EAST RUTHERFORD, NJ—Leasing activity in the Northern and Central New Jersey office market was down approximately 45 percent in 2017 compared with deal volume recorded in 2016, according to Jones Lang LaSalle. The state registered 7.1 million square feet in transactions in 2017, compared with 12.9 million square feet in deals the year before.
“Much of the demand for office space in 2017 was fueled by smaller leases, rather than the 100,000-square-foot and larger transactions needed to put a significant dent in the office vacancy rate,” says Stephen Jenco, vice president and director of suburban tri-state office research. “Less than five percent of the leases completed in 2017 were larger than 100,000 square feet, compared with 15 percent of transactions during the same period last year.”
Despite the slowdown in leasing, after recording nearly 914,960 square feet of negative net absorption during the first quarter of 2017, absorption turned positive for the next three quarters as tenant requirements edged vacancies generated by consolidations. Approximately 606,500 square feet was absorbed in the Northern and Central New Jersey office market during the fourth quarter of 2017. This activity led to 957,770 square feet being absorbed in the office market during 2017, which nearly doubled the absorption recorded in 2016. The Northern and Central New Jersey overall vacancy rate subsequently declined from 24.5 percent in the third quarter to 24.1 percent at year-end 2017.
Approximately 447,730 square feet of office space was in various phases of development within the Northern and Central New Jersey office market during the fourth quarter of 2017. The largest project underway was the 402,530-square-foot Ironside Newark redevelopment at 110 Edison Place in Newark.
Highlights of the fourth quarter of 2017 include:
- The Northern and Central New Jersey class-A vacancy rate ticked downward from 25.4 percent in the third quarter to 25.1 percent during the fourth quarter, in response to nearly 215,130 square feet of positive net absorption. This represented the third consecutive quarter of positive absorption in the Northern and Central New Jersey office market, as tenants continued to pursue amenity-rich class-A office buildings for their operations.
- After approaching $29.80 per square foot in the third quarter, the Northern and Central New Jersey average asking class-A rental rate for direct space slipped below $29.60 per square foot three months later. However, the class-A rental rate was still 1.4 percent higher from 2016. New availabilities with higher asking rents have been responsible for boosting the average class-A rental rate higher during the past year.
- With an average asking rental rate of nearly $42.60 per square foot in the fourth quarter, the Hudson Waterfront maintained the highest class-A rent in the state. Metropark’s asking rental rate of $35.00 per square foot represented the highest class-A rent in Central New Jersey.
- With nearly 150,350 square feet of negative net absorption, the Route 78 submarket posted the largest volume of negative absorption in the state’s class-A market during the fourth quarter. Contributing to this negative absorption was 105,000 square feet available at 3 Mountainview Road in Warren, NJ. Chubb Insurance formerly occupied most of this building. The Route 78 class-A vacancy rate subsequently climbed from 30.1 percent in the third quarter to more than 31 percent at year-end 2017. Chubb Insurance had been acquired by ACE Limited in early 2016.