EAST RUTHERFORD, NJ — Office vacancy continued to decline in the third quarter as Cushman & Wakefield reported another healthy quarter for the New Jersey office sector in its third quarter 2015 office market data.

“Tenant demand remains brisk, and our region posted its third straight quarter of positive absorption as the vacancy ticked downward to 19.0 percent – its lowest mark in three years,” says Cushman & Wakefield's Jason Price, research director, tri-state suburbs. “However, market fundamentals varied by submarket. Some set near record-breaking leasing totals while others experienced lulls in demand coupled by notable space sheds.”

New leasing activity has exceeded two million square feet per quarter to date this year, bringing the Northern and Central New Jersey office leasing total to 8.5 million square feet. This represents a 37 percent increase over last year at this time.

“Barring a significant slowdown in demand, the Garden State office market should accrue its highest annual total of deal volume since 2006,” Price says. “The trend of flight to quality continued in recent months, with 74 percent of third-quarter leasing concentrated in class A buildings.”

Pharma and financial services fueled third quarter demand, led by large transactions involving Valeant Pharmaceuticals (310,000 square feet in Bridgewater), JPMorgan Chase (380,000 square feet in Jersey City) and Zoetis Services (126,000 square feet in Parsippany). In total, tenants inked eight transactions in excess of 50,000 square feet during the quarter, almost all of which were concentrated in Parsippany, the I-78 Corridor or the Hudson Waterfront.

“All three submarkets are on pace to finish the year coming close to or exceeding recent historical highs,” Price says. “Conversely, areas that have seen brisk leasing in recent quarters – such as Woodbridge/Edison, Princeton/Route 1, and the Meadowlands –experienced a slowdown in transactional volume during the past three months.”

Price notes that office renewal activity also remained robust in the Northern and Central counties, with substantial third-quarter renewals by tenants such as Fidelity, Novo Nordisk, AT&T, Riker Danzig and MedAssets. In total, nine firms occupying in excess of 50,000 square feet opted to extend their current leases.

The office vacancy rate in Northern New Jersey edged marginally higher during the past three months, to 20.5 percent, as large blocks of space came online in Newark and the Meadowlands. Central New Jersey, driven by the I-78 Corridor's strong leasing performance, saw its vacancy rate fall 0.7 percent to 16.9 percent. Similarly, occupancy gains edged slightly negative in Northern New Jersey while positive Central New Jersey saw positive gains. Year-to-date absorption for the combined regions reached 1.5 million square feet.

Asking rents continue to experience minimal fluctuation in the New Jersey office market, with the average rate remaining flat year over year at $26.31 per square foot. However, as class A space continues to get leased up in areas such as the Hudson Waterfront, I-78 Corridor, Morris County and Metropark, the average class A rate has edged lower in recent quarters. Conversely, class B rents have risen marginally as that market has tightened.

“Despite some challenges, including some older building stock with large vacant blocks, the New Jersey office market should continue to modestly improve over the next few quarters as both the national and state economies trend upward,” Price says. “Demand should remain healthy into the near future, while most of the substantial dispositions are in the rear view mirror for the time being. Meanwhile, some landlords will opt to renovate and upgrade their assets to remain competitive, which should lead to asking rents edging higher in the more prominent submarkets.”