CBRE REPORT: ‘FLIGHT TO QUALITY’ AND RENEWALS CONTINUE TO IMPACT OFFICE MARKET
SADDLE BROOK, N.J. (FEBRUARY 9, 2012) – Nearly a quarter (23.6 percent) of the year’s leasing velocity was committed to new construction or redevelopment projects.As companies upgrade the quality of their office space, new office availabilities will enter the New Jersey office market in 2012, according to results from CBRE’s Fourth Quarter 2011New Jersey Office MarketView report. Four of the largest transactions completed in the year, which totaled over 900,000 sq. ft., involved new construction. This pre-leasing activity in both the third and fourth quarters pushed the year-end velocity to the highest level in four years.
To further illustrate this “Flight to Quality” trend, the report found that of the 7.26 million sq. ft. of space leased in 2011,72.8 percent occurred in Class A properties, as did 22 of the year’s top 25 transactions. However, renewals still continued to impact the market, with 30.9 percent of the overall activity in the fourth quarter was renewals.
“As tenants leave their current locations to fill these new Class A office assets, naturally the availability rate will rise,” saidJoseph Sarno, executive vice president, CBRE New Jersey. “Tenant demand is just not strong enough yet to absorb that second- or third-generation space, as job creation in both markets is still lukewarm and there is weak rental growth.”
“Landlords who have reinvested in their buildings are reaping the rewards due to this trend,” said Jeremy Neuer, senior vice president, CBRE New Jersey. “Adding amenities such as fitness centers, common conference rooms, renovated cafeterias and lobbies, deliver a better tenant experience. With the compression on rents, tenants are willing to pay more, albeit still in line with the market, to be in better buildings.”
Leasing activity totaled 1,988,855 sq. ft. for the fourth quarter of 2011, which surpassed the five-year quarterly average by 12.1 percent. The submarkets with the highest leasing activity in the fourth quarter included the Waterfront at 429,955 sq. ft., Morristown with 314,033 sq. ft., and Parsippany at 241,655 sq. ft.
Select submarkets, especially those proximate to mass transit such as the Parkway Corridor and the Waterfront, have fewer large Class A blocks available. For example, Metropark began the year with four blocks of available space over 100,000 sq. ft., but by year-end that number had dwindled to just one.
At the end of the fourth quarter, the state’s availability rate remained high at 21.4 percent, with 33.8 million sq. ft. of available office space.This indicator has improved 20 basis pointsover year-end 2010 and 2009. The increase in leasing velocity and renewal activity, however, has not been enough to significantly reduce the amountof available office space on the market.
Historically, the average asking rates in the New Jersey office market have seen little movement. In the past 20 years, the overall average asking rate has fluctuated in an $8.00 range. This quarter, the average asking rate rose $0.01 over last quarter and $0.08 over year-end 2010.
1,988,855 square feet
2,300,128 square feet*
Avg. Asking Rents
$24.20 per sq. ft.
$24.19 per sq. ft.
-500,427 square feet
862,102 square feet
* Figure was revised after the Q3 Office Report was issued.
The top office transactions in the fourth quarter included:
· Realogy Corporation’s 270,000-square-foot new lease at 175 Park Avenue in Madison;
· PNC Bank’s 125,475-square-foot renewal 2 Tower Center Boulevard in East Brunswick;
· Ferring Pharmaceuticals’ acquisition of the 124,425-square-foot 100 Interpace Parkway in Parsippany;
· Dun & Bradstreet Corporation’s 123,000-square-foot renewal at 103 John F. Kennedy Parkway in Short Hills.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2011 revenue). The Company has approximately 34,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our Web site at www.cbre.com.