PARSIPPANY, NJ—Despite a slight setback in the fourth quarter of 2017, New Jersey’s office market recorded positive net absorption for the fifth consecutive year, according to Transwestern’s Fourth-Quarter 2017 Office Market Report.
Year over year, the market absorbed half a million square feet more than the prior period, with a diverse cross-section of industries leasing space in submarkets throughout the state.
However, at the same time, the fourth quarter was the slowest period for office leasing in New Jersey since the first quarter of 2016. The market failed to accumulate one million square feet of annual net absorption for the first time since the start of the five-year stretch, and it was the second consecutive year in which there was negative net absorption in the final quarter.
“For the past five years, New Jersey’s office market has continued to grow at a steady pace, and with employment at an all-time high in the state’s private sector, we anticipate that trend will continue in 2018,” says Matt McDonough, managing director at Transwestern. “While it may not be among the most rapidly expanding office markets in the country, the slow nature of the growth makes it among the most sustainable.”
After improving to an eight-year low of 14.8 percent during the third quarter, New Jersey’s office vacancy rate increased slightly in the fourth quarter, returning to its second-quarter level of 15 percent. Still, 12 of the state’s 21 submarkets reported lower-than-average vacancy rates.
The largest leases signed during the fourth quarter were mostly renewals, with no transactions greater than 100,000 square feet. Two-thirds of the deals signed were for less than 20,000 square feet, and the activity was spread throughout most of New Jersey’s suburbs, as eight of the 21 submarkets examined experienced more than 100,000 square feet of deal activity.
While smaller tenants are filling gaps throughout the suburbs, blue-chip companies such as Mars Wrigley Confectionary, Ralph Lauren, Quest Diagnostics and Konica Minolta all plan to invest in New Jersey soon, their decisions influenced by the state’s generous Grow New Jersey tax credit program. That creates a positive long-term outlook, Transwestern says.
“The years of growth experienced by New Jersey’s office market have been powered by the state’s diversity in terms of both industry and choice of office locale,” says Matthew Dolly, Transwestern’s New Jersey research director. “While the market was carried by smaller deals in 2017, large tenants are rapidly applying for tax credits as a transitioning state government puts the retention of Grow New Jersey in flux. Industry players are pushing for the continuation of the program to keep businesses from retreating to lower-costs states, though most agree that some modifications are essential.”
Additional highlights of Transwestern’s research include:
- Watchmaker Movado Group with the largest renewal in northern New Jersey, a 90,000-square-foot lease in Paramus
- Altice USA, better known as Cablevision, recording the largest renewal in central New Jersey, remaining in 64,000 square feet in Piscataway
- The growing education sector signed the largest new leases during the fourth quarter, as Kumon North America committed to approximately 57,000 square feet in Ridgefield Park, while Universal Technical Institute signed on for approximately 55,000 square feet in Bloomfield
- Samsung leased approximately 53,000 square feet at Connell Corporate Center in Berkeley Heights
- Occupancy levels improved the most in the Monmouth East submarket during the quarter, as iCIMS opened its new 340,000-square-foot headquarters at Bell Works in Holmdel.
Correction, 1/5/2018 11:21 a.m.: Because of an editing error, an earlier version of this story carried a headline indicating “Record Absorption of NJ Office Space Continues for Fifth Year.” Absorption was positive for the fifth consecutive year, according to Transwestern, but it was not a record.