PARSIPPANY, NJ-It’s a bear market for office leasing – as Mack-Cali’s move this week to hire other brokerages to market some of its suburban buildings attests – but one positive way to look at it is that lease renewals are on the rise overall in the state.
Cushman & Wakefield’s analysts say there was 3.93 million square feet worth of office lease renewals last year, accounting for 36.2% of total activity. The year before, renewals accounted for only 27.5% of total activity, a year-over-year disparity of 8.7 percentage points.
Since 2010, annual renewal activity has climbed by 26.1%
C & W says new leasing hit a four-year low in 2012 – which was plagued by uncertainty concerning the economy and the presidential election. Slightly less than 700,000 square feet was committed for the year, by the company’s assessment.
“Renewal demand was on the rise as some tenants took advantage of aggressive landlords and avoided the capital cost of switching addresses,” says C & W’s market report.
Other companies moved to downsize or to find space that could be used more efficiently. Some relocated to secure more urban, transit-oriented locations that would appeal to their younger workforces.
Mack-Cali, which has shifted its overall focus to building its multifamily portfolio, is nonetheless under pressure as a publicly traded REIT to improve occupancy rates in its large office portfolio. Sources tell GlobeSt.com that the REIT is the process of enlisting a number of other firms – not just Avison Young – to help fill vacant space in its suburban buildings.
In Parsippany, where the vacancy rate approaches 30%, AY is marketing space at two buildings within Mack-Cali campus huge business campus.
The Hudson River waterfront, where Mack-Cali also owns extensive office property, had a high rate of lease renewals in 2012 according to C & W. Morgan Stanley’s extended its lease of 372,677 square feet at Mack-Cali’s Harborside Plaza II and III.
C & W said renewals in the waterfront submarket, along with Newark and the Morris Route 10/Route 24 corridor, accounted for almost 30% of all lease renewals. In Newark, PSE&G extended its lease of 825,000 square feet.
An average of 128 renewals a year have been signed each year since 2010. The average deal size has risen gradually, climbing from 25,317 sf in 2010 to 30,922 square feet in 2012. On the other hand, there were only six renewals for 100,000 square feet or more last year, down from eight in 2011.
Smaller deals were the bread-and-butter last year: There were 101 transactions for less than 20,000 square feet, for a total of 757,105 square feet. That represented nearly 20% of all leasing activity.