Heightened Availability Continues to be a Challenge for New Jersey Office Market
SADDLE BROOK, N.J. (December 10, 2012) –The New Jersey office market continued its seesaw performance between positive and negative momentum as aging office space continues to be a drag on the availability rate, according to the 2012 Q3 office market report recently issued by CBRE, New Jersey’s largest commercial real estate brokerage firm.
Overall, the state’s leasing velocity fell in the third quarter, reaching the lowest level since the second quarter of 2009. After two quarters of positive net absorption, the third quarter posted 453,366 sq. ft. of negative net absorption, pushing the state’s availability rate to 21.3%.
“The on-going economic uncertainty has undermined positive momentum in the NJ office market in the third quarter,” said Jeff Hipschman, senior managing director, CBRE New Jersey. “As near term tax policy is addressed, and longer term national economic clarity is established, local employment will strengthen, leading to improved demand in the NJ office market sector. While New Jersey has a significant overhang of available space, increased economic activity will lead to adaptive re-use of antiquated properties, further improving overall market fundamentals.”
According to David Opper, senior vice president, CBRE, this adaptive re-use activity has already started to occur. “Select developers are starting to convert these legacy properties to different uses, such as multifamily residences. Recent examples include plans to convert the 240,000-sq.-ft., 1 Executive Drive, in Fort Lee, to multi-family residences, and the recent announcement of 450 Harmon Meadow Boulevard being converted from office to residential use.We certainly expect this trend will continue and ultimately absorb much of the out-dated space.”
A total of 1.03 million sq. ft. of leasing activity brought the year-to-date leasing velocity to 4.13 million sq. ft. This represents a 21.8% decline from last year. In the third quarter, renewals accounted for 53% of all activity, driven in part by PSE&G’s 825,000-sq.-ft. renewed commitment in Newark. There were only two new lease transactions greater than 50,000 sq. ft.: Hatch Mott MacDonald’s 82,092-sq. ft-lease at 111 Wood Avenue South, in Iselin, and K12, Inc’s 56,322 sq.-ft. deal at 570 Broad Street, in Newark.
Statistically, the Waterfront remains the highest-priced submarket at $33.29 per sq. ft., followed by Palisades at $27.96 per sq. ft. The Parkway Corridor posted the highest leasing velocity in the third quarter with 149,188 sq. ft. of new activity, followed by Western I-80’s 133,630 sq. ft., and Route 287/78 Interchange’s total of 119,041 sq. ft.
Since the financial downturn, a flight-to-quality has been an underlying market trend, however in Q3 this movement slowed. In 2011, Class A leasing accounted for 70.2% of the total activity, but in Q3 of 2012, Class A accounted for only 57% of total leasing.
Declining steadily since 2009, the amount of sublet space is at its lowest level in 12 years. Currently standing at four million sq. ft., it makes up 2.6% of the state’s overall availability. Factors that have affected the amount of sublet space include leasing, withdrawal of space, and expirations.
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.