even pick up in some key Northern and Central New Jersey submarkets,” says Andrew Judd, Cushman & Wakefield’s New Jersey market leader. “We anticipate that leasing throughout the second half of 2017 will offset some large dispositions on the immediate horizon in the Waterfront, Morris County, Bergen County, and the I-78 Corridor, keeping vacancy in check. However, well-located, upgraded, and amenity-rich class-A assets will likely continue to outperform the market.”
Vacancy remained flat in the second quarter at 18.1 percent compared to the first quarter, and is down minimally (10 basis points) since one year ago, says Jason Price, Cushman & Wakefield’s research director, Tri-State Suburbs.However, he added that the northern portion of the state recorded a quarter-over-quarter increase of 30 basis points to 19.3 percent, due in large part to an influx of available space in Bergen County during the quarter. As a result, the county saw vacancy rise to 19.2 percent, up from 16.9 percent at the close of the first quarter. Conversely, vacant space declined in Central New Jersey throughout the quarter as the rate fell 30 basis point to 16.4 percent. Of the counties in Central New Jersey, all but Middlesex posted positive net absorption for the quarter with Monmouth County leading the way.
In terms of asset class, class-A buildings experienced a 40 basis-point vacancy rate decrease since the first quarter due to the up-tick in demand as tenants continued their flight to quality throughout various submarkets. At 19.1 percent, Northern and Central New Jersey’s class-A vacancy rate is 50 basis point lower than it was one year ago. After the first quarter, in which dispositions easily outpaced new demand, there were more than 335,000 square feet of positive net absorption in the second quarter within class-A assets.
On the submarket level, outside of Bergen County, many major market segments either stabilized or saw improved vacancy rates during the second quarter. In Northern New Jersey, Parsippany, Newark, and Morris Route 10/24 all recorded vacancy rate declines while the Waterfront remained flat at 13.0 percent. Within Central New Jersey, the I-78 Corridor, Woodbridge/Edison, and Monmouth County each saw occupancy improve.
Quarterly demand remained steady in New Jersey with 1.9 million sf leased in the quarter. class-A leasing rose by 30.4 percent compared to the first quarter with 1.1 million square feet of deal volume. Unlike the first quarter, when much of the overall activity was concentrated in Northern New Jersey, the second quarter demand was more focused within Central New Jersey. Overall leasing activity remained diverse as industries such as life sciences, insurance, technology, health & educational services, and financial services all contributed to demand.
Unlike with past quarters, Price explained that only one the second quarter lease surpassed 100,000 square feet, with Newark Public School’s 100,500-square-foot relocation within Newark to 765 Broad Street. Other notable the second quarter Northern and Central New Jersey leasing transactions included:
- Terumo Medical Corp.’s 95,023-square-foot renewal and expansion at 265 Davidson Ave. in Franklin Township
- Guardian Life Insurance’s 90,000-square-foot lease at Bell Works in Holmdel
- S&P Global’s 74,000-square-foot lease at 1 Independence Way in Princeton
- Torre Lazur McCann’s 65,000-square-foot lease at 3 Sylvan Way in Parsippany
- Johnson & Johnson’s 58,443-square-foot lease at 300 Davidson Avenue in Franklin Township
While mid-sized deals fueled leasing during the second quarter, Price noted that the quarter’s largest transaction was Barclays Capital’s 550,000-square-foot three-property portfolio purchase of The Crossings at Jefferson Park. As the existing anchor tenant—and new owner—Barclays expanded by taking 80,000 square feet of vacant space, increasing the financial firm’s presence at the campus to 180,000 square feet.
Asking rents across the board climbed during the second quarter as Northern and Central New Jersey’s direct asking rental rate reached a post-recession high of $27.41 per square-foot, up 3.5 percent vs. a year ago. The rise was mainly within class-A product, where asking rents reached a recent historical high of $31.86 per square-foot, a 2.2 percent increase since the first quarter. While many submarkets recorded nominal increases or declines in asking rents during the quarter, the Hudson Waterfront and Monmouth County posted significant rises in rents. This was due in large part to some landlords of prestigious buildings raising their rents in response to the healthy market conditions.