PARSIPPANY, NJ—Leasing activity in the Northern and Central New Jersey office market was robust in the first quarter of 2015, driven by tenant renewals and relocations across submarket borders for Class-A space. However, some of the positive momentum in leasing activity was counterbalanced by the availability rate, which remained flat, with several large sale-leasebacks and corporate consolidations, according to new research from  Colliers International.

“There's a lot of value-add plays going on now, there's a lot of investment money flowing into assets that are well-located, and these investors are repositioning the properties, either for office space or totally redeveloping the property for different uses, it could be industrial, retail, or mixed use,” John Obeid, Colliers' senior director, research, tells GlobeSt.com exclusively.

Major acquisitions this quarter included: 

• CBRE Global Investors' purchase of 250 Pehle Avenue in Saddle Brook from L&L Holding Company and Pearlmark for $75 million, or $147.75/square foot.
• Extended Success' purchase of 400 Plaza Drive in Secaucus from Hartz Mountain Industries for $30 million, or $116.07/square foot.
• Intercontinental Real Estate Corporation's purchase, in a joint venture with Ivy Realty, of Morris Corporate Center IV in Parsippany from MetLife Real Estate Investments for $29.25 million, or $84.73/square foot.

“A good example is 400 Plaza Drive recently sold this quarter, and it's a value-add play, the investor is going to put money in, reposition the property. Another good story in Parsippany is 1515 Route 10. That property sold for about $49 a square foot, which is good news.” A property across Route 10 sold several years ago for $26 a square foot, Obeid says, adding that “investors are starting to see some value in these properties.”

In the first quarter, Colliers reports three million square feet of office leasing in Northern and Central New Jersey, a 30.3 percent increase over the 2.3 million square feet leased in the first quarter of 2014.

The totals would have been even more impressive, but a combination of large space givebacks in the Upper Parkway submarket and the harsh winter endured this quarter counteracted some of the positive momentum. However, activity in the next few quarters is expected to rise as several notable tenants from the technology/telecommunications, pharmaceutical, insurance, and financial services sectors are in the market with requirements in excess of 100,000 square feet.

One new development Obeid is seeing is that tenants are moving between submarkets this quarter, to find class-A office space for expansion.

“In the past, you'd see a lot of tenants staying within the submarket but moving to different buildings,” he says. This trend included the noteworthy relocations of: Langan Engineering to a 71,536-square feet space at 300 Kimball Drive in Parsippany; Arthur J. Gallagher to a 51,210-square feet space at 115 South Jefferson Road in Whippany; and State Street Bank to a 49,000-square feet space at 1255 Broad Street in Clifton. About 89 percent of all office leasing activity this quarter was in class-A properties, which signals the continuation of the flight-to-quality trend in New Jersey as users seek space at recently renovated or newer buildings.

The Northern and Central New Jersey availability rate remained relatively flat quarter-over-quarter, decreasing by only 10 basis points to 21.8 percent, as big blocks of space returned to the market in the Upper Parkway submarket. This market saw its availability rate more than double to 30 percent, up from 14 percent a year ago. New availabilities in the Upper Parkway submarket include 217,524 square feet at 2 Paragon Drive in Montvale, 89,200 square feet at 400 Chestnut Ridge Road in Woodcliff Lake, and 56,939 square feet at 5 Paragon Drive in Montvale. Year-over-year, the availability rate decreased slightly by 30 basis points from 22.1 percent in the first quarter of 2014.

“In the past, we've seen tenants congregate near transit hubs that are immediately accessible by employees and clients, but this quarter we've seen them flock to more suburban submarkets for higher-quality product and ample space for future expansion,” says Kim Brennan, chief operating officer for Colliers International Tri-State. “This comes at a time when many tenants are looking to upgrade their corporate image as the economy and job growth continues to improve.”

About 40 percent of all first quarter office leasing activity was concentrated in the Princeton, Parsippany, and Metropark submarkets. Some of the largest leases included: Solvay's 110,000-square feet relocation to 504 Carnegie Center in Princeton; Securitas' 81,282-square feet relocation to 9 Campus Drive in Parsippany; and Arthur J. Gallagher's 51,210-square feet relocation to 115 South Jefferson Road in Whippany. In addition to these large leases, Dun & Bradstreet consolidated in Short Hills, signing a new, 69,500-square feet lease at 101 JFK Parkway in addition to renewing 123,000 square feet at 103 JFK Parkway.

Correction, 4/14/15, 9:05 a.m.: Due to a transcription error, an earlier version of this story misidentified a property sold in Parsippany several years ago as 1616 Route 10. The correct address is 1515 Route 10.