Cushman & Wakefield: Surge in Demand for N.J. Office Space Continues
EAST RUTHERFORD, N.J., April 2, 2014 - Large blocks of vacant space continue to impact the New Jersey office market; however, that problem is being offset by a strong surge in demand for space. The momentum generated in the fourth quarter of 2013 continued in the first quarter of 2014 and, as a result, the market-wide vacancy rate remains flat at 19.7 percent, according to commercial real estate services firm Cushman & Wakefield.
"First quarter leasing activity in New Jersey exceeded 2.1 million square feet for the second consecutive quarter," said Kimberly Brennan, Cushman & Wakefield's New Jersey Market Leader. "Last year ended on a high note in terms of activity, and we see that trend continuing in 2014. The year-over-year comparisons are encouraging."
The overall vacancy rate does remain stagnant carrying over from 2013, however, and the market recorded a negative total net absorption of 309,504 square feet. Much of that total was concentrated in Hudson, Morris, and Somerset counties.
As far as class A office product, Northern New Jersey saw its vacancy rate actually edge higher by nearly a full percentage point to 24.3 percent despite the brisk activity. More than 460,000 square feet of class A space came online at 5 Giralda Farms in the Route 10/24 submarket in a building that was previously owned and occupied by Pfizer before changing hands recently.
Year-over-year, all of the Northern New Jersey counties with the exception of Bergen County have seen vacancies rise. "Bergen has been the most stable market segment in Northern NJ over the past few years, with steady leasing offsetting most of the notable spaces that have become available," said Brennan.
In Central New Jersey, meanwhile, available class A space recorded a down-tick to 17.8 percent, primarily due to the healthy demand in the Woodbridge/Edison, Princeton, and I-78 Corridor submarkets. Since one year ago, Hunterdon, Middlesex and Monmouth counties have seen overall vacancy dip at the sharpest rate - down 3.1 percent in Hunterdon, 1.8 percent in Middlesex and 15.2 percent in Monmouth.
And the two million square feet of leasing recorded market-wide in Q1 adds up to a 16.3 percent increase year-over-year, with demand strongest in the northern part of the state. Northern New Jersey saw activity eclipse the 1.25 million-square-foot mark for the first time since Q4 2011. Bergen County in general, along with Parsippany in Morris County and the Hudson Waterfront drove Q1 leasing activity, with each market segment reaching quarterly highs not seen throughout 2013.
"The spur in leasing was aided to an extent by the incentives provided by the Economic Opportunity Act of 2013," said Brennan. "The Act has proven to be a powerful statewide business incentive."
Northern New Jersey renewal activity was strong as well in Q1, totaling more than 470,000 square feet. Included in that total were notable renewals inked by Sills Cummis in Newark and LG Electronics in Englewood Cliffs.
Central New Jersey leasing volume, on the other hand, slightly lagged the previous two quarter totals with just more than 880,000 square feet of new leases signed. There was just one transaction of more than 100,000 square feet - Sandoz relocated and expanded to 154,000 square feet at 100 College Road West in Princeton. Smaller transactions - those under 20,000 square feet - drove Q1 leasing activity of Central New Jersey, accounting for more than 61 percent of the total.
Class A direct asking rental rates continued to ascend upward as higher priced spaces came online in both Morris and Hudson counties. The average class A direct rate of $30.52 per square foot was up nearly nine percent year-over-year. The class A direct rate in Northern New Jersey, currently at $30.97 per square foot, climbed by more than $0.50 per foot since the end of 2013. Meanwhile, the class A average in Central New Jersey saw a slight dip to $29.37 as some high-priced availabilities were leased up in the Princeton and I-78 Corridor submarkets.
"On balance, the amount of activity we're seeing is encouraging, and we anticipate that the momentum generated by an improving economy and aggressive state incentive programs will continue through 2014," said Brennan.