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Cushman & Wakefield: Repurposing Keeps NJ Office Vacancy Rate Stable

Andrew Judd, left, and Jason Price, of Cushman & Wakefield Andrew Judd, left, and Jason Price, of Cushman & Wakefield

EAST RUTHERFORD, NJ—The Northern and Central New Jersey office market experienced a slowdown in overall leasing activity in the third quarter due to a lack of signed leases of 100,000 square feet or greater, while vacancy rates remained stable despite a handful of large spaces coming online, according to Cushman & Wakefield. More office buildings also are slated to be repurposed into apartments, retail, and/or hotels, helping to keep vacancy at bay, as several owners have announced plans to redevelop suburban office properties in a handful of submarkets.

“The New Jersey office market may not revert back to the historic levels of 2015 and 2016 in terms of absorption and demand, but occupancy is anticipated to remain relatively stable going forward as many of the large dispositions are now in the rear-view mirror,” says Andrew Judd, Cushman & Wakefield’s New Jersey market leader. “Potential redevelopments of other obsolete or outdated office product will help the market’s vacancy rate from swelling once again, as we should see demand pick up in some of the key market segments. Overall leasing is expected to improve during the final months of the year.”

Quarterly overall net absorption finished in the red for the third quarter due to some big blocks of space coming online in the I-78 Corridor, Hudson Waterfront, and Parsippany, says Jason Price, Cushman & Wakefield’s research director, Tri-State Suburbs.

As a result, class A vacancy for New Jersey ticked higher by 50 basis points to 19.6 percent. However, due to plans for redevelopments in areas such as Parsippany and the Princeton/Route 1 Corridor, coupled with steady demand in other key market segments, the overall vacancy rate declined 30 bps to 17.8 percent. Compared to one year ago, the state’s overall vacancy rate has fallen by 40 bps.

The slight improvement was also propelled by some mid-sized blocks of spaces withdrawn from the market in a handful of submarkets. Areas such as Newark, Bergen County, Parsippany, Woodbridge/Edison, Monmouth County, and the Princeton/Route 1 Corridor all experienced quarter-over-quarter improvements in occupancy. Conversely, the Waterfront and I-78 Corridor recorded notable vacancy rises since the second quarter, due to the large dispositions.

Leasing activity failed to reach the activity levels of the previous two quarters, as some of the more notable transactions seem to be taking longer to complete than in recent history. With no new leases greater than 100,000 square feet signed this quarter, velocity remained slower. Five leases exceeding 50,000 square feet were inked during the third quarter, all within class A product, as larger tenants continue to be attracted to amenity-rich office buildings.

Bergen County and the Princeton/Route 1 Corridor led the way in terms of leasing volume, each submarket eclipsing 250,000 sf of new demand during the third quarter. Leasing activity in Monmouth County and the Hudson Waterfront improved modestly, as both submarkets each posted just over 110,000 square feet of deal volume. In terms of industries, demand remained diverse in New Jersey this past quarter as computers/technology firms, life sciences, healthcare, and manufacturing companies all contributed to the leasing total. Meanwhile, most of the leases completed over 20,000 square feet were within class A product, although small businesses continued to mainly ink leases in class B buildings.

Some of the largest third quarter leases signed in Northern and Central New Jersey included:

  • Gibbons PC renewing its 112,000-square-foot lease at 1 Gateway Center in Newark
  • Billtrust’s 89,000-square-foot relocation to 1009 Lenox Drive in Lawrence Township
  • K. Hovnanian taking 60,613 square feet at 90 Old Matawan Road in Old Bridge, moving from a building the firm previously owned in Red Bank
  • International Flavors & Fragrances’ 60,000-square-foot relocation into Bell Works in Holmdel
  • GS1 reportedly committing to a 50,000-square-foot build-to-suit at 300 Princeton South Corporate Center in Ewing

“Overall asking rents, now at $27.80 per square foot, have remained on their upwards path, rising 5.3 percent over the last year,” Price says. “Since the second quarter, both Central and Northern New Jersey have experienced further increases, mainly driven by those premium submarkets which are close to mass transit — such as the Waterfront, Metropark, and Newark.” He added that some of the more prestigious, amenity-rich suburban office buildings are seeing healthy leasing activity and charging a premium over those office buildings which have not been updated or upgraded.

As a result, overall class A asking rents in New Jersey surged by 6.9 percent since one year ago, with the Waterfront, Metropark, Newark, Princeton/Route 1 Corridor, and Route 10/24 remaining the priciest submarkets for class A space. Meanwhile, as market conditions have improved dramatically over the last six quarters, Monmouth County’s average class A rental rate has eclipsed $31 per square foot, the first time in recent history this submarket has reached such highs.

 

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