While Class A Office Space Experiences Positive Absorption, Class B Space Dominates Negative Demand
Absorption statistics tell the story of the tremendous gap between Class A and Class B office space in both the Northern and Central New Jersey office markets, according to the fourth quarter Office Market Report published by Cassidy Turley, a leading commercial real estate services provider in the U.S.
In the fourth quarter, Class B space in Northern New Jersey reported 214,676 square feet of negative absorption, representing 98 percent of the negative demand. For all of 2011, Class B space represented 987,460 square of negative net absorption, while Class A space recorded 32,285 square feet of positive absorption.
In Central New Jersey, Class A space accounted for 178,237 square feet of positive absorption, while Class B space reported 322,884 square of negative demand in the fourth quarter. For the year, Class A space captured more than 550,000 square feet of leasing demand and Class B space reported 544,000 square feet of negative absorption.
“We don’t see this scenario changing in the near future and the majority of negative absorption will occur in Class B properties,” said David A. Simon, SIOR, Managing Principal, New Jersey for Cassidy Turley. “Confidence among tenants is improving,however, the persistent ‘flight-to-quality’ trend sends a message to owners of Class B properties that upgrades are required in order to retain and attract tenants.”
Additionally, in the coming year, Cassidy Turley anticipates vacancy and rental rates will begin to stabilize as demand makes a slow return in Northern New Jersey, while vacancy rates will head downward as leasing activity increases and rental rates stabilize in Central Jersey.
In the fourth quarter, the Northern New Jersey office market exhibited 220,107 square feet of negative absorption overall, bringing the vacancy rate to 14.9 percent from 14.8 percent in the third quarter. The average asking rental rate fell by $0.10 over the quarter and by $0.79 year over year, ending the year at $24.70 per square foot.
Standout submarkets were Morristown and the Hudson Waterfront. The Morristown submarket reported more than 66,000 square feet of positive net absorption for a total of over 377,000 square feet for the year. Despite leasing activity slowing in the fourth quarter, the Hudson Waterfront submarket recorded annual net absorption of more than 310,000 square feet.
The Central New Jersey office market posted positive net absorption in 2011 for the first time since 2005. The vacancy rate in the fourth quarter was 16.5 percent, slightly increasing from 16.4 percent in the previous quarter. The average asking rental rate fell by $0.08 over the quarter, but has increased $0.12 year over year, coming in at $23.24 per square foot.
The Woodbridge/Edison submarket exhibited the highest amount of positive absorption at more than 140,000 square feet.
Notable office transactions in the fourth quarter include:
- Realogy, the parent company of real estate firms such as Century 21, ERA, and Coldwell Banker, signed on for 270,000 square feet at the under-construction 175 Park Avenue in Madison. The firm will consolidate from 377,000 square feet at 1 Campus Drive in Parsippany.
- The 750,000-square-foot, fully leased 10 Exchange Place in Jersey City was acquired by the Canadian based global real estate firm Manulife Financial Corp. from Invesco for $285 million or $380 per square foot.
- Also in Jersey City, the 1.061-milliion-square-foot Newport Tower located at 525 Washington Boulevard was acquired by a joint venture between Betnall Kennedy and Multi-Employer Property Trust from Brookfield Asset Management for $377.5 million or $355 per square foot.
Click here to download Cassidy Turley’s New Jersey Office Q4 2011 Market Reports.
About Cassidy Turley
Cassidy Turley is a leading commercial real estate services provider with more than 3,400 professionals in more than 60 offices nationwide. The company represents a wide range of clients—from small businesses to Fortune 500 companies, from local non-profits to major institutions. The firm completed transactions valued at $18 billion in 2010, manages 455 million square feet on behalf of private, institutional and corporate clients and supports more than 25,000 domestic corporate services locations. Cassidy Turley serves owners, investors and occupiers with a full spectrum of integrated commercial real estate services—including capital markets, tenant representation, corporate services, project leasing, property management, project and development services, and research and consulting. In 2010, the firm enhanced its global service delivery outside of North America through its partnership with GVA. Please visit www.cassidyturley.comfor more information about Cassidy Turley.