New Jersey Office Market Showing signs of Improvement

3Q Leasing Reaches the Two Million-Square-Foot Mark for the First Time since the Beginning of 2012

The office market in Northern and Central New Jersey’s 11 counties began showing signs of a rebound during the third quarter of 2013, according to Cushman & Wakefield’s East Rutherford-based Research Services Team. One positive sign reflecting the potential rebound: Quarterly leasing activity hit the two million-square-foot mark for the first time since the beginning of 2012.

Another sign: Year-to-date new leasing activity has topped 5.7 million square feet, a 13.2% increase over the same period a year ago. Of that total, 2.9 million square feet of activity was posted in the state’s five northern counties, and the six central counties have accounted for 2.8 million square feet.

“Based on the year-to-date numbers, the New Jersey office market is on pace to record its second highest annual total leasing volume in the past five years,” said Kimberly Brennan, senior managing director of Cushman & Wakefield. “Recent job growth has been promising, and that is being reflected in the office market activity that we are seeing.”

Overall vacancy rates have fallen by 0.7 percentage points since the second quarter, to 19.1%. Increased demand coupled with the temporary removal of the former Bell Labs site in Holmdel from the statistics – the property is being redeveloped and repositioned – provide the impetus.

And overall asking rents in New Jersey edged higher during the last three months, fueled by the increased demand. The 11-county average of $25.81 per square foot, a 5.3% increase from one year ago, was propelled by the addition of higher-priced space in such submarkets as the Hudson Waterfront and increased leasing activity in the lower-priced Class B office product sector.

Northern New Jersey: Activity Spreading Through Many Market Segments
Statewide, eight submarkets recorded 100,000 square feet of more leasing activity in the third quarter. In the northern counties, the Morris County Route 10/24 corridor led the way with more than 320,000 square feet. Year-to-date, that market has already doubled the 2012 annual total. And Parsippany posted strong results, with its total of 165,000 square feet being the market’s highest number since the first quarter of 2012.

Despite the positive showing, the region’s overall vacancy rate did trend upward by 2.2 percentage points to 20.1%, with county-by-county statistics showing wide variation. The overall rate at the end of the third quarter in Hudson County was 14.6%, even though space dispositions outpaced new demand. Bergen County’s vacancy rate, meanwhile, was 16.5%; and Essex County’s rate of 18.6% in a stabilizing market with growth in absorption was helped by completion of Panasonic’s new 80%-occupied headquarters in Newark.

On the other end of the spectrum, Passaic and Morris counties registered vacancy rates of 26.5% and 28% respectively at quarter’s end.

The overall leasing activity of nearly 2.9 million square feet region-wide was an 8.5% increase year-over-year. And while quarterly direct absorption showed a year-over-year increase of more than 155,000 square feet, overall year-to-date absorption still lags by more than 917,000 square feet.

That increasing demand has impacted average asking rents for the region, which rose by 4.4% during the third quarter to $26.32 per square foot. Highest average rents are in Hudson County, fueled by the Hudson Waterfront submarket, including Jersey City and Hoboken, coming in at $32.22 per square foot. Bergen, Essex and Morris counties are all in the $25-26 per square foot range, followed by Passaic County at $22.79.

Region-wide, the most active industry sectors for Q3 were healthcare, computer services and technology, and pharmaceutical/life sciences.

Central New Jersey: Renewals and Redevelopment Fuel the Market
Those same sectors dominated activity in Central New Jersey’s six counties as well, with the region seeing overall vacancies fall by 1.3 percentage points to 17.7%. The range of vacancies county-by-county was very diverse at quarter’s end, ranging from just 11.8% in Mercer County, to 12.5% in Union, 13.4% in Monmouth, 17.6% in Hunterdon, 18.9% in Middlesex, up to more than 26% in Somerset.

Central New Jersey’s vacancy rate has been helped by some major redevelopment-related projects, including the sale of the 300,000-square-foot former Alcatel-Lucent building at 480 Red Hill Road in Middletown, Monmouth County, to Memorial Sloan Kettering. And Lam Cloud Computing leased the entire 500,000-square-foot former insurance company headquarters at 1 Continental Drive in Cranbury, owned by the Sudler Companies, for conversion into a data center.

Despite the lingering high vacancy in Middlesex, the county’s Woodbridge/Edison submarket saw its most active quarter in 18 months, 185,000 square feet, with much of that concentrated in the Metropark area. Central New Jersey’s average rental rate of $24.98 per square foot, the highest it has been in recent years, was driven in part by Metropark’s average of $30.50 per square foot at quarter’s end.

The Princeton/Route 1 market in Mercer County, as well, fueled the increase in asking rents with its average of $27.60 per square foot. Overall, county-by-county average asking rents were relatively uniform, ranging from $26.32 in Somerset County to $22.01 in Hunterdon.

The six-county region’s 2.8 million square feet of year-to-date leasing activity reflects a year-over-year increase of 18.5%. Direct third quarter absorption amounted to 362,605 square feet, another positive trend. The overall activity was influenced, as well, by healthy renewal activity during the summer months, with more than 1.1 million square feet of signed renewals recorded. Strong quarterly renewal activity was propelled by URS, 235,000 square feet in Princeton, and AT&T, 275,000 square feet in Piscataway.

“Location in the center of the East Coast remains a highly important factor in office market activity in New Jersey,” said Brennan. “We anticipate, as well, the positive impact of the newly enacted Economic Opportunity Act of 2013 on job growth and corporate locations and relocations within the state. EO13 levels the playing field with competing jurisdictions, providing a new set of incentives as the state’s economy continues to recover.”