Cushman & Wakefield: N.J. Office Market Ends 2013 on Positive Note
EAST RUTHERFORD, N.J., Jan. 2, 2014 - With its second-highest leasing volume since 2009, the New Jersey office market ended 2013 on a bright note, according to Cushman & Wakefield. The commercial real estate services firm reported stepped-up demand and rising rental rates, despite the region's continued struggle with space absorption.
Tenants leased 2.16 million square feet of space during the fourth quarter. Activity in Central New Jersey outpaced the northern counties, with healthy leasing in the I-78 Corridor, Princeton and Metropark submarkets. The most notable fourth quarter transaction involved a 310,000-square-foot commitment by Valeant Pharmaceuticals at 400 Somerset Corporate Blvd. in Bridgewater. In Princeton, NRG Energy signed a long-term, build-to-suit lease for a 130,000-square-foot Class A office building.
Meanwhile, Northern New Jersey saw a 17 percent quarter-over-quarter leasing slowdown, with just over 965,000 square feet in new transactions. However, the Hudson Waterfront saw demand rise, which is good news following several quarters of underperformance there, according to Kimberly Brennan, Cushman & Wakefield's New Jersey Market Leader.
"Three of the top five fourth-quarter leases in Northern New Jersey occurred on the Waterfront," Brennan said. "While not back to the historical activity levels we had seen, that submarket saw more than 200,000 square feet in activity for the first time since mid-2012." This included leases by Orthodox Union (69,540 square feet) and VF Sportswear (42,643 square feet); both tenants used the new incentives packages signed in late 2013 to finalize their deals.
Demand in neighboring Bergen County remained steady during the fourth quarter as well, finishing the year with just under 1.0 million square feet of new leases. Morris County, which saw a slowdown from the third quarter, finished the year with almost 1.4 million square feet in activity.
The Central and Northern regions also presented a tale of two markets in terms of supply, according to Brennan. "Central New Jersey remained stable in the final months of 2013, while Northern New Jersey saw new available space outpace demand in many market segments," she said.
In Newark, Prudential made more than 460,000 square feet available at 2 and 3 Gateway Center, while Goldman Sachs put more than 300,000 square feet on the market at 30 Hudson Street in Jersey City. The addition of those large blocks helped to drive the Northern New Jersey vacancy rate up by a full percentage point since the end of September, to 21.0 percent. "Newark and the Hudson Waterfront accounted for the majority of the negative absorption in Northern New Jersey during the fourth quarter, although most of the northern counties saw available space rise at some level," Brennan said.
On the other hand, Central New Jersey's vacancy rate was steady, at 17.8 percent. Healthy leasing offset some mid- to large-sized space dispositions, keeping absorption positive. Both the I-78 Corridor and Metropark saw market fundamentals improve during the fourth quarter, as vacancy fell by 1.7 and 1.3 percentage points in those submarkets, respectively.
Stepped up demand, particularly for higher-priced Class A space in Newark and the Hudson Waterfront, pushed statewide direct average asking rental rates up a full $1.00 during the fourth quarter. Asking rents also remained at a premium in healthier submarkets such as Metropark and Princeton.
"At $26.39 per square foot, the state's average asking rental rate for office space is up 6.3 percent year-over-year," Brennan said. "Additionally, the market's impressive fourth quarter leasing pushed the annual leasing total to nearly 7.9 million square feet - a 14.1 percent increase over 2012. It is safe to say that New Jersey's office market is seeing notable momentum heading into 2014. We look forward to a promising year."