RUTHERFORD, NJ — Leasing activity in Northern New Jersey's office market in the third quarter included more than half 1 million square feet of positive absorption and nearly 1.2 million square feet of demand for the year to date, according to the third quarter office research report released by Newmark Grubb Knight Frank.

Despite a popular perception that the summer months are slower than the rest of the year, brisk activity continued across most of the region during the summer months, says Michelle Clifford, research manager for NGKF.

NGKF's research study found that the bulk of the leasing activity in third quarter 2015 was in class a properties, with about 592,000 square feet of positive absorption. Class B and C properties showed negative absorption of more than 75,000 square feet.

The reduced property supply, particularly in trophy assets, is leading to a rise in rental rates, and NGKF says concession packages “are less aggressive than in recent quarters.”

“There are a lot of tenants who are just locking in space, and a majority of the activity was in class A space,” she tells GlobeSt.com exclusively. “The number one submarket that's capturing the tenants is the Hudson waterfront. I think it is kind of creating urgency among tenants in the market.”

In third-quarter 2015, the Hudson Waterfront captured two new significant transactions, as JP Morgan Chase leased 343,805 square feet at 545 Washington Boulevard, and Brown Brothers Harriman leased 114,798 square feet at Harborside Plaza 5. Both firms received Grow NJ funding to encourage the development.

Telecommunications and pharmaceutical tenants are also taking space in the Somerset County market, Clifford says.

In the largest deal of the third quarter, MetLife renewed an existing telecommunications tenant at 1 AT&T Way in Bedminster for 879,315 square feet. In addition, Valeant Pharmaceuticals leased 310,000 square feet at 300 Somerset Corporate Boulevard in Bridgewater, and Verizon subleased 35,662 square feet at 283 King George Road in Warren. These deals follow last quarter's sale leaseback of Verizon Wireless' 1.4 million-square- foot headquarters in Basking Ridge, the largest deal in New Jersey year-to-date.

Space is being taken off the market at a rapid pace, Clifford says.

“There is just not a lot of availabilities anymore, so people are trying to lock in the space before there is less space available,” she says.

“Deals just take longer,” says Timothy Greiner, executive managing director, NGKF. “I think the deals that are closing now started 12 or 15 months ago.”

Increased activity in suburban office properties is largely due to “value pricing,” says Clifford. She says the activity is also mainly confined to tenants already in those submarkets, playing a game of “musical chairs.”

“It's opportunities to develop and build at those value prices,” she says. “A lot of companies are taking advantage of that.”

“I think the suburban assets that are doing well are those that are positioned better than your traditional 1985 class B office building, which are still very much struggling,” says Greiner. “The amount of true class A space that tenants really desire is dwindling.”

Many companies are also reducing the amount of space they take as they trade up into better quality buildings to take advantage of the suburban price differential, but this presents a different challenge, the need to provide adequate parking space, says Greiner.

“Most of these companies are shrinking, they are densifying their footprint, maximizing their efficiencies,” he says. “The problem with the suburbs is, when you do that, you can't park it. So a tenant that goes from 200,000 to 150,000 square feet and still has the same people, they can't park their people.” He notes that recent developments for large companies like MetLife in suburban settings are also including planning for parking decks.

Instant Insights /

NGKF: High-Quality Office Selling Briskly in Northern New Jersey

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